Time to revisit a trust as part of your estate plan?

Proper estate planning is widely defined as the arrangement, securement, management and disposition of your estate so that you, your family and other beneficiaries may enjoy, and continue to enjoy, the maximum benefits from your estate and your assets during your lifetime and after your death, no matter when death may occur. This is therefore a great deal more than just the retirement planning performed by most financial advisors. What would happen if you died a few months before retirement? You would certainly defeat the whole object of proper estate planning. Proper estate planning involves structuring your estate in such a way that you can benefit from it while you are still alive. You simply need to make sure that your estate is secured at all times, in order to ensure current and future maximum enjoyment.

Estate planning involves the arrangement of your assets so that they can be moved—in the most efficient way possible—to people whom you wish to inherit your assets. It also involves ensuring that no unnecessary taxes and estate duty are payable. 

An estate plan should also be flexible enough to ensure that future adjustments resulting from factors such as changing laws, financial situation and/or family needs can be made. It is wise to review your estate plan every year to cater for any changes, before it is too late. The beginning of the year is a good time to review your estate plan to ensure it is still relevant and in line with your wishes, and to make any amendments for any changes in laws and your personal circumstances.

What should you review?

Review the following, which all form part of your estate plan: Your will, any trust set up for you or your family, your letters of wishes, all your assets and liabilities, “deemed property”, such as your life policies, and liquidity to fund capital gains tax, estate duty and executor’s fees (where applicable). Revise your will if necessary, or if you do not have a will, have it drafted by a professional, who has also reviewed your entire estate plan to ensure it is in line with your wishes and your estate plan. Be careful of service providers with alterior motives who catch you providing a free will. Nothing in life is free. Rather make a greater effort with one of the most important documents you will have in your life. 

Read the trust deed/s properly and ensure that you understand your obligations as a trustee, and also have amendments made if your personal circumstances have changed. Remember, a trust deed is only a contract that can be amended at any time, obviously subject to certain requirements. Trust deeds at all times have to make provision for the latest legislation. A common issue is that many trust deeds were drafted before the introduction of capital gains tax in October 2001. It is important to have these trust deeds reviewed by a professional trust practitioner to make the necessary amendments. If you do not make these amendments, you would typically not be allowed to distribute any capital gain to beneficiaries to achieve a lower capital gains tax rate, compared to taxing it in the trust.

If you have a letters of wishes, ensure that it never prescribes to trustees what they have to do after your death, otherwise it may be used by the South African Revenue Service to indicate that you were the controlling trustee, with resulting negative tax consequences.

It is imperative that your will, the trust deed and letters of wishes be done by the same professional service provider (who understands your estate plan), alternatively the various professional service providers have to ensure that they each understand the related documents to avoid potential conflicts.