During the next few weeks, we will be producing a series aimed at demystifying the “vehicle” known as an inter vivos trust (being a trust created during the lifetime of its Founder, as opposed to trusts mortis causa, being trusts which come into existence upon the death of their creator) and their efficacy in today’s world.
Contrary to popular belief, the creation of an inter vivos trust (which, for the sake of simplicity, will hereafter simply be referred to as a trust/trusts) is not as expensive as you may have been led to believe, nor is trust ‘ownership’ the preserve of the well-heeled. To the contrary, trusts can carry the same comparative advantages to most people irrespective of the depth of their pockets.
There are numerous advantages to registering a trust, not the least of which are the following:
1. The value of any asset, the ownership of which is transferred to the trust is set as at the date upon which the asset is so transferred, and any subsequent increase in the value of that asset is not taken into account for the purposes of calculation of estate duty.
2. Following on from the above, it is evident that any growth in assets which are transferred to the trust becomes the property of the trust.
3. Whilst assets in your personal estate are generally exposed to liability for executor’s fees, transfer duty and property transfer fees, estate duty and other taxes on death, a trust is not liable for these, and a trust does not pay capital gains tax on any asset unless it is sold.
4. A trust will invariably survive you. One advantage is that whilst any assets in your estate are reflectively frozen upon your death, the same does not apply to trust assets, which continue to be available to your dependents subject, however, to the discretion which the trust deed gives to your trustees. Since it can often take several months before letters of executorship are even issued by the Master of the High Court, this can often lead to both frustration and financial difficulty for dependents who are unable to access funds or receive any income in the interim. Self-evidently, the creation of a trust can obviate this difficulty.
5. Importantly, trust assets enjoy protection and, even if a beneficiary of the trust becomes insolvent, the assets in the trust remain protected.
6. Trusts can be flexible, and can be structured in such a way as to offer a very wide discretion to trustees with regard to dealing with trust property, and the provisions of a trust deed may be constructed in such a way that important elements of the trust deed may be amended down the line if its suits the trustees to do so.
In the next of this series, I will turn to deal in greater depth with the full benefits which the registration of a trust can bring, particularly from the perspectives of asset protection and tax saving. I hope that I have kicked this series off by at least dispelling the myth that trusts are only for the rich. To the contrary, the cost of registration of a discretionary trust will very soon be considerably outweighed by the savings benefits and flexibility which a trust can offer. In your own interests, watch this space!