The word trust is often used quite loosely and in a variety of contexts. In this article we deal with the correct approach to considering the inclusion of a trust as part of your family’s estate planning. The type of trust discussed is accordingly a typical discretionary trust. In such a trust the trustees are the owners of the trust assets and manage such on behalf of the beneficiaries, and can, in their discretion, decide whether beneficiaries should receive benefits or not. Most family trusts are such discretionary trusts.
But where do I start with the decision of whether a trust or even a further trust should be included in my estate planning? Answer these selfhelp questions and decide for yourself whether you are ready for a trust or not. The first step to good planning is to decide whether a mindshift is not maybe required.
Are you a “control freak”?
If you use a trust in your estate planning structure, you must be prepared to forget about exclusive control of your trust’s assets. A trust within such a structure is an entity where the trustees exercise joint control of the trust assets because they are joint owners thereof. You will thus have to trust your co-trustees. If you want to run the show without co-stars, a trust may not be appropriate for you.
Are you clever and miserly?
The law of trusts is interesting but also complicated. Read literature on trusts and you will quickly notice how easily people burn their fingers because they did not obtain the best advice. You should at least use the services of a knowledgeable and experienced attorney or auditor. Be careful in being so brave as to take shortcuts and save money by doing it yourself. Someone that gropes around in the engine of his new car on Saturdays to save money without the specialist help of a trained mechanic is not really that clever! The same principle applies to trusts. Excellent trust advisors are available but you should be prepared to pay for their services.
Are you impulsive and undisciplined with your estate planning?
A trust must always seamlessly fit into the rest of your long-term plans. This requires discipline and attention to year-in and year-out maintain a proper structure. A trust usually does not work if it is decided on without taking account of the bigger and long-term picture. Also forget the idea that a trust is a magic wand that will magically take care of all your tax problems!
If you answered no to the above three questions, or if you are prepared to make a mindshift, a trust(s) can be useful to you as a part of your future planning and be of benefit to yourself and your people. You can even save money. Think for example of the following:
A trust cannot die. If you or one of your family members who is a beneficiary of a trust, pass away, the trust continues forward in accordance with the basic planning put in place by you, which hopefully was done properly. In this way the family of the deceased can avoid many difficulties such as estate duty tax, executor fees and the administrative burden of a deceased estate. Even if the unfortunate situation should arise that a beneficiary can no longer look after his or her own finances, the need for a curator is avoided as the trustees fulfil this role. Again, proper planning is of seminal importance.
The assets of a trust is protected against risk. If the basic trust planning was properly done and the structure is properly maintained, financial risks (such as unforeseen claims against trustees or beneficiaries) can be managed in such a way that creditors cannot touch the assets of the trust.
Who then requires a trust as part of his estate planning? If you are working hard to build up assets and are concerned about protecting those assets for your successors, then talk to a knowledgeable trust advisor. He or she will analyse your future planning picture and take you on the interesting journey of our trust law.