Babys and Beyond Magazine
Health Care in Cape Town

A quarterly magazine for South African parents and parents-to-be.
Baby's and Beyond Magazine informs and educates on family and financial planning, health, nutrition, child care, parenting, pregnancy, development and education.
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In our regular financial feature we look at the importance of trusts and how to save long-term to ensure the financial stability of your family. When considering setting up a trust, it is important to understand what a trust is. In the simplest form, a trust is a contract created by a person (known as the founder), by placing assets under control of another person (known as the trustee), for the benefit of third parties (the beneficiaries). Once a trust has been set up, and assets transferred to the trust, the founder no longer has control of these assets, and the management and control of these assets rest with the trustees. This could lead to the loss of protection that a trust offers, which is discussed below. The powers that the trustees have to administer the trusts are granted to them by the trusts deed. One of the mistakes that people have made in the past is selecting only family members as trustees. The same person can be the founder of a trust, one of the trustees (discussed below) and one of the beneficiaries. The trust is set up with a contract known as a trust deed. The trust deed, together with other documentation, is submitted to the master of the high court for registration. There is generally not a separate trust deed as the will fulfils this purpose. When the person who drafted the will passes away, the will and other documentation is submitted to the master of the high court. Where you have minor beneficiaries, it is essential to set up a testamentary trust in your will. Saving estate duty is often the primary reason people consider setting up a trust. This can provide a degree of continuity to ensure that beneficiaries can continue to receive income and capital payments from the trust after the death of the founder and while the estate is being wound up. There have been several court cases where, after transferring assets to the trust, the founder continued to act as if the trusts did not exist. The courts found that in these circumstances no trust in fact existed and the protection against creditors or a spouse in a divorce was lost. A set of accounts must be kept for the trust and tax returns submitted. There will therefore also be ongoing accounting fees. The fees for running the trust should be considered in light of the benefit hoped to be gained. For instance, if income is paid or vested in a beneficiary in the year it was earned, the beneficiary will pay the tax on that income and not the trust. One should not rush out to set up a trust without considering all the advantages and disadvantages.