When should you create a trust?

If you are assessing when to set up a trust, you must first decide whether you want the trust to go into effect now, or upon your death. You can also make the trust revocable, which allows you to change the provisions of the trust at any point, or irrevocable, which means its terms cannot be subsequently altered once it has been established.

Many people make revocable living (inter-vivos) trusts to hold assets while they’re alive. These trusts then become irrevocable upon their death. The purpose of this is to avoid the time and expense of probate (i.e. your family will not have to go to court to authenticate your will after your death in order to access your assets). The second purpose is to provide instructions for the management of their assets in the event that the become incapacitated. Others less concerned with probate costs may decide to create a trust in their wills, to go into effect upon their passing away.

You could also create an irrevocable trust while you are still alive, for instance, in the form of an education trust for children, or to benefit a charity. This is usually done by benefactors wishing to get assets out of their estate, usually to reduce estate taxes, or because they will not need these assets during their own lives and want others to get the benefit of this wealth now. Making a trust irrevocable also transfers the tax responsibility for the income generated by the bequested assets away from the benefactor to the trust.

If you are considering creating a trust for your children, and they are still minors, it is recommended that you create the trust as soon as you can. In South Africa, minors are not allowed to inherit any assets. A trust is therefore valuable, as it protects your children if something should happen to you. The trustees will administer the assets in the trust until the beneficiaries are of legal age. It is also valuable to create a trust for your offspring because you can limit their access to their inheritance. If you have minor children, a trust allows you to ensure that their inheritance is overseen by a trustee until they are old enough to manage the monies themselves.

If you have recently purchased a house it can be extremely beneficial to create a living trust. With a house, a living trust offers more control than a will in spelling out how such property should be transferred after the grantor’s death.

When considering the best time to create a trust (whichever kind it may be), it is best to look over your current financial situation and assess whether you need to create the trust now or in future.

See related resource: Seven reasons to set up a trust.