By Louise Danielz, 2 March 2021
Remember when the Duke (Regé Jean Page) says he doesn’t want Daphne’s dowry and her brother replies that he’ll invest the money in a
trust for her children instead? It turns out that might be a very good idea, indeed…
Trusts have been around for a long time, so it’s not so outlandish that the viscount suggested such a solution. Louise Danielz, Chief Operations Officer at Sanlam Trust, says they’ve evolved in purpose. They were mostly used by rich families to protect dowries and wealth while one travelled. What was progressive was for the trust to be in Daphne’s name – back in the day, being a trustee was a role reserved for men. Interestingly, trust companies originated in the Cape about 180 years ago and the world’s first trust company was The South African Association for the Administration and Settlement of Estates, established in 1834.
If you’re considering following the viscount’s example and starting a trust, there are some key things to know, according to Danielz.
There are different
types of trusts and they each serve a unique purpose.
There are a few alternatives when it comes to trusts these days, making them accessible to everyone. Umbrella trust structures, like Sanlam Trust’s Guardian Trust (for minors) or Protector Umbrella Trust (for major beneficiaries), can be particularly affordable options as there is no minimum investment.
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 trustees to maintain it.
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.
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 whom you can trust 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.
Danielz concludes, “The guardian trust is the right choice when a minor beneficiary will receive the benefits of long-term insurance policies, i.e. endowment (5-year investment plans) and pure risk (only provides death cover with no investment element) policies. A trust such as the Sanlam Trust Guardian Trust can be nominated to accept the funds on behalf of a minor beneficiary, irrespective of whether these amounts are relatively small.”