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Contrary to popular belief, you do not have to be mega-wealthy to consider a trust. If you’ve never considered setting up a trust before – thinking it may be out of your reach – Louise Danielz, Chief Operations Officer at Sanlam Trust, is here to turn that notion on its head.

Like most things, trusts have evolved from what they were a few decades ago. These days there are a few alternatives, making them more accessible to everyone. Umbrella trust structures, like Sanlam’s Guardian Trust (for minors) or Protector Umbrella Trust (for major beneficiaries), can be particularly affordable options as there is no minimum investment.

If you’re considering setting up a trust, there are some key things you should know.

Firstly, what kind of trust should you choose?
There are different types of trusts and they each serve a unique purpose.

  • The inter vivos (IV) or living trust is probably the most common trust. It is set up by the settlor or donor during their lifetime, registered with the Master of the High Court, and used primarily as a financial planning tool. A living trust can reduce estate taxes, provide for minor children, and avoid the transference of assets being supervised by the Master of the High Court (this is mostly left up to the trustees to handle). This type of trust may be revocable (the settlor can change it) or irrevocable (the terms cannot be changed without permission from the beneficiary).
  • Testamentary trusts are also common. This trust is only created on the death of the founder, in terms of his or her will. These trusts are subject to successfully winding-up the deceased’s estate and may not be amended after the death of the founder. The nomination of an independent executor and trustee is extremely important. While there are no charges for a testamentary trust until it commences, it’s crucial to ensure there is sufficient liquidity (cash or assets that can easily be transferred into cash) in the trust to maintain the assets and cover the costs involved. For example, if you leave a property in the trust, there needs to be enough liquidity for the trustees to maintain it.
  • Sanlam Trust registered its guardian trust with the Master in 2002. This umbrella trust manages the funds of hundreds of vested beneficiaries under one trust deed. This makes setting up the individual sub-trusts relatively easy, with minimum delay. The guardian trust receives the proceeds of long-term insurance, which can include endowment and pure risk cover policies. The major benefit of this kind of trust is that beneficiaries’ assets are protected by professionals who always act in the best interests of the minor.

Are there any pitfalls to be aware of when it comes to trusts?

It may seem relatively simple to set up an IV trust that complies with statutory law. However, there are several important structures and practices that need to be in place to ensure that a trust is valid and not subject to any challenge. There is also the prospect of capital gains and donations tax to consider.

“It may seem relatively simple to set up an IV trust that complies with statutory law. However, there are several important structures and practices that need to be in place to ensure that a trust is valid and not subject to any challenge,” says Louise Danielz, Chief Operations Officer at Sanlam Trust.

Tax must always be a primary consideration. For example, one would not lightly transfer a primary residence into an IV trust because of the capital gains tax abatement. However, that consideration may be outweighed by the need to protect your property from creditors.

Security is a big consideration when it comes to the administration of a trust; you need to appoint at least one independent trustee who you can rely on to do the right thing and who knows what they are doing. If decisions are not backed up by accurate records and signed trustee resolutions, this can lead to disputes that may play out in court.

Still have questions regarding setting up a trust? Speak to your financial adviser, or visit our trust page to learn more.



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