12 May TRUSTS & DECEASED ESTATES
A discretionary living trust is often referred to as a will substitute.
Here are some important distinctions to consider:
1. The Discretionary Living Trust
- Assets vested in a discretionary living trust are owned by the trust. Hence, when the founder of the trust dies, the assets in the trust are not affected. That is, they are not subject to the deceased estate winding up process nor related taxes.
- The flow of benefits to the beneficiaries continues uninterrupted when the founder dies. Estate duty on trust assets does not apply.
- The beneficiaries named in the trust may receive benefits from the day the trust is registered by the Master of the High Court, and the nominated trustees have been issued with their Letters of Authority.
- All benefits distributed to beneficiaries are at the discretion of the trustees.
- The benefits are ongoing.
- The remuneration of trustees depends on the arrangement with the founder. Some trustees (like family members) may act without claiming a fee, others (like external professionals or institutions) generally negotiate a fee depending on the scope of the work.
2. Deceased Estates
- Assets that form part of a will are subject to the deceased estates process when the testator/testatrix dies. The process requires the services of an executor, nominated in the will and approved by the Master. The legal steps required to complete the process are complex and time-consuming.
- No flow of benefits to beneficiaries while the estate is being wound up.
- Executor’s fees are payable (currently 3.5% + VAT of the gross value of the estate + 6% on income accrued and collected after death).
- Estate duty is payable on the net value of the estate (an abatement of R3.5 million is allowed). Thereafter, estate duty is applied at 20% of the dutiable value up to R30 000 000, at 25% from R30 000 001.
- The distribution of benefits to the beneficiaries is dependent on the death of the testator/testatrix.
- The benefit is once-off.
- Beneficiaries have the freedom to invest, spend or squander their inheritance as they like. Each option needs to be explored; it all depends on what you want to achieve. Take your thoughts, shape them into objectives and make an appointment to see a respected Trust Specialist. Decisions based on facts, figures and professional advice provide greater peace of mind.