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Trusts and Estate Planning

In order to protect its assets from your creditors, your trust needs to be discretionary during your lifetime, but when you die, this is no longer necessary, and other considerations kick in.

Because you built the wealth in a trust, not only did you protect it from your creditors, but you also protected it from the huge bite that SARS would have taken on your death, and from the subsequent bites that SARS would take on the death of each of the following generations. So this won’t happen –

SARSBites

What you want is for the trust income to be used only to help out any members of future generations who are in need. If they’re all OK, then the trustees must use it to continue to build the wealth of the trust like this –

SARSNoBites

How then, do you stop your future trustees, who will almost certainly be beneficiaries as well, from raiding the trust assets for their own perceived “needs”. I believe that the best way is to turn the trust from a discretionary trust into a non-discretionary trust once the estate of the second dying of you and your spouse is wound up. At that point you and your estate will have no remaining creditors. Then, in your Wills, you can ensure that the last dying of you and your spouse can instruct the trustees on how to administer the trust. Typically, they, in their capacity as trustees or as directors of the trust owned companies, would not be allowed to dispose of trust assets, except to replace them with similar income earning assets. Then they would be instructed to employ the trust income (only) in the following manner and in the following order of priority –

  • To maintain the integrity of trust assets
  • To supplement the retirement income of needy beneficiaries
  • To help support sick or disabled beneficiaries
  • To assist with the basic education of beneficiaries
  • To assist with the higher education of beneficiaries
  • To care for the wellbeing of indigent beneficiaries
  • To assist beneficiaries to start their own business enterprises

These priorities would be altered to suit your personal views.

It is important to ensure that your trust deed is amended, if necessary, to permit you and/or your spouse to instruct the trustees on the administration of the trust upon your death, as this is not likely to have been included in the original trust deed.

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