Author: Kerryn Franck

Preserving Your Legacy

It is our goal at Chartered Legacy & Trust to ensure that your wishes, as expressed in your Last Will and Testament, are given effect to after your death.
How best to achieve this depends on your particular family circumstances and who your nominated beneficiaries in your Will are; for example, you may be financially supporting an elderly parent who no longer has the mental capacity to manage her own financial affairs. How do you ensure that the money left to her in your Will is managed correctly and used for the purpose for which you intended?

A way of addressing your concerns in the aforementioned example would be to create a testamentary trust (also referred to as a trust mortis causa). A testamentary trust differs from a discretionary or inter vivos trust in that it is created in your Last Will and Testament, and only comes into effect on your death and only if the circumstances as at the date of your death still require it.

When must I create a Testamentary Trust?

There are various situations that would justify creating a testamentary trust in your Last Will and Testament. Here is a list of some of these circumstances:

1. Your beneficiaries are your minor children or grandchildren

In terms of South African law, beneficiaries under the age of 18 years are not able to inherit in their personal capacity. The law requires that their inheritance be paid into the Guardian’s Fund which is under the control of the Master of the High Court. The funds are available to the minor but application must be made to the Master of the High Court and the use of the funds is at his discretion.

As an alternative, you can make provision in your Will for any inheritance due to a minor to be paid into a testamentary trust created and set up in terms of your Will. Minor beneficiaries still have access to the money, but at the discretion of your nominated trustees and under their control. The monies remain in trust until the beneficiary reaches an age predetermined by you or at the trustees’ discretion, at which point their inheritance can be transferred into their names.

This is of particular relevance where parents of young children die simultaneously in an accident. Their estates can then be paid into a testamentary trust setup in terms of their Will which is then managed by the nominated trustees for the benefit and maintenance for the surviving children.

2. Your beneficiary is a disabled or dependent child or family member

If you have a child or a family member who:

  • has a physical and/or mental disability; and/or
  • is financially dependent on you; and/or
  • is incapable of managing their own affairs

A testamentary trust can be set up on your death to provide for such a person until their death or a date specified by you. The trustees of your testamentary trust will step into your shoes and ensure that your beneficiary is taken care of and looked after in the way you would have looked after them yourself.

Your children/beneficiary may be majors, but lack the necessary maturity or experience to take responsibility of their inheritance. They may not be financially savvy, declared insolvent or there may be a spouse whom you feel is a negative financial influence over your nominated beneficiary. Payment of their inheritance into a testamentary trust protects the inheritance until the beneficiary is in a better position to manage their own affairs.

A testamentary trust set up for minors or persons with a mental disability can be registered with SARS as a special trust and taxed as an individual provided they are the sole beneficiaries of the trust during their lifetime.

3. You want to benefit from Section 4A – Estate Duty Abatement

As a way of reducing the amount of estate duty payable on the death of the surviving spouse, on the death of the first dying spouse, the estate duty abatement (currently R3 500 000) can be bequeathed to a testamentary trust. The beneficiaries of the testamentary trust will be your surviving spouse and descendants, and they will have discretionary access to the funds for their maintenance. The benefit of this is that the money grows in the testamentary trust and not in the hands of the surviving spouse, where the growth may attract estate duty on the death of the surviving spouse.

Basic Structure and Formalities

So how do you go about setting up a testamentary trust?

The basic structure and formalities applicable to a Last Will and Testament will still apply when you creating a testamentary trust in your Will. However, your Will becomes more lengthy as it must include all the relevant trust provisions necessary for the creation of a trust. The trustees derive their powers from the trust deed therefore there must be sufficient detail in the Will.

When it comes to creating a testamentary trust:

  • Your intention must be clear that you would like to create a testamentary trust and the provisions of this testamentary trust must be listed in your last will and testament;
  • The reason and goal of the testamentary trust must be clear;
  • Beneficiaries must be named specifically;
  • The assets must be identified, which are to be subject to the control of the trustees of your testamentary trust;
  • Trustees of the testamentary trust must be listed;
  • Termination of the testamentary trust must be determined or determinable;
  • Beneficiaries to inherit the capital of the trust must be named in order for the assets to be paid to them on the date of termination of the testamentary trust.

There are costs involved in the setting up and the running of a testamentary trust just as there are in the case of an inter vivos trust. This must be kept in mind when considering whether the amount to be paid into the testamentary is sufficient to cover the costs. A further caveat is that as a testamentary trust forms part of your last Will and Testament is cannot be amended.

Finally …

While we may find considering our own mortality either morbid or macabre, the proper planning can save our beneficiaries so much strife and so many difficulties. Having an objective and expert partner is invaluable in creating a practical and accurate way of ensuring your loved ones are cared for once you are no longer around.

Eight tips to avoid anguish when winding up an estate

Three years ago, Chartered client, Karen lost her husband, Peter, to cancer – a life-shattering event after fourteen years of marriage. Three years of difficulties ensued while Peter’s estate was being wound up. Karen says, “I want to pass on to Chartered clients the lessons I learned, so that they will be better prepared than I was.” “It was an unbelievably difficult time for me. We were both previously married and divorced, and in Peter, I had found my ultimate soul-mate. His disease was rapidly progressive and totally devastating. He was just 59 when he was diagnosed.”

To help clients avoid experiencing the same difficulties, Karen shares practical advice in EIGHT tips. Regularly reviewing and, if necessary, revising the contents of your Will ensures that it always accurately reflects your intentions. We had a joint will in which our assets were left to each other. Everything seemed fine until we discovered that the Will no longer reflected our wishes.

We then consulted with Chartered Legacy and Trust to ensure that our Wills were valid and that no legal flaws hindered the winding up process of Peter’s estate. My tip is to get proper legal advice from a recognised expert, as I did with Chartered, before finalising your will. Get guidance when it comes to tricky assets like trusts, business shareholdings and assets held offshore. A proper, legal Will is only the start. In our case, Peter kept things quite close to his chest. He was the money-person in the family; there were so many things that I did not understand or even know about. The rule for husbands (particularly): be totally open with your wives. Take them through the investments, policies, assets; every area must be explained. And do it long before you start having medical issues – with Peter, once he was sick, he was both unable and unwilling to discuss these matters. Winding up an estate is technically complex, frustrating and lengthy, if it has not already been properly set up.

Appoint a competent company as the agent to support you as the executor. But be warned, you will still spend hours signing forms and hunting for documents. It is a long, tedious process. Answer this question: if your spouse died yesterday and all his/her assets were frozen for up to three years, would you have enough cash to live on? Enough said. “I believe that the surviving spouse should wait a while before making important changes like selling the house or moving across the country. In an emotional state, important decisions can easily be wrong. Take your time to recover.” “Peter was young, we were looking forward to a long retirement. He had so many hobbies, things he wanted to do. I know this sounds trite, but I urge people to enjoy their lives today, savour their relationships now. For us, the cancer was a sudden end to our dreams. A key part of this preparation process is also to have a belief system in place. We all die, we just don’t know when.” Tip four: Cash flow Tip five: Don’t rush Tip six: Be prepared (Karen and Peter are pseudonyms to preserve our client’s identity.)

Connect with Chartered

Telephone: +27 11 502 2800
Fax: +27 11 502 2812

Email: info@charteredwealth.co.za

Chartered Wealth Solutions is an authorised financial services provider

Chartered House, 2 North Road, Dunkeld West, Johannesburg