Is it beneficial to set up a trust for estate planning purposes?

Is it beneficial to set up a trust for estate planning purposes?

Estate planning involves the effective structuring of assets so that they may be transferred to the people nominated by you, in your will, without paying unnecessary taxes or estate duty.  Proper estate planning will also reduce uncertainties regarding your estate upon your death.

Estate planning in your personal name

One of the major disadvantages of your estate devolving in terms of a will is that your entire estate is frozen upon your death, including bank accounts and any bank accounts held jointly.  Therefore, if you have a spouse and/or minor children dependent on you, this method would not effectively cater for their needs whilst your estate is wound up, which could take several months.

In terms of Section 4A of the Estate Duty Act 45 of 1955 (hereinafter referred to as “the Act”), each persons’ estate is entitled to an exemption on assets of up to R3.5 million.  Estate duty of 20% is levied on assets that exceed the R3.5 million exemption, except where assets are transferred to a surviving spouse.

Section 4A(2) of the Act allows for the surviving spouse, who subsequently passes, to utilise the remainder of the exemption of the first-dying spouse, if any.  Therefore, if for example the first-dying spouse only utilises R2 million of his/her exemption, the balance of R1.5 million will be added to the second-dying spouse’s exemption.  The second-dying spouse will therefore have an exemption of
R5 million available to him/her.

Where spouses die simultaneously, the spouse with the smallest estate will be deemed, for the purposes of Section 4 of the Act, to have died first.

Trusts

There are several advantages of establishing a trust for estate planning purposes.  One of the most notable is that the trust does not “die” when you die.  Therefore your estate is not liable for estate duty.

Further to this, all growth on assets of a trust is similarly not subject to estate duty as the growth on such assets is attributed to the trust.

A further advantage of a trust is that the assets are not frozen upon death and the trust can therefore continue to support your dependants upon your death.  This is often considered as a major advantage as it could take several months to wind up a deceased estate.  During that time, your dependants will not have access to assets like, for example, bank accounts.

Furthermore, the assets of the trust can be protected from creditors. This is only the case if the trust is not an alter ego, as held in First National Bank v Britz and Others 1 ZAGPPHC 119; 54742/09
(20 July 2011).  If a trust is being used merely to protect assets from creditors in your estate and you are in control of the trust and its assets, it may be found that such trust is an alter ego and the court can declare that such assets are in fact personally held by the founder and should therefore fall within their personal estate.

Conversely, a trust also places many duties on the trustees.  A high level of responsibility is placed on trustees and they are expected to act diligently, carefully and independently, in the interest of the beneficiaries and in accordance with the trust deed.  Trustees can be sued for not carrying out their duties properly.

Furthermore, trust administration can be costly and time consuming as proper records must be kept and tax returns submitted.  Trustees are expected to be meticulous with documentation of transactions by the trust, bearing in mind that their objective is to act in the interest of the beneficiaries.

Testamentary Trusts

Testamentary trusts (mortis causa) are the most common form of trusts used in estate planning as they only come into existence after the death of the testator.  These trusts are especially beneficial where a testator wishes to protect minor children or dependants who are not capable of managing their own affairs.

A testamentary trust is formed by the testator inserting a trust clause into his will, which serves the same purpose as a trust deed.

The trust is administered by trustees appointed in the will and usually comes to an end after a predetermined period or event, for example when a minor child attains the age of majority.

Assets that form part of a deceased estate may be moved to this trust by trustees who are appointed in the deceased’s will.

Summary

Choosing the most effective way to plan your estate depends on your personal circumstances.  As seen from above there are several pros and cons to each model and it is up to you to decide what is best suited for your personal circumstances.

Estate planning in your personal name attracts estate duty at 20% of assets over and above the R3.5 million exemption.  Should your estate be in excess of R3.5 million you may wish to consider a trust or a testamentary trust.  Further, upon death, the estate of the deceased is frozen pending finalisation.

A trust places many onerous duties on the trustees.  Running a trust is costly and there is always a risk that such a trust could be set aside if it is proven to be an alter ego of the founder.

