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How your will, trust and estate work together

It is essential to have a will no matter what the size of your assets. Your will guides the distribution of the assets you own at the date of your death.

In contrast, trust assets are separate from your estate assets and are managed by trustees appointed by the Master of the High Court. When you have a trust structure, it is crucial that your will and trust support one another’s outcomes for efficient estate planning in winding up your estate.

A trust is largely unaffected by your death unless you are involved as a trustee. This does not mean that your trust is irrelevant, or that it is not important to keep the trust affairs updated – certain trust assets are relevant to your estate, and proper trust records may be necessary to wind up your estate.

For instance, if you lent a trust money and any balance remains unpaid on your death, the trustees need to repay that loan to your estate since it is an asset in your estate. Conversely, if you borrowed money from a trust, the loan is a liability in your estate and must be repaid. Up-to-date trust financial statements will be necessary to support the asset or liability in your Liquidation and Distribution account submitted by your executor. This is why open conversations and full disclosure to your Retirmeant™ Specialist are crucial for your Estate Plan to ensure no unforeseen expenses or liabilities cause cashflow issues during the winding-up process.

It is best to ensure that trust affairs are kept up-to-date annually to prevent costly delays and stress. This entails preparation of annual financial statements, resolutions authorising actions and distributions taking place in the trust, ensuring that the trust’s provisions are up to date, submitting tax returns and advising the Master of necessary changes relating to the trust.

A trustee’s death resulting in too few trustees as required by the trust’s deed can hamper continuity of trust operations until the minimum number of trustees has been restored. Consider in advance who should be the replacement trustees, and put in place the resolutions to facilitate their appointment at the right time. In one estate we administered, the deceased was the sole trustee. This caused delays in attending to the banking affairs of the trust since no actions could be taken without appointing other trustees first. Delays in this regard can grow up to six months, seriously prejudicing the beneficiaries.

As a check-and-balance, ask yourself: “Do the trustees have enough information to continue running the trust if I am gone?”. If the answer is “no”, then we have some work to do.

Please note that your estate will be wound up concurrently with the trustees continuing their administration of any trust that was already registered when you were alive. In contrast, a testamentary trust is only registered when your executor is appointed to wind up your estate, and the trustees only receive assets to administer at the end of the winding-up process. As there may be times when assets in your estate are tied up, it is good to ask who will pay for your beneficiaries’ expenses before the trust is set up, and to discuss this with your RetiremeantTM Specialist who can guide you to cover gaps which may arise.

If you think that you may need a trust, or want to know more about proper trust administration, you can reach out to your RetiremeantTM Specialist or one of the team members at Chartered Legacy & Trust for more information.