Despite pursuing a financial career, chartered accountants seldom obtain proper advice when it comes to managing their own personal finances. This includes dealing with their last will and testament. One of the best ways of protecting any money or assets left behind for your children or other dependants when you pass away is by creating a trust.
A trust is generally created for a specific purpose, the primary goal being the protection of the funds invested into the trust as well as the beneficiaries thereof. There are two types of trust, namely inter-vivos trusts and testamentary trusts. An inter-vivos trust is created between living persons and a testamentary trust derives from a valid will of a deceased.
Trusts are relatively easy to set up and may be used for many purposes. However, one needs to ensure that the trust is being created for the right reasons. It is also important to understand that there is a cost attached to the founding of a trust and that it is subject to minimum accounting and disclosure requirements. As a result, it is better to seek the advice of a financial planner when creating a trust to ensure that it complies with all the legislative requirements and is set up correctly.
There are many benefits to creating a trust:
- A trust can either last in perpetuity, or can be set up for a specific timeframe. An example of the latter is when a beneficiary reaches a specific age. Funds are managed in the trust on behalf of the dependants or children until they attain the age of majority or a specified age.
- A trust prevents the dependant’s funds from being paid into the Master of the High Court’s Guardian’s Fund, where they would have no control over how funds are to be invested.
- A trust can offer financial protection to dependants who might be disabled or have special needs.
- Assets in a trust are protected against risks such as creditors, insolvency, marriage, divorce, or accrual claims.
- Trust funds are managed on behalf of children who may lack financial and legal skills.
- Special trusts for minor heirs and disabled persons have a number of tax benefits.
Why a trust fund?
A trust fund can last indefinitely, offering wealth protection and wealth creation benefits to future generations.
There are numerous examples of situations where a trust fund could have benefited a family or family member. However, many complexities and factors need to be taken into consideration when setting up a trust. In addition, trustees are subject to the Trust Property Control Act, the Master and our courts, as well as common law.
Your financial planner will be able to guide you through the process of determining the need for a trust, as well setting it up.
Author: Tiffany Boesch CA(SA) is group financial director of PPS