What is an Inter Vivos Trust?
An Inter Vivos Trust
is a Trust you can set up whilst you’re alive. This is different from a Testamentary Trust. This type of Trust only comes into effect when you pass on.
An Inter Vivos Trust allows you to protect your assets and is a very useful estate planning tool.
There are two different types of Inter Vivos Trusts available:
Discretionary Trusts; and
Let’s take a closer look at the differences between the two…
The ins and outs of a Discretionary Trust
With a Discretionary Trust, the Trustees decide how to distribute the capital and income of the Trust. The beneficiaries don’t have a vested right to any assets the Trust holds and can only access an asset if the Trustees grant them that benefit.
This means that assets in this type of Trust don’t form part of your personal estate therefore no estate duty.
This comes down to the structure of this type of Trust. This is complex, but if you’re seriously considering setting up a Trust to protect your asset and minimise taxes, this is the best Inter Vivos Trust to set up.
The ins and outs of a Non-Discretionary Trust
On the other hand, with a Non-Discretionary Trust, the founder or settler of the Trust dictates what each beneficiary of the Trust is entitled to.
This means the Trustees of a Non-Discretionary Trust have no say in what happens with the assets in the Trust. The details of this are written into the Trust deed.
The advantage of this is each beneficiary knows their entitlement. But if you receive an asset through this method, it becomes your personal asset. This means it becomes your personal asset and form part of your estate and is liable for estate duty and capital gains tax.
This type of Trust encounters some of the issues you wish to avoid by setting up a Trust in the first place, and this is why a Discretionary Trust is likely to be a better option for you.
So there you have it. The type of Inter Vivos Trust that is best for you.
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I’m a big believer in financial independence. I don’t want to be dependent on anyone or any institution to take care of my family or me in the future. Having one source of income is very scary to me. If that stream of cash dries up – for whatever reason – I want to know that I have other cash streams I can tap into.
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