In the Duke Of Hastings We Trust

Now who would have thought that Bridgerton would be offering us financial advice? The Netflix period drama, which served up swoon-worthy scenes to over 82 million households in its first four weeks, owes much of its success to a certain Duke who has even managed to make money matters a little sexy. Remember when the Duke (Regé Jean Page) says he doesn’t want Daphne’s dowry and her brother replies that he’ll invest the money in a trust for her children instead? It turns out that might be a very good idea, indeed…

Trusts have been around for a long time, so it’s not so outlandish the Viscount suggested such a solution. Louise Danielz, Chief Operations Officer at Sanlam Trust, says they’ve evolved in purpose. They were mostly used by rich families to protect dowries and wealth while one travelled. What was progressive was for the trust to be in Daphne’s name – back in the day, being a trustee was a role reserved for men. Interestingly, trust companies originated in the Cape about 180 years ago and the world’s first trust company was The South African Association for the Administration and Settlement of Estates, established in 1834.

If you’re considering following the Viscount’s example and starting a trust, there are some key things to know, according to Louise Danielz, Chief Operations Officer at Sanlam Trust:

Firstly, what kind of trust should you choose?

There are different types of trusts and they each serve a unique purpose.

• The Inter Vivos (IV) or Living Trust is probably the most commonly understood trust because it is set up by the Settlor or Donor during their lifetime, registered with the Master of the High Court, and used primarily as a financial planning tool. A living trust can reduce estate taxes, provide for minor children, and avoid the transference of assets being supervised by the Master of the High Court – this is mostly left up to the trustees to handle. This type of trust may be revocable (the settlor can change it) or irrevocable (the terms cannot be changed without permission from the beneficiary).

• Testamentary trusts are also common. This trust is only created on the death of the founder, in terms of his or her will. These trusts are subject to successfully winding-up the deceased estate and may not be amended after the death of the founder. The nomination of an independent executor and trustee is extremely important.

• Sanlam Trust registered its Guardian Trust with the Master in 2002. It is an umbrella trust, which means it manages the funds of hundreds of vested beneficiaries under one trust deed. This makes setting up the individual sub-trusts relatively easy, with minimum delay. The Guardian Trust receives the proceeds of long-term insurance, which can include endowment and pure risk cover policies. The major benefit of this kind of trust is that beneficiaries’ assets are protected by professionals who always act in the best interests of the minor.

Do you have to be wealthy to consider a trust?

There are a few alternatives when it comes to trusts these days, making them accessible to everyone. Umbrella trust structures, like Sanlam’s Guardian Trust (for minors) or Protector Umbrella Trust (for major beneficiaries), can be particularly affordable options as there is no minimum investment.

While there are no charges for a testamentary trust until it commences, it’s crucial to ensure there is sufficient liquidity (cash or assets that can easily be transferred into cash) in the trust to maintain the assets and cover the costs involved. For example, if you leave a property in the trust, there needs to be enough liquidity for trustees to maintain it.

Are there any pitfalls to be aware of when it comes to trusts?

It may seem relatively simple to set up an IV Trust that complies with statutory law. However, there are several important structures and practices that need to be in place to ensure that a trust is valid and not subject to any challenge. There is also the prospect of capital gains and donations tax to consider.

Tax must always be a primary consideration. For example, one would not lightly transfer a primary residence into an IV Trust because of the Capital Gains Tax abatement. However, that consideration may be outweighed by the need to protect your property from creditors.

Security is a big consideration when it comes to the administration of a trust; you need to appoint at least one independent trustee whom you can trust to do the right thing and who knows what they are doing. If decisions are not backed up by accurate records and signed Trustee Resolutions, this can lead to disputes that may play out in court.

When is a Guardian Trust the right choice?

Danielz concludes, “The Guardian Trust is the right choice when a minor beneficiary will receive the benefits of long-term insurance policies i.e. Endowment (five year investment plans) and pure risk (only provides death cover with no investment element) policies. A trust such as the Sanlam Trust Guardian Trust can be nominated to accept the funds on behalf of a minor beneficiary, irrespective of whether these amounts are relatively small.”

ENDS