CLIVE MASANGO*
Most people spend the greater part of their life amassing wealth but tend to avoid conversations about death, yet it is the inevitable way of life. However if one is serious enough about preserving their wealth beyond their own self, they have to be prepared for that which is unavoidable. You simply cannot cheat death regardless of how much wealth you accumulate.
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Ensuring that you have an estate plan is therefore supremely necessary to protect the continued existence of wealth you accumulated beyond your existence. Most people are used to wills as estate planning tools, but this brief write-up introduces family trusts as estate planning tools which can be used during your lifetime and after your own demise.
What is a trust?
A trust comes into being when the person who creates the trust (founder/grantor) hands over the control of an asset which – or proceeds of which – is to be administered by another (trustee) in a fiduciary capacity for the benefit of another person (beneficiary) named by the creator (founder/grantor) of the trust.
It is a legal entity with its own separate and distinct rights, much like a natural person or corporation.
A family trust is a type of trust designed to hold and manage assets for the benefit of one's family members across multiple generations if carefully set up and properly administered.
The assets become entirely separated from the grantor's estate and become the trust's property, which will be used for the purposes that the trust was created for.
An example is where a parent (founder) transfers his farm to a trustee to be administered on behalf of her children. The farm will no longer be part of the founder's estate—it will belong to the said trust.
How can a family trust be utilized as an estate planning tool?
As I introduce family trusts in the context of estate planning, I would prefer to term them "living trusts". This is because whilst someone is still alive, they can effectively set it up and transfer ownership of their assets and control thereof to named trustees by putting them in the trust. So there are three people involved: the founder/grantor, the trustee and the beneficiary.
The founder creates the trust, the trustee is the one who manages/administers the trust on behalf of the beneficiaries and the beneficiaries are the ones who derive a benefit from the trust.
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Once the trust is created, it will exist in perpetuity unless there is a particular clause in the trust that provides for its dissolution. The trust deed clearly outlines how the founder wants assets to be utilized and how beneficiaries are to benefit.
Trustees follow the trust deed to the dot in administering the trust and the trust deed is tailor-made to suit what the founder wants desires, with the guidance of the law of course.
On top of the legal duties trustees are obligated to perform, they are also bound by common law duties of trusteeship. So a family trust ensures that your assets are managed according to your wishes on behalf of your beneficiaries. Inheritance disputes can therefore be avoided.
Who can derive benefits under a Family Trust?
A founder can either be a founder and trustee or founder and beneficiary. This means that a founder during his/her lifetime can still manage the trust or derive benefits therefrom. The founder names the beneficiaries in the trust. These beneficiaries can either be children already in existence or children to be born or a spouse for example. It only confines the beneficiaries to family members since its a family trust.
The naming of beneficiaries is restricted to the founder expressly naming them. This means only the founder can determine who benefits and even grandchildren or other relatives can be included. What is important is for them to be listed as beneficiaries by the founder.
What are the benefits of creating a family trust as an estate planning tool?
1. The first practical benefit is that the founder gets to tailor make and plan how family members benefit from the wealth he/she is creating/has created during his/her lifetime and after his/her death.
2. The family trust is irrevocable such even upon the owners death there is continuation as trustees and beneficiaries are guided by the trust deed.
3. The Founder can pass assets to grandchildren whilst allowing children to potentially access income generated from those assets tax free.
4. It structures and limits beneficiary access to assets or wealth to avoid misuse.
5. The founder does not own the assets he puts in trust hence creditors cannot pursue the founder's liabilities against the trust assets.
6. No estate taxes are paid upon his death as the assets are already in trust.
Conclusion
The major purpose of creating family trusts as an estate planning tool is to protect and manage family assets/businesses for both current and future generations.
It therefore helps one's family avoid the sometimes painful, long and expensive process of probate or estate administration.
*Clive Masango is an attorney, conveyancer, and notary public with Mvhiringi & Associates Legal Practitioners. He writes here in his personal capacity. For comprehensive legal advice, he can be contacted on +263 78 289 6099 or clivemasangoo@gmail.com.
Disclaimer: The information and opinions expressed above are for general information purposes only. They are not intended to constitute legal or other professional advice. For comprehensive legal advice, he can be contacted via the details above.
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