Q: Our parents passed away and left each of us four children R875 000 – in total R3.5 million. My parents’ intention was that the money be used for their grandchildren’s studies and that we as children only inherit the [remainder of the] money once the grandchildren have completed their studies.
My oldest brother’s children are excluded since their studies were already paid for by my parents before they passed away. There are in total seven other grandchildren, ranging from the age of 21 to two years old. The gap between the second youngest and the youngest is 12 years.
Should we consider a trust? If not, what else can you recommend?
Gavin Butchart - Brenthurst Wealth Management (Pty) Ltd
When it comes to minors (grandchildren) trusts are still readily used for various reasons, one such reason as is for the purpose of the grandchildren’s studies. If this was the intention of the grandparents, this could have been done via the last will and testament, by creating a testamentary trust. Once the beneficiary (grandchildren) had attained a certain age (e.g. 25/30 years) the remaining funds after the last grandchild had finished their studies would be distributed and the trust wound up.
The reader’s question is a bit more complicated, in that no provision was made for a testamentary trust, as the four adult children received equal shares in their parents estate.
If trusts are now to be established, I would assume that four separate trusts would need to be setup as not to prejudice any of the adult children in the last will and testament, as some adult children may have one, two or no children of their own.
The adult children would also need to establish if they now need to donate or setup loan agreements with regards to getting the funds into the trust. Another problem may arise if a further grandchild is born. The trust would then need to be administered for a further 25 to 30 years. It also comes with its own administration duties and costs, not to mention the fact that the Davis committee and the South African Revenue Services have and are imposing huge tax implications on trusts.
Based on the above and the fact that the grandparents bequeathed the funds to their immediate children – with the intention that the funds be used for their grandchildren’s studies – it leaves me to believe that the grandparents had full faith and trust that their adult children would carry out their wishes, while at the same time providing equal shares in their estate.
There are various other investment products that the adult children can make use of as an alternative for their own children. For example, an endowment, which is taxed within the fund and can be invested for a five- or ten-year period, or until the grandchildren obtain the age for further studies.
We hereby suggest that you contact your financial advisor and tax consultant for any further advice and assistance in this regard.