The holistic nature of Estate Planning: Wills and Trusts

Estate planning is a phrase that used to scare me. It made me think of lawyers, abstract terms, and worst of all, my mortality. I’m sure you’ve had similar sentiments. But once you know the basics, it becomes less frightening and quite straightforward. Today I’m going to break down estate planning into simple terms that are easy to understand. Let’s go ahead and dive right into the article!

 

Estate planning refers to the preparation for the management and disposal of your estate should you become incapacitated or pass on. It involves arranging one’s affairs in a manner that enables various participants, that is, the person whose estate is being planned for and his beneficiaries. Many may perceive a last will and testament as estate planning however, this is not correct. A will is a great starting point for estate planning – but it is not the be-all and end-all. Some of the other key components of estate planning relate to trusts as well as asset restructuring and management.

 

There is a common misconception is that estate planning is only reserved for the wealthy, but this is not the case. Since estate planning is recommended for every individual, it is worth noting that estate plans are unique and in accordance with an individual’s lifestyle and personal circumstances. Although estate plans are different, a will is an important document that every person, who is older than 16 years of age with full mental capacity, should have. A will is written by a testator (male), or testatrix (female) and it outlines how such a person’s assets should be distributed, to whom they must be distributed and when such distribution should occur.

 

There are numerous benefits of having a will as, amongst other things, it provides for the speedy distribution of a testator’s assets upon their passing and in a manner intended by the testator. A will is particularly important for persons with a minor child. With regards to minor children, a testator can nominate a guardian who will take care of his minor child should the natural guardian be unable to do so. Furthermore, a testator can direct that his children’s inheritance be put into a testamentary trust, which will be discussed further in this article, and avoid it passing to the Government’s Guardian Fund or the guardian of the minor child.

In addition to the above, a testator nominates an executor of his estate, which is a person who will oversee the process of winding up the estate. The executor may be an attorney, family member or any person trusted by the testator, with the assistance of an attorney, to facilitate the distribution of their assets.

 

As previously mentioned, a testator can ensure that his assets are distributed into a testamentary trust. A testamentary trust is set up in terms of a will and only comes into effect after the passing of the testator, following which the trustees will regulate the distribution of the testator’s assets to his beneficiaries. The termination date of such a trust is usually based on the occurrence of a certain future event, such as when the minor child of the testator reaches a certain age with the consequence of the beneficiary receiving the remaining assets in the trust.

 

Another effective estate planning tool is an inter vivos trust also referred to as a living trust. This type of trust operates similarly to a testamentary trust; however, it is registered while the founder thereof is still alive and can operate beyond the time of his passing. The founder of such a trust can benefit from it during his lifetime as assets in the trust are protected and the right thereto cannot be sold by the beneficiaries. Furthermore, an inter vivos trust can be structured in a way that provides tax efficiency in that income which is distributed is taxed in the hands of the beneficiaries. Lastly, the growth in assets that have been transferred into the trust does not form part of the estate duty of the founder, resulting in further tax benefits at the time of the founder’s passing.

 

Our partners at Nexus Fiduciary Services offer the above-mentioned estate planning services, namely the drafting of wills as well as the registration of both testamentary trusts and inter vivos trusts. Be sure to contact us and get your estate in order!

 

Author:

Dineo Monethi – Non-practicing attorney at Nexus Fiduciary Services

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