The term ‘inter vivos’ means between the living. This trust is set up whilst you are alive, in contrast to a testamentary trust which is set up in a last will and testament, and only comes into being upon death. The ‘terms and conditions’ of a trust are set out in a Trust Deed.
A Trust Deed is a document much like a contract, that sets out the terms upon which a number of trustees are appointed to receive, hold, administer and distribute property for the benefit of defined beneficiaries.
4 parties are involved in a trust
1. Donor and/or Founder - is generally a family relative and starts the trust whilst he is alive;
2. Trustees - they manage the trust and do so within the parameters of the trust deed;
3. Beneficiaries- the persons for whom the trust was created and who benefit from it; and
4. The Master of the High Court – it is the custodian of trusts and its function is to safeguard the beneficiaries’ financial and proprietary rights.
Trust assets do not belong to the beneficiaries for as long as the assets are not distributed to the beneficiaries. The advantage of this is that the assets do not form part of the estate of a person which has a significant impact in:
1. In insolvency proceedings;
2. In divorce proceedings; and
3. In the calculation of estate duty upon the death of a beneficiary.
A further advantage is that a Trust creates continuity of assets, thereby eliminating Capital Gains Tax, which is triggered on the death of an individual. Assets that belong to a trust do not have to be transferred upon the death of an individual because it does not belong to that individual.
A Trust can protect minors and other beneficiaries from themselves and unscrupulous third parties.
1. An individual loses direct control of his assets;
2. It can sometimes be a costly structure to maintain;
3. There is a certain amount of administration required; and
4. Taxation on trusts if not managed properly can be Severe.
A trust is a great estate planning vehicle that is underutilised and still very relevant in today’s day and age. With proper planning and management, a trust can be an effective vehicle to manage the legacy one leaves for the generations to come.
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