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Lessons from good structures gone bad

Trusts can achieve several estate planning objectives if used appropriately and in the right circumstances. They can be excellent estate planning tools to ensure that your legacy lives on or to offer protection of assets for your family long after you have passed away.

There are notable benefits of Trusts for estate planning, one being the access to funds while a deceased breadwinner’s estate is being wound up, as it may be difficult for dependents to obtain the required maintenance from the estate. However, if the breadwinner founded a Trust during their lifetime, the dependents would have access to a separate source of maintenance that is not affected by the process of winding up the deceased’s estate. A Trust can also help avoid curatorship issues and help individuals who are incapacitated through disease or disability. Trusts provide fortification for the protection of assets against attack, for example, by a business or personal creditors, disgruntled spouses, delinquent heirs and so on. A well-run Trust allows succeeding generations to participate in and benefit from the wealth created in one generation by allowing wealth to be managed and distributed to beneficiaries across generations.

Whether a Trust should form part of your estate plan depends on several factors, including: your net asset value, the nature of your assets, whether you have minor children or special needs dependants, and your succession plans. However, as with any business, Trusts require work and need to be reviewed from time to time and incorporated into your estate planning.

We recently encountered a situation where this was sadly not the case. A family had registered a Trust many years ago and purchased a vacant stand in the name of the Trust using a loan from a beneficiary. The trustees intended to build on the vacant land, but this never happened. Fast forward twenty years, the beneficiary-lender has passed away, there is no money in the Trust to repay the loan, the property was never developed, and the saleable price for the land is now far below the purchase price, with a bond still outstanding!

Effectively, the Trust was ignored for twenty years and was not administered properly. However, the loan to the Trust from the deceased beneficiary is an asset in the deceased estate, so the Trust issues need to be resolved before the deceased estate can be finalised. Unfortunately for the deceased beneficiary’s family, they will bear the brunt of the burden as the estate must bear the costs of appointing new trustees, ensuring the sale of the vacant land, finding money to repay the bond, attending to arrears financial statements of the Trust and deregistering the Trust since it is no longer fit for purpose. All this before the estate may be finalised.

The above real-life example highlights the need for regular reviews of one’s estate planning, where you work closely with your RetiremeantTM Specialist, Trust administrator, fellow trustees and accountant to ensure that your plans for your family’s care, well-being and future are set up to flourish once you have passed away.

Gone are the days of making your succession plans alone – or in secrecy. The more shared information, regular planning reviews and sound advice sought, the more likely your legacy for your family will be to succeed.

Clients can get in touch with Chartered Legacy &Trust to explore whether a Trust might be valuable in their estate planning, and to ensure that their Trust is up to date and being run correctly by means of our trust administration and independent trustee offering.