Trusts – Do I need one?

We often receive the question from our clients: “Do I need a trust?”

Answering this question will depend on the client’s specific need for the trust, his current business and family structure as well as his financial and personal portfolio.

Two types of trusts exist:

• Trust Mortis Causa (testamentary trust), and
• Trust Inter Vivos (contractual trust).

The trust Mortis Causa is set up in terms of the will of a person and thus only comes into effect after their death, whereas the trust Inter Vivos is created during the lifetime of a person by way of a contractual agreement.

An example of where a person would choose to create a trust in terms of a will is where the testator/s (husband and wife for example) requires that their estate, or part of it, be bequeath to their children at their death. Where their children are still minors or have not reached an age of financial maturity, the testator/s rather bequeaths their estate to a trust Mortis Causa to be administered for the benefit of their children until they reach a mature age to take responsibility for their inheritance.

This not only protects the assets against creditors but also ensures that the assets and income that the inheritance generates, are managed in an effective manner to ensure proper and continuous income to the children.

A Trust Inter Vivos can be used in the same way in terms whereof a testator/s can bequeath their estate or part of it to a trust that is already utilized for the benefit of its children (beneficiaries) during their lifetime. The trust will outlive the testator/s and the assets already held in such trust will remain unaffected by the death of the trust founder/trustee (testator).

During your lifetime, having a trust can have many advantages and give you broad options in terms of structuring your personal and business assets. The cost involved in registering a trust is mostly once-off (unless certain changes need to be made from time to time) and apart from normal accounting fees relating to the trust, it is actually a very cost-effective manner to control and manage one’s assets free from imminent risks, ensuring the trustees manage such assets with proper care, diligence and skill as required in terms of Section 9 of the Trust Property Control Act.

The only downfall of a trust one might say is the tax implication as trusts are taxed at a higher rate than most average persons. However, should it be structured and utilized correctly, the tax implication can be reduced substantially and actually create a tax benefit rather than a tax burden.

Should you require assistance in the structuring and registration of a trust, our attorneys and notaries are more than equipped to provide professional advice that suits and protect your best interest.