Estate Planning 101: Life insurance and inter vivos trusts

30 November 2020,  Johnny Davis 454
Some young professionals are lucky in the sense that mom and dad could help buy them that first car, or even that first house if you are really privileged. For the rest of us, the well-known concept of debt is a necessary evil to get us on our way. In the event of your passing, the purpose of a life insurance policy is simply to save your loved ones the headache of that monthly car or house instalment and also to pay the taxman who comes knocking. 

From an estate planning perspective, ideally you should purchase growth assets that you want to leave to future generations in an inter vivos trust. However, the cost of moving such assets into a trust after the fact can be costly. In these instances, life insurance may be the answer. Carefully consider your life insurance policy with a qualified financial advisor to ensure it is structured in a manner that supports your estate planning approach.

Inter vivos is a Latin term used by legal professionals, that basically means a trust created between the living, i.e. a trust created during the lifetime of a person. In short, the main benefits of a trust are the following:

  1. The value of your estate can be pegged for estate duty purposes, by means of a trust.
  2. Growth on trust assets takes place in the trust, not in your personal estate.
  3. It can be used to preserve assets to pass on to next generations after death, for any purpose, such as education or to meet contractual arrangements.
  4. Assets of beneficiaries incapable of managing their own financial affairs, being minors, inexperienced or handicapped, can be protected.
  5. If in a deceased estate, it may take months to transfer or to get access to assets or funds.
  6. A professional trustee can be expected to be impartial towards beneficiaries, especially after your death.
  7. Cost savings on executor’s fees and transfer costs.
For all the benefits of a trust, there are certain disadvantages that should be carefully considered. If you are considering utilising a trust, engage a legal professional on the topic to ensure the correct implementation and use of the trust going forward.

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