Collaboration of Wills and Trusts
Trusts as an estate planning tool and the benefit of a testamentary trust
Wills and trusts are both estate planning tools that can be used to ensure that your heirs benefit from your estate. A will bequeaths assets directly, while a trust places a fiduciary responsibility on a third party to manage assets for the benefit of the beneficiaries cited in the trust document. A testamentary (mortis causa) trust, on the other hand, is a trust established by a will, and only comes into force after death. It is possible to draft a will of this nature and, therefore, combine direct inheritance with the benefits of a trust where suitable.
A will is necessary in managing the distribution of your assets after death, while a trust is a structure that has the potential to serve a particular purpose within an estate, either before and/or after death.
1. WHAT ARE THE BENEFITS OF A TRUST IN ESTATE PLANNING
Access to funds
While a deceased breadwinner’s estate is being wound up, it may be difficult for dependants to obtain access to funds. Establishment of a trust prior to death can ensure access to a separate source of maintenance, not effected by the process of winding the estate up.
Avoiding curatorship issues
If a trust has been established within a person’s lifetime and the bulk of the person’s assets have been secured in the trust, then the family’s financial well-being will be secured even when that person is incapacitated and no longer able to manage their own affairs.
Continuity
The benefit of continuity ties in with effective long-term management of your assets in your estate, both before and after death. A trust provides a single platform under which your assets can be managed and ensures your beneficiaries need not be concerned with the delay and acrimony associated with winding up your estate.
Avoiding expenses
Winding up an estate is a costly exercise involving executors fees, capital gains tax, and estate duty. A well established trust falls outside of the founders estate and therefore serves as a means to avoid the expense associated with death.
Protection
Assets are fortified from attacks by creditors when held in a trust, provided the trust has been managed properly and an appropriate independent trustee has been appointed.
Special needs family members
A trust can be specifically established for the benefit of a family member who has special needs, such as mental disabilities and/or physical disabilities which render that person unable to earn enough to maintain their own care or manage their own financial matters.
Wealth preservation
A well established and managed trust allows succeeding generations to participate and benefit from the wealth created in one generation, by allowing wealth to be distributed and managed through generations.
2. WHAT ARE THE BENEFITS OF A TESTEMENTARY TRUST
A testamentary trust can be used to protect and preserve assets bequeathed to minor children, mentally or physically disabled beneficiaries or a surviving spouse.
Unlike a general trust/inter-vivos trust, a testamentary trust only comes into effect after the death of the founder. It is created by drafting the trust terms into your will, terms which will later serve as the trust deed.
The deed itself can be specifically drafted to suit your needs. A correctly drafted trust deed may facilitate holding assets until minor beneficiaries reach a certain age, or continue functioning. The will can be drafted collaboratively with the trust terms, specifying which assets are placed into the trust and which assets should be distributed when winding up the estate.
3. SHOULD THE ASSESSMENT OF DRAFTING A WILL OR TRUST BE A COLLABORATIVE EFFORT
A will is a necessity, even if a trust is already in place. In addition, it is important to view the documents alongside each other. One should always consider the implications the one will have on the other, especially when drafting or updating either a will or a trust document. An established trust will impact estate duty calculations and the ability of a testator to bequeath assets freely. A trust deed which is not drafted to purpose may result in the trust being wound up simultaneously with an estate at death, which may not be the intention of the founder.
If a testamentary trust is not drafted properly, the master will not recognise the establishment of a trust and the intention of the testator, including any specific planning for the needs of family, will be lost.
Wills and trusts, as estate planning tools, are collaborative in a non-direct sense (barring a testamentary trust). They should be considered in conjunction with one another and applied on an estate specific basis.
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ABOUT THE AUTHOR:
Savannah Solomons
Savannah Solomons is an LLB Graduate of the North West University (NWU). She practices in the commercial field and has experience in transactional work such as mergers, acquisitions, joint ventures, due diligence, compliance investigations and reports. She has worked for large corporates as well as multinational companies.
