Setting up a family trust

Last updated on 13th December, 2017 at 10:01 am

A well-planned trust can protect your assets and preserve your wealth – we investigate the steps behind setting up and managing a family trust. A family trust is a living trust (also called an inter vivos trust) that involves three parties – the founder, the trustees and the founder’s beneficiaries. In short, a trust comes into being when an agreement is reached between the founder and the trustees. The founder’s assets are sold to the trust and a loan account (debt) is created. Assets can also be donated to the family trust, but this has donations tax implications. Throughout its existence, the trust can accumulate other assets through purchases or an inheritance.

Managing a trust

The administration of a trust is a complex business – trustees are responsible for controlling trust assets and protecting them through making investments in accordance with the trust deed and the needs of the beneficiaries, explains Zainap Behardien, Manager of Testamentary and Inter Vivos Trusts at Sanlam. Trustees also handle all transactions, including making regular payments to beneficiaries. In terms of the law, trustees are expected to report to:

• Fellow trustees, beneficiaries and guardians of minor children
• The South African Revenue Service (SARS)
• The Master of the High Court (if requested)

“Trustees are also required to give advice to their fellow trustees and the trust’s beneficiaries,” says Behardien. Although trustees may administer a trust themselves, they sometimes outsource some tasks to agents who handle matters on their behalf. The buck, however, stops with all the trustees as far as end decisions and liabilities are concerned.

Benefits of family trusts

• A trust is ideal for estate “pegging” or the freezing of asset values, and people often establish a living trust for estate planning purposes. “This means that once the asset is moved into the trust, either through a loan account or a donation, any future growth of the asset will take place in the trust, so the value of the donor’s estate at his death is significantly less than if the growth had taken place in his estate. This means his estate duty liability will be less,” says Behardien.

• A trust also protects the interests of the surviving spouse and minor children who may have limited skills in financial matters, which means they won’t run the risk of being exploited by unscrupulous investors.

• A trust can continue for future generations, as assets can’t be frozen once the founder of the trust dies – the trust simply continues to function as before.

• The assets in a trust are protected from creditors, as long as the founder was solvent at the time of placing the assets into the trust.

By Liesl Peyper