A testamentary trust is only created upon the death of the testator – there are therefore no costs involved with the trust prior to the testator’s death.  There is therefore also no risk that this trust could be set aside on the basis of it being an alter ego.  Further, your dependants can continue to utilise the trust assets while your estate is wound up.  You also have the benefit of not paying estate duties. https://www.linkedin.com/in/liesl-rae-fischer-7b287b196/?originalSubdomain=za

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Succession in Russia

Succession in Russia

Succession in Russia is possible by will and operation of law. The freedom of will is limited. To acquire the estate the heirs shall accept it. Succession in Russia is the only way to transfer property in case of death. The only way to change the order of succession established by law in Russia is to make a will. The freedom of will is limited by compulsory heirship rules and spouse’ part in the joint property. For more details please follow…

Order of Succession in Russia in Compliance with Domestic Law

Succession in Russia is the only way to transfer property in the case of death. Deceased’s estate (property, rights and obligations) shall pass to other persons by universal succession, i.e. in an unchanged, single form at the same time. It is an important fact that heirs have no right to waive part of inherited property. For example, it is impossible to accept deceased’s assets and to reject debts.

Rights and liabilities which are connected with the personality of the deceased shall not be included in the estate. In particular it will be the following rights:

  • the right to alimony,
  • right to damages for harm inflicted to the person’s life or health, and also
  • rights and liabilities prohibited for succession by law,

For example, rights arisen from the following agreements shall not be inherited:

  • gratuitous use agreements,
  • agency agreements,
  • contracts of commission agency.

The following personal incorporeal rights shall not be included in the estate:

  • right to the name,
  • right of authorship,
  • other personal non-property rights and intangible wealth.

Inheritance includes both properties situated in Russia and abroad. Whereby if testator’s last abode is situated abroad, only real property (immovable), situated in Russia, will be inherited by Russian law.

Succession in Russia may be provided by will and by operation of law. In the case of succession by operation of law all legal heirs, who are called upon to inherit in compliance with the priority, shall inherit in equal shares. The order of succession may be changed by composing a will which has a priority under succession by operation of law.

Inheritance by Will as the Way of Structuring of Succession in Russia

The will as the way of structuring of Succession in Russia shall be created personally and contain dispositions of only one person. It cannot be created through a representative and it cannot be created by two persons or more . As a general rule, the will shall be made in writing and attested by a notary. Failure to observe these rules causes the invalidity of the will.

The deceased can dispose of his/her property or a portion thereof by means of one or several wills . A will may contain dispositions relating to any property, in particular, a property that a testator might acquire after issuing a will .

The testator has the following rights:

  • to transfer property at his own discretion to any persons,
  • to define in any way the shares of the heirs in the inheritance,
  • to deprive of the inheritance several or all legal heirs, not explaining the reasons for such deprivation,
  • to include into the will other orders.

Nevertheless, irrespectively of the provisions of the will the following compulsory heirs excluded from the will automatically gain at least half of the share each of them is entitled to in the case of legal Succession in Russia :

  • minor or disabled children of the testator,
  • disabled spouse and parents,
  • disabled dependants of the testator.

Spouse’s Right to ½ Part of the Deceased Property

The property acquired by the spouses during their marriage shall be their joint property according to the Family Code of the Russian Federation . The shares of the spouses in their joint property are considered as equal, unless the alternative is provided by marriage contract. Therefore, in case the spouses do not agreed otherwise, the deceased’s spouse automatically gains half of jointly owned property. The second part of this common joined property shall be divided between all heirs by will or by operation of law.

Inheritance Acceptance as the Step of Succession in Russia

Inheritance acceptance is the important step of Succession in Russia. To acquire the inheritance the heirs shall accept it. There are two methods of inheritance acceptance :

  1. filing an application to the notary who maintain the inheritance case and
  2. making implicative actions.

The implicative actions will be made if the heir:

  • has commenced possession or administration of assets of the inheritance;
  • has taken measures for preserving assets of the estate, protecting it against third persons’ encroachments or claims;
  • has made expenses on his account towards maintenance of assets of the estate;
  • has paid the testator’s debts or received from third persons amounts of money payable to the testator.

The term for inheritance acceptance consists of 6 months after the date of the testator’s death. The heir may accept the assets after this term in two cases:

  1. reinitiating the term for inheritance acceptance by the court order
  2. without applying to the court if other hers have no objections.

The inheritance by minors has some special features:

  • assets to be transferred to the minors may be accepted by their legal representatives (for example by the parents alive),
  • in certain cases the disposal of the property owned by minors cannot be performed without preliminary consent of the guardianship agency. https://www.alrud.com