According to reports, Michael Jackson (M.J) left almost half of his assets in a Trust to his three children. The acclaimed King of Pop insisted that 40% of his estate should go to his kids: Prince Michael – age 12, Paris – age 11 and Prince Michael II – age 7. A further 40% of his Trust should go to his mother Katherine, while the remaining would allegedly go to a number of yet to be named children charities. While it is reported that M.J left a whooping USD400million in debt; the interesting thing about this is that M.J’s assets estimated to be worth billions of dollars are held in a Trust. What does this mean? It means that his USD400million creditors cannot touch the assets in the Trust. Do I hear you asking what is a Trust?
What Is A Trust
A Trust is an arrangement whereby one person agrees to hold property for the benefit of another. The creator of the Trust is called the “Settlor” or “Grantor”, the person agreeing to hold the property for the benefit of another is called the “Trustee” and the person for whose benefit the property is being held is called the “Beneficiary”.
Types Of Trust
We intend to focus more attention on this aspect in subsequent chaphters but suffice to say that Trusts can broadly be classified as:
What Is A Living Trust
A Living Trust is a Trust created during one’s lifetime and it takes effect during that lifetime. A Trustee under a Trust holds your assets. The Trustee will follow your instructions regarding the use of these assets during your lifetime and upon your death.
It can either be revocable or irrevocable.
What Is A Testamentary Trust
A Testamentary Trust is created as part of a Will and becomes active after the Settlor’s death. With a Testamentary Trust, properties must go through probate before it becomes subject to the Trust agreement. A Testamentary Trust is always revocable because it is part of a Will, which can be changed at any time.
Revocable And Irrevocable Trust
A Revocable Trust is one that can be amended, changed or even terminated during a Settlor’s lifetime. An Irrevocable Trust is one that cannot be amended, changed or terminated during the Settlor’s lifetime except by a court order or the consent of the Settlor and all the beneficiaries.
Difference Between A Trust And A Will
The main difference between a Trust and a Will is that a Trust does not require the legal formalities of probate.
Benefits Of Having A Trust
Trusts are confidential, tax-efficient and highly flexible financial planning instruments used to provide for specified beneficiaries, during and after your lifetime. Traditionally, it has been used as a method of reducing the exposure of assets to taxes and other legal claims as well as specifying the use to which those assets can be put. Though Trust can be used in many different ways, they are commonly used for:
You can be sure that the identities and interests of Settlors and beneficiaries are kept secret until the Trust terminates as the assets are held in the name of the Trustee. In fact there is no legal requirement for a Trust to be released to the public.
You can minimise estate taxes if you have a Trust in place as assets held in Trust will not be subject to tax in the estate of the deceased person.
A Trust can help protect your assets from creditors.
With Trust, you can make plans for your family members (immediate and extended), relatives and friends, charities and other organisations as you desire.
With a Trust, you can put all your assets under one holding vehicle, with the Trustee holding and managing the assets for you. This simplifies both the management and financial reporting of the assets through a centralised vehicle.