Trusts play a major role in the estate planning and financial planning environment. Among their advantages are estate pegging, continuity and succession, and the protection of assets. They are able to receive lump sums and pay out a regular income. Trusts are especially well suited to caring for the wellbeing of minor or disabled beneficiaries.
Stand-alone trusts have, however, traditionally been beyond the reach of the middle market as they are often unnecessarily expensive and a burden to administer.
An alternative is to make use of an umbrella trust. As the name implies, this is a legal arrangement under which sub-trusts are set up, allowing economies of scale and other benefits for the beneficiaries.
As it is an umbrella arrangement, a new deed does not need to be registered for each sub-trust. This means that the trust is available to receive money immediately, which is very useful given the backlog of trust deed registration at the Master’s Office.
An umbrella trust, founded by a reputable provider, has a professional and experienced board of trustees in place to oversee the best use of the benefits. In best practice, investments are handled at arms length by best-of-breed asset managers, with the board of trustees working together with an investment consultant.
The umbrella vehicle is particularly advantageous for professionals entrusted with setting up a stand-alone trust as they can be absolved of the administrative burden, as well as the need to arrange or manage investment of the trust assets. For advisers’ clients, it can be an excellent cost-effective solution.
Sources of funds
An umbrella trust can receive money from sources other than employment-related benefits and may or may not be taxed depending on the source of the income. Sources of income include:
- Deceased estates
- Inter vivos trusts
- Testamentary bequests
- Road Accident Fund (RAF)
- Medical malpractice payments
- Life insurance payments
- Disability policies
- Retirement funds
- Private trusts
- Discretionary savings for education or any other purpose.
In conclusion, while a stand-alone trust can be tailored to meet very specific objectives, the settlor (the founder of the trust) must understand the costs associated with those objectives and weigh up whether it is truly worth it. If not, an umbrella trust is a seriously good solution that advisers should be aware of.
Subscribe to our free newsletter
Stay at the forefront of financial advisory excellence with MoneyMarketing's weekly insights. As a professional adviser, you'll receive carefully curated content that enhances your practice and client relationships without cluttering your inbox. Our commitment to delivering only relevant, actionable intelligence helps you make informed decisions that drive your business forward. Join our community of leading financial professionals today and transform your practice with our complimentary newsletter—because your success is our priority.
