Inter Vivos Trust Meaning in South Africa
An inter vivos trust, often known as a “living trust”, is a legal arrangement established during the lifetime of an individual (the trust founder) to manage and protect assets for the benefit of certain beneficiaries. In South Africa, inter vivos trusts are a popular estate planning tool, allowing individuals to secure and control the distribution of assets and wealth in an effective and structured manner.
This article will explore the types, purposes, and costs associated with an inter vivos trusts in South Africa, as well as compare it to similar trust structures.
Types of Inter Vivos Trusts in South Africa: Revocable and Irrevocable Trusts
In South Africa, inter vivos trusts primarily come in two main types: revocable and irrevocable trusts. These options offer varying levels of control, protection, and flexibility, allowing individuals to select a trust structure that aligns with their estate planning needs and long-term objectives.
Revocable Inter-Vivos Trust
A revocable inter vivos trust allows the founder to retain control over the trust assets and terms during their lifetime. With this type of trust, the founder has the flexibility to alter or revoke the trust as circumstances change, providing significant flexibility.
Control: The founder retains the ability to adjust beneficiaries, trustees, and asset distribution if needed.
Asset Ownership: Since assets in a revocable trust remain part of the founder’s estate, they may not offer the same level of protection from creditors as an irrevocable trust.
Tax Implications: Because the trust is revocable, any income generated by the trust assets is typically taxable to the founder.
A revocable inter vivos trust is often chosen by individuals who want control and flexibility in managing their assets but do not necessarily need robust asset protection.
Irrevocable Inter-Vivos Trust
An irrevocable inter vivos trust differs significantly as it cannot be easily altered or revoked once established. When assets are transferred to an irrevocable trust, the founder relinquishes control, which has important legal and financial implications.
Asset Protection: Once assets are placed in an irrevocable trust, they are generally protected from creditors, making it an effective tool for securing assets.
Tax Efficiency: Since the founder no longer owns the assets, they are excluded from their estate, which can reduce estate duty and potential tax obligations.
Control Limitations: The terms of an irrevocable trust are permanent; changes are difficult and may require court approval.
Irrevocable inter vivos trusts are commonly used for long-term asset protection and estate planning, especially for high-net-worth individuals aiming to reduce their taxable estate.
Inter-vivos trusts may also fall under other categories depending on their purpose, such as discretionary trusts, vesting trusts, family trusts, and business trusts. However, each of these types can also be structured as either revocable or irrevocable, adding further customization options based on the founder’s goals.
What is the Purpose of an Inter Vivos Trust in South Africa?
The primary purpose of establishing an inter vivos trust is to manage and protect assets during the founder’s lifetime and after their passing. Key purposes of an inter vivos trust include:
- Asset Protection: By placing assets in a trust, individuals can shield them from potential creditors or legal claims against them, as the assets legally belong to the trust, not the individual.
- Estate Planning: An inter vivos trust can help reduce estate duty (inheritance tax) liabilities, as assets in the trust are not counted as part of the founder’s estate upon their death.
- Financial Support for Beneficiaries: An inter vivos trust allows a founder to support family members or other beneficiaries financially, with controlled distributions made according to the terms set out in the trust deed.
- Flexibility and Control: Through an inter vivos trust, the founder can outline specific instructions on how assets should be managed, ensuring long-term control over their wealth.
What are the Advantages and Disadvantages of an Inter Vivos Trust
Advantages:
- Tax Efficiency: Inter-vivos trusts can reduce estate duty upon death, as assets within the trust are excluded from the founder’s personal estate.
- Asset Protection: Assets held in an inter vivos trust are protected from creditors, offering a safeguard in case of personal financial troubles.
- Control Over Asset Distribution: A founder can specify detailed instructions for trustees on how assets are to be distributed, even after their passing.
- Privacy: Trusts generally offer greater privacy as they are not typically made public like a will, keeping financial matters confidential.
Disadvantages:
- Initial Setup and Maintenance Costs: Establishing, managing and registration costs of trusts involves legal fees, trustee fees, and possibly accounting costs.
- Ongoing Administration Requirements: Trusts require careful record-keeping and annual tax filings, which can be complex and time-consuming.
Loss of Ownership: Once assets are transferred to the trust, the founder loses direct ownership, as they are now controlled by the trustees.
Is an Inter Vivos Trust the Same as a Discretionary Trust?
While an inter vivos trust can be structured as a discretionary trust, they are not exactly the same. An inter vivos trust refers to when a trust is created (i.e., during the founder’s lifetime), whereas a discretionary trust refers to how the assets in the trust are managed and distributed. In a discretionary trust, trustees have discretion over the timing and amount of distributions to beneficiaries, which makes it a flexible option for managing assets over time.
How Much Does an Inter Vivos Trust Cost in South Africa?
The cost of establishing an inter vivos trust in South Africa can vary widely, depending on factors like the complexity of the trust, the type of assets involved, and the service provider used.
Setup Costs: Establishing an inter-vivos trust can cost between R13 000 and R14 000 on average. This may include fees for drafting the trust deed, consultation, and legal advice.
Ongoing Costs: Annual administration fees for trust maintenance, tax filings, and trustee fees can range from R2,000 to R10,000 or more, depending on the trust’s requirements and the fees charged by trustees.
Working with a qualified attorney or financial advisor can help you determine the most suitable structure for your trust and ensure that all legal requirements are met.
In conclusion, an inter-vivos trust in South Africa is a versatile tool for individuals seeking to protect their assets, plan their estate, and provide financial security for loved ones. Although it involves initial and ongoing costs, the benefits of asset protection, tax efficiency, and control over wealth distribution often outweigh these expenses. Consulting with experienced trust attorneys, such as Burger Huyser Attorneys, can provide valuable insights into setting up a trust that aligns with your estate planning goals.
Need More Info on Inter Vivos Trusts? Contact Burger Huyser Attorneys Today
Registering, setting up or opening an inter vivos trust is a complex legal process that requires meticulous preparation of documents and adherence to specific requirements. At Burger Huyser Attorneys, we specialise in guiding clients through the steps of establishing a trust, from determining the most suitable type of trust to drafting a robust trust deed and managing registration requirements with the Master’s Office and SARS. Our team of trust specialists in South Africa provide tailored advice, helping you navigate the costs and benefits associated with different trust options.
If you’d like to investigate your options for creating a trust or want to learn more about inter vivos trust costs in South Africa, contact Burger Huyser Attorneys today. Schedule an appointment with any of our skilled and professional trust lawyers in South Africa or contact us for immediate assistance on the numbers below:
Randburg call 061 516 6878; Roodepoort call 061 516 0091; Sandton call 064 555 3358; Pretoria call 064 548 4838;
Centurion call 061 516 7117; Alberton call
DISCLAIMER: Information provided in this article does not, and is not intended to constitute legal advice. READ MORE
