Tag Archives: inter vivos

Trusts: a description in layman’s terms (with a twist of Latin) – part 3

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What do Trusts mean to a Property Investor?

Trusts offer solutions for many situations but it does not necessarily mean that it is a solution for all problems. The working of a trust must be fully understood before it is created. It is very important that you get advice from an expert in the field of trusts and that you do not allow anyone (including me) to influence your decision-making.  Also bear in mind that the rules / legislation can change and the discussion in these essays are purely of a general nature.

So let’s get down to it:

  • An Inter Vivos discretionary Trust must be formed
  • Trust must be drawn up in such a manner that the Trustees are also beneficiaries and have the right to appoint anyone else or any other Trust as a beneficiary.
  • This will enable funds to be “distributed” between Trusts and from and to Trustees with tax benefits (under current legislation)
  • It is always a good idea to have two Trusts; one for trading in (where the risk lies) and one for “hoarding” assets which have been paid up. You will then have peace of mind that your worldly goods are safe should anything happen.
  • There is also a tax benefit here should you join the world of ghosts, goblins or eternal life (depending on how you’ve lived of course) as you will not have assets in your estate. These assets will be safely in your Trust and no estate duty will be applicable
  • To make all the above legal, an independent Trustee must be appointed. This Trustee will not have a vested interest in the Trust or be required to provide any sort of suretyship.

So, now we have come to the end of a bit of information regarding Trusts and I hope it helped somewhat and that the mud has cleared from the water a bit.

Look after yourselves and I “Trust” you have a wonderful day.

To part 2…

Trusts: a description in layman’s terms (with a twist of Latin) – part 2

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Last time round we had a very basic look at Trusts and this time I would like to delve a bit deeper into Living Trusts.

Just to get on track again and get the juices flowing:

This is how trusts work

A trust is an agreement between the owner of assets and the trustees of the trust that will manage the assets with the necessary care to the benefit of the trust beneficiaries. It is an effective and flexible way of making sure that the assets remain in safekeeping and are managed objectively and controlled in the beneficiaries’ best interests by the appointed trustees.

Types of beneficiaries

There are basically two types of beneficiaries in a trust. Firstly the Income beneficiaries (those who are entitled to income generated by the trust) and secondly Capital beneficiaries (those who are entitled to the capital assets). It is possible to be an Income beneficiary and a Trust beneficiary at the same time.

Trustees can also be Beneficiaries while serving as Trustees and can have many entitlements depending on the type of Trust that has been set up.

A living trust can take several forms:

  • Family trust
    A trust that comes into being through an agreement between the founder and the trustees. Assets are sold or donated (there could be donation tax implications) to the trust and a loan account (debt) is created. The trust may obtain other assets by an inheritance or purchasing of additional assets.
  • Charitable trust
    A charitable trust may be classified as non-taxable in terms of the Income Tax Act. Capital loans are made to a trust with the trust structured so that it pays no income tax. The trustees can then make donations to charities, schools, and churches, on behalf of the Trust and according to the wishes stipulated. Large donations can be made because there is no income tax applicable.
  • Umbrella trust
    This is a trust linked to a pension, provident, retirement annuity or preservation fund as well as group schemes. The trustees of the fund/scheme obtain additional options to enable them to transfer the death benefits to the trust for management to the benefit of the beneficiaries, in specific cases.
  • Guardian’s trust
    These trusts are created as an alternative for monies due to minors that must, under certain circumstances, be paid into the Guardians’ Fund of the Master of the Supreme Court. This applies to payouts from policies and cash inheritances for which no provision has been made with trusts. This trust is authorised to receive, and to manage to their advantage, any benefits accruing to minors from the Guardian’s Fund.
  • Special trusts
    These types of trusts are taxed at the same rate as a natural person and may only be created to benefit a person suffering from serious mental illness as per the Mental Illness Act, Nr 18 of 1973, or for someone that suffers from serious physical deformity. Testamentary trusts may in certain cases also be classified as a special trust.  These Trusts must benefit any living family member, of whom the youngest turns 21 in a tax year.
  • Discretionary Trusts
    From a Property Investment point of view these are probably the ideal Trusts to have which can assist you to benefit from tax and the safekeeping of your assets.

