Umbrella trusts obviate the need to register a new trust deed

By: Yvonne Makwela, Consulting Manager, Fairheads Benefit Services

Stand-alone trusts are generally expensive for the man in the street as fees are payable to the trust company as well as to investment managers. Many fiduciary practitioners, including lawyers, may find the administration of a single trust burdensome, and this is exacerbated by the backlog in the Master’s Office where the trust deed needs to be registered.

An umbrella trust can help ease this burden. In such a vehicle, one trust deed is set up and sub-trusts are created under the umbrella, overseen by a Board of Trustees. The costs of running the trust are shared by all the beneficiaries, creating economies of scale. Institutional investment fees would also apply to umbrella trusts.

Mirroring the industry trend to umbrella funds, some years ago Fairheads created a product which has been structured as a cost-effective, professionally administered umbrella trust to safeguard assets on behalf of beneficiaries. The Fairheads Legacy Trust is based on Fairheads’ experience in trusteeship for over 95 years. Administration is proactive and efficient and investments are managed externally by some of SA’s largest and most prestigious asset managers.

Advantages of the umbrella trust arrangement include:

• No need to register a trust deed
• Access to funds from day one
• No need to appoint trustees
• A simple process in place
• Reduced costs when compared to a stand-alone trust
• Transparency on costs
• Peace of mind that funds are safely invested with best-of-breed investment managers. It is critically important for estate planners to understand the benefits of an umbrella trust, so that they can weigh up whether or not it may be suitable for the client’s needs. In fact, we are finding that small law firms in particular are interested in umbrella trusts. Sources of funds Umbrella trusts, depending on how they are set up, are able to receive assets from:

• 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.

Case study

Here is an example of a client who has made good use of our umbrella trust.

The guardian of a minor beneficiary needed expert assistance in setting up a R5 million trust. He is the owner of several petrol stations in KwaZulu-Natal and had a choice to register a trust but opted for an umbrella trust because he did not have the time to attend to the paperwork. In addition, the cost of running the private trust would have been more on account of the legal and other fees involved. This client has also added the umbrella trust to his Will in case something happens to him.