When to Create a Trust Fund

A trust is set up by the founder who then surrenders assets to the trust, which is administered by a trustee or trustees to the benefit of the appointed beneficiaries. In setting up a trust fund, you ensure that the powers of the founder are separated from that of the beneficiaries and the trustee/s and to protect the assets within the trust for a variety of reasons as explained below. A trust fund for your children can be an effective tool for protecting income generating assets for your children and to avoid expensive estate duty tax. However, before you set up trust funds for your children, consider the benefits and disadvantages of trusts.  As effective a tool a trust can be, it can also be rather expensive to maintain. The main reasons why the growing trend is to set up trust fund systems can be found in the functions these estate planning tools offer: Protecting the inheritance of minor beneficiaries. Provision for inheritance for a specific child or family member. Minimising estate duty and other taxes such as capital gains tax. Protecting assets against creditors. Protecting the ability of a business to continue trading. Protecting a financially irresponsible beneficiary against reckless spending. Ring fencing of a particular beneficiary in a deceased estate. Experts agree that setting up a trust should always be done as part of the overall estate planning strategy rather than for the sake of having a trust. The living or discretionary trust offers the benefit of being rather flexible regarding changes in the family structure and financial circumstances. The trustee/s can thus administer the trust in...

What makes a trust unique and thus so effective?

Because few of us know what makes a trust unique and thus so effective for estate planning and asset protection purposes, few of us use this great tool.  This article is dedicated to explain this uniqueness. For us to be able to answer our question, we will have to look at how a trust is created.  A trust is created when a person (called the founder or donor) places assets under the control of another person (called the trustee) to be administered separately from the trustee’s own estate for the benefit of beneficiaries. From the above definition, you will see that a trust separates the control and ownership of an asset from the use of it.  This means that you, as a beneficiary, will be allowed by the trust to use the assets in the trust, while the responsibility of ownership does not lie with you.  It is like a company car- the company maintains it, but you are allowed to drive it.  No other entity has the unique ability. To make this distinction clearer, we will illustrate it with two scenarios: Scenario 1: Your assets in a company Let’s say that you personally are a shareholder, holding 50% of the shares in a company.  Will YOU be able to sell, bequeath or donate your 50% shareholding to another person?  The answer to this question will most definitely be YES.  Why?  YOU have ownership and control over the shares.  You do not have to ask anyone’s permission to dispose of it. From an asset protection point of view, if something goes awry, creditors will be able to attach your...

When to Create a Trust Fund

A trust is set up by the founder who then surrenders assets to the trust, which is administered by a trustee or trustees to the benefit of the appointed beneficiaries. In setting up a trust fund, you ensure that the powers of the founder are separated from that of the beneficiaries and the trustee/s and to protect the assets within the trust for a variety of reasons as explained below. A trust fund for your children can be an effective tool for protecting income generating assets for your children and to avoid expensive estate duty tax. However, before you set up trust funds for your children, consider the benefits and disadvantages of trusts.  As effective a tool a trust can be, it can also be rather expensive to maintain. The main reasons why the growing trend is to set up trust fund systems can be found in the functions these estate planning tools offer: Protecting the inheritance of minor beneficiaries. Provision for inheritance for a specific child or family member. Minimising estate duty and other taxes such as capital gains tax. Protecting assets against creditors. Protecting the ability of a business to continue trading. Protecting a financially irresponsible beneficiary against reckless spending. Ring fencing of a particular beneficiary in a deceased estate. Experts agree that setting up a trust should always be done as part of the overall estate planning strategy rather than for the sake of having a trust. The living or discretionary trust offers the benefit of being rather flexible regarding changes in the family structure and financial circumstances. The trustee/s can thus administer the trust in...