In very basic terms, a Trust is an agreement initiated by the Owner of a certain asset or assets, whereby the Owner (who) could be called the Founder) appoints certain other people to look after the asset or assets – which the owner now places into the care of the Trust.
This type is established when a Founder wants to create a Trust as part of their Will. This Trust will not be activated until the Founder’s death. Such Trusts are especially common in the case of the Founder having family maintenance responsibilities.
The Trust would take care of the living dependents who cannot receive an inheritance, i.e. Minor Children. A Trust also safeguards the inherited assets of other dependents from creditors’ claims and takes care of the needs of those dependents when the departed Founder cannot.
During the Founder’s lifetime, the assets in the Truth remain completely under the control of the Founder but, after the Founder dies the Trust is activated and comes into existence.
In the other extreme, an Inter VivosTrust is established between the living and managed by the Trustees for the beneficiary or beneficiaries. This means that the Founder is alive whilst the Inter VivosTrust is being administered by the Trustees but relinquishes direct control over the assets held in the Trust.
There are those occasions where Founders are not willing to relinquish complete control of their assets held in Trust; or where the Trust is being used as a tax shelter. In such cases where Founders or Trustees fail to honour the true nature of the Trust structure, the act of transferring assets to the Trust in an attempt to safeguard said assets is unlawful. Such cases make a mockery of the whole structure of a Trust which is founded to safeguard assets from the claims of creditors and meeting the needs of living dependants. When such illegal actions take place, they can be reversed by Order of a Court of Law and creditors can still lay claim.
There are a number of advantages to placing assets in a Trust for estate planning purposes.
These advantages include:
The careful use of Trusts can also be quite useful in planning for the continuity and stability of both structures and commercial transactions:
Permanence planning can be assisted by holding company shares in a Trust. This move usually ensures business continuity after death, with minimal interruption. By carefully selecting the most appropriate people to be shareholders or directors of your business, and by executing the most appropriate agreements, this could also prevent unnecessary disputes over ownership or sale after your death.
Trusts are also used to safeguard the shareholding of employee share schemes in certain commercial transactions, such as Broad-Based Black Economic Empowerment projects.
Generally speaking, Trusts are not cheap, so only income generating assets are suitable. They are also complex and it is wise to obtain expert legal advice before embarking on such a project.
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