And just when you thought it was safe to relax…..

From Wikipedia, the free encyclopaedia -  Inter vivos

Inter vivos (Latin, between the living) is a legal term referring to a transfer or gift made during one’s lifetime, as opposed to a testamentary transfer (a gift that takes effect on death).

The term is often used to describe a trust established during one’s lifetime, i.e., an Inter vivos trust as opposed to a Testamentary trust which is established on one’s death, usually as part of a will. An Inter vivos trust is often used synonymously with the more common term Living trust, but an Inter vivos trust, by definition, includes both revocable and irrevocable trust, whereas Living trusts typically refer only to revocable trusts.

Now that we seem to be on the same wavelength I think it’s appropriate to say that we will get into what Trusts could mean to you in Property Investing next time round in Part 3.

Time for my nap – “Trust” you have a wonderful day.

To Part 1… To part 3…

Trusts: a description in layman’s terms (with a twist of Latin)

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Introduction

I trust you are all well. (Excuse the pun). The first time I heard about a Trust, I thought it had something to do with leaving your youngest daughter alone with the neighbor’s teenage son and “trusting” they were only going to watch the Disney channel. When I heard about an Inter Vivos Trust, I was floored and went to the Doctor to have my cholesterol checked.

With this article I will attempt to summarize the different Trust structures and what they are all about and hopefully not confuse you too much.

Trusts are normally created through clauses in a will referring to a Trust which is known as a Testamentary Trust or an agreement in writing between the founder/donor and the first trustees during the founder’s lifetime, known as the Inter Vivos trust. The latter agreement is also known as a Trust Deed. A Trust is controlled by the trustees each having equal voting rights. They make decisions on behalf of the Trust and must always conduct business in accordance with the provisions of the Will and/or Trust Deed and the Trust Property Control Act.

Testamentary trust (mortis causa)

Testamentary trusts are the most common trusts in use. They are suited to the protection of the interest of minors and other dependants who are not able to look after their own affairs. These types of trusts come into being only after the death of the testator and in accordance with the Will.

The trust is administered by trustees appointed in terms of the Will this usually ends after a predetermined period or at a determined event like a minor turning 18 or the death of an income beneficiary.

A testamentary trust may further be both a discretionary or vested trust.

  • Discretionary trust
    The payment of income or capital is subject to the discretion of the Trustees. All non-allocated income is taxable in the hands of the Trust. This type of trust may thus be utilized to save on income tax by splitting income amongst Beneficiaries.( Capital beneficiaries need only be determined at a later stage if required)
  • Vested trust
    The income and capital beneficiaries will already be determined and described. The income would be taxable in the hands of the Income Beneficiary, who could also be the Capital Beneficiary. The Capital Beneficiary thus gets immediate property rights according to the terms of the will or trust act.

Living trust (inter vivos)

Living Trusts are a superb medium for keeping growth assets out of an estate and to limit estate duty, protecting assets from generation to generation. A living or inter vivos trust comes into being during the lifetime of the settlor or founder with the signing and registration of a trust.

A living trust is formed by the founder/settlor who takes the initiative to create a trust and is an arrangement between the founder/settlor and the trustees.

After signature of the Trust Deed, the Trust is registered with the Master of the Supreme Court in whose jurisdiction most of the assets are situated.

The interested parties in a living trust are the beneficiaries or person who, in terms of the trust act, is entitled to the income and/or capital of the trust, the founder/settlor, the trustees and the persons or company appointed to take control over the assets to take responsibility for the administration and management thereof.

A living trust can take several forms and in Part 2 we will discuss these in a bit more detail:

  • Family trust
  • Charitable trust
  • Umbrella trust
  • Guardian’s trust
  • Special trusts

Just a note of caution…. The discussions held in these essays are of a general nature. When you have special needs, it is always advisable to get in touch with reputable Lawyers to cater for specific requirements. Remember you are catering for future generations in your legacy which will be affected if the Trusts are not set up correctly.

Next time round I will be looking at the above in more depth and discussing why Trusts are formed with specific emphasis on property.

“Trust” you have a wonderful day.

…To part 2