Michelle Human: Liberty advisory Services
A testamentary trust is a necessity if you have young dependants
All parents want to protect their children. Unfortunately the time may come when you are no longer here and cannot protect them yourself. Making preparations for such an event does not mean that it will happen, only that if it does, that your children will be taken care of.
Make sure you have a valid will
One of the best ways to protect your children is to make sure that you have a will in place. A will is a simple document, but to make sure that your intentions are carried out it is crucial that you will is drafted correctly so that the executor of your estate knows who will inherit which of your assets.
Use a testamentary trust to provide for minor children
A testamentary trust is one of the most efficient ways to provide for minor children in the event of your death. This trust will only come in effect once you die, as stated in your will.
The trust controls how your funds are spent after your death, according to your wishes. For example, you could dictate that only income is used for daily maintenance and education, but the capital can be distributed once the children reach a certain age.
Choose a right guardian and trustees
A testamentary trust allows you to appoint a guardian who will take care of your children’s daily needs. You also choose the trustees who will manage the funds on behalf of your children.
You need to think carefully about who will make the best trustees. Your children’s guardian may not be the best person to manage their financial affairs. Ideally you want to appoint a trustee that has sound financial knowledge and can manage the estate’s finances to provide for the long- term welfare of your children.
Give instructions for life and retirement policies
In the ordinary course of events, the trustees of a testamentary trust are authorized to take control of the assets in the estate for the benefit of the minor children. But remember: proceeds from life insurance policies that pay directly to minor children, as nominated beneficiaries, and retirement fund benefits are not estate assets.
Unless you authorize the trustees to take control of your life insurance policies and retirement benefits, the trustees will not be able to take control of these monies and administer them in terms of the testamentary trust, even if the guardian agrees to them doing this.
The guardian will then have to open a bank account in the name of the child and the proceeds will be paid into this account, which means that the guardian will have full control over the bank account and how the money is spent.
Life insurance proceeds and retirement fund benefits can form a significant portion of your estate so make sure that your will is correctly worded.