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Wealth

Types of trusts in South Africa

There are a lot of different types of trust, this may make it difficult to choose the trust that suits your needs. This article will break down all the types of trusts that are in South Africa.

All trusts fall under two main categories, living trusts (inter-vivos) or testamentary trusts. A living trust is basically a trust that is formed while the trustor is still alive, a testamentary trust is formed after the trustor has passed on. Most people often prefer to form living trusts as they are easier to manage and won’t need to go through probate after the trustor passes on. A testamentary trust will go through probate, this means that it will go through the court, which will cost your beneficiaries a lot of money and resources in hiring lawyers.

Revocable trusts

A revocable trust is a trust that can be changed, modified or revoked altogether. The trustor can fund the trust with assets and remove some assets from the trust. A revocable trust is a good way to avoid probate as it becomes irrevocable upon the death of the trustor. Assets in a revocable trust can still be subject to creditors and legal action, especially when the trustor is the trustee.

Irrevocable trusts

An irrevocable trust cannot be changed, modified or revoked. There is no way of taking out property that has been put in an irrevocable trust. Irrevocable trusts are used by the super wealthy and have a lot of tax benefits, the assets can’t be accessed by anyone, including creditors.

However, the court will reverse your trust should you open it in anticipation of a legal battle. The property that is inside an irrevocable trust belongs entirely to the trust and not to the trustor. You can be poor while having millions of Rands in this trust.

Asset protection trust

An asset protection trust is set up to protect the assets of the trustor from creditors and lawsuits. The trust is set up in such a way that it is irrevocable for a number of years. It offers the best protection against lawsuit, creditors or judgments against your estate, even divorce. Most people tend to form offshore asset protection trusts, this makes it very difficult for local authorities to ever reach them.

Special needs trust

A special needs trust is a trust that is solely created for a person(s) with a disability. Most disabled people receive a grant or some benefits from the government. A huge lump sum of cash may disallow them these benefits as the government will likely think that they are well off or capable of earning their income.

Charitable trust

This is a trust that is used to benefit a particular charity, or non-profit organization. You may want to donate some of your money to a certain charity or church after you pass on. A charitable trust has a lot of tax benefits, which you can use to reduce your estate duty.

Conclusion

This was a list of the most common types of trusts in South Africa. Do you have any thoughts or questions? Comment below.

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