Trust vs Wills (Estate Planning)

A will is a legal declaration by which a person, names another person to manage their estate and declares how their assets will be distributed once they pass on. While a family trust by definition is an estate planning tool. It provides a method of managing the assets belonging to an individual or couple while they live, as well as to specify how the assets are to be distributed when they pass away. Family trusts have emerged as the superior alternative to simply leaving a will. This article explores the advantages and disadvantages of both family trust and wills and outlines when it is appropriate to make use of each of these.

Advantages of trusts  

1. When assets are held by a trust, they are not owned by the trustees or the beneficiaries. This means that assets are protected from creditors who cannot make any claims from the trust. Additionally, none of the parties to the trust may sell property belonging to the trust in times of crisis.
2. A trust guarantees perpetual succession (continuity) even when one of the trusties dies the assets of the trust are not affected.
3.  In Zimbabwe when property is being transferred at the death of a spouse estate taxes must be paid by the surviving spouse.[1] A trust allows the surviving spouse to avoid paying these taxes.
4. A trust has other uses that can benefit the trusties and beneficiaries for example it can buy shares and other assets for the benefit of the beneficiaries or a family may start a business through the trust and share the benefits.
5. Trustees carry what is called a fiduciary duty towards the beneficiaries. A fiduciary duty is the highest standard of care. This means that the trustee must administer the trust solely in the interest of the beneficiaries.
6. In the event of death by one of the spouses, the surviving spouse is entitled to inherit the matrimonial home in their personal capacity.[2] This may affect the surviving beneficiaries who may find themselves homeless if for example, the surviving spouse disposes of the matrimonial home. A trust takes away possession from an individual so incidents where property is sold in times of crisis or to the detriment of another are eliminated.
7. A trust allows one’s heirs to avoid the time-consuming Master of High Court process, as wills are required to go through a legal process in which a court transfers ownership of one’s assets to the people designated in one’s will. For example, the court may supervise the sale of one’s home and the distribution of the proceeds in accordance with the will’s named beneficiaries. There can be significant costs and delays associated with the process as one is required to pay 4% of the total value of the estate to the Master of High Court. The beneficiary will then have to incur further costs in transferring immovables that were registered in the deceased’s name.
8. A trust affords a family privacy due to its contractual nature. The terms and the distribution of the estate are private.
9. A trust allows an individual to set the terms of how their estate will be distributed and be assured that at their death these will be adhered to.
10. In a family trust, the title of the assets is in the name of the trustee on behalf of the trust. Whether or not the trustee is living or not, the assets still belong to the trust. In a will, the title to the assets remains with you during your lifetime. The title only passes upon your death and after the distributions are made and finalised.

Disadvantages of a Trust

1. The main disadvantage of setting up a trust is the costs required to establish and maintain it. Maintenance fees are a result of payments made to the trustee in charge of managing the estate and anyone, they may employ to assist them. Additionally, the trust is required to pay VAT or other applicable taxes depending on the nature of its transactions. If, for example, the trust acquires a car for one of the beneficiaries, all the taxes chargeable thereon are for the trust’s account as the vehicle remains the property of the trust; the trustees also have to make a resolution to the effect that the vehicle is for use or the benefit of the said beneficiary. Lastly, a family trust may also carry certain unanticipated costs; for example, should you need to hire an attorney to defend it against creditor claims.
2. If you transfer personal assets to a trust, then the trustees of that trust will control the assets. Although you can retain some control by holding the power to appoint and/or remove trustees, or even by being a trustee yourself, it is important to remember that assets you transfer to the trust are no longer your own. If you continue to treat the assets as your own, any trust could be open to challenge as a fraud.
3. Running the trust can become particularly difficult when family disputes arise.

Advantages of Wills

1. Freedom of testation means that a Will allows you to take control of your estate and to take care of those you leave behind. If you die without a Will, your estate will be distributed in terms of the law of intestate succession.[3] The effect of this is that your beneficiaries will be entitled only to a fixed and equal proportion of your estate.
2. The ability to appoint guardians for any minor children in the unfortunate event that you should die while they are still minors.,
3. You can choose who will be the executor of your estate and you can determine the powers the executor will have, and if you want the executor to provide security.
4. A clear, well-written Will can ensure that family arguments over your estate are avoided. In rare cases, the courts may allow a Will to be contested, but there must be a reason to believe that the Will is not valid; for example, if the person who wrote the Will was not of sound mind or unduly influenced by a third party
5. Having a well-crafted Will available at the time of your death will help to speed up the administration process and will limit any potential disputes and conflicts.
6. A will also allow you to specify wishes for your funeral.
7. You can make amendments to your will as circumstances change, and so can your will. You can amend any provisions of your will at any time so that they better reflect your most current wishes and assets. Additionally, if you find that a will no longer represents your interests, you can revoke it entirely and write another one.

Disadvantages of a Will

1. Freedom of testation is not absolute. Section 26(d) of the Constitution obligates the State to take measures to ensure that upon death, provision is made for the necessary protection of the spouse and children.
2. The validity of a will can be challenged in court and if the will is declared invalid your estate will be distributed in terms of the law of intestate succession.
3. With regards to oral wills, it can be difficult to prove the oral will. Because it was not written, it may be difficult to remember all of the terms that the testator provided. Witnesses may have different memories about what was said.
4. Failure to adhere to the stringent formality requirements in terms of section 8 of the Wills Act may lead to the will being declared invalid.
5. A will must be administered meaning the court must supervise the distribution of the assets. This makes the process more costly and more time-consuming.
6. Court documents are public records, so anyone can see how your estate was distributed.

When You Use Them

1. Wills are typically cheaper and easier to create than trusts. If one has a smaller estate, the costs of creating the trust may exceed the savings of avoiding probate. In addition, one does not have to worry about retitling any of their assets or the other formalities that come with holding assets in a trust. Finally, if one is concerned that their assets will not be distributed according to your wishes, using a will requires court supervision of one’s estate.
2. Trusts can be extremely beneficial to those who have young minors and would like to ensure their children will be well cared for.  A trust will allow the parent to provide for their children as generally or specifically as they’d like and puts a trustee in charge, so the minor beneficiary doesn’t spend all the money foolishly before they understand the importance of financial management.  Parents can make a trust the beneficiary of their life insurance policies or retirement accounts (which don’t pass through a will) and then the trustee can manage the policies for the minor children.
3. Likelihood of the estate being contested. If you think there is a good chance that your estate distribution will be contested, a living trust may be more likely to withstand the challenge.
4. Your confidence in your potential trustee. With a living trust, you must be able to trust your named trustee to act according to your wishes without court intervention or monitoring.

Conclusion

Both wills and family trusts present varied advantages and disadvantages therefore it is important to consider which of the two would best serve your interests and those of your beneficiaries at your death.

Should you need assistance in registering a trust or writing your will. At JPLP we have a team of lawyers ready to assist you. Contact us today.

[1] Property is taxed under the Estate Duty Act (Chapter 23:03) , whilst income is taxed under the Income Tax Act (Chapter 23:06).

[2] Section 3A of the Deceased Estates Succession Act [Chapter 6:02]

[3] In Zimbabwe, this means the Administration of Estates Act (Chapter 6:01) and the Deceased Estates Succession Act (Chapter 6:02) become the governing statutes on how the estate of the deceased who died intestate should devolve.