The
Difference Between An Income Beneficiary Of A Testamentary Trust And
A Usufructuary
It
is common practice to bequeath the right to income and the right to
the use of assets to an heir or a spouse and to specify a usufruct
in a will, or to nominate a beneficiary in a testamentary trust.
What is the difference?
According to Berrie Botha, chief executive of Sanlam Trust, there
are a number of different limited rights that can be used in wills
for various circumstances. Similarly, there are a variety of powers
with which the trustees of a testamentary trust can be vested.
“In
order to explain the differences between a testamentary income
beneficiary and a usufructuary, let’s take the example of two
deceased men, A and B. Both of them were married out of community
of property and their estate assets comprised a house, furniture, a
motor vehicle, shares and cash. In the wills of both men the
surviving spouse, in this example the wife, was given the right of
income, as well as the right of use of the assets in the estate.
But there is a difference between the rights to and control of the
assets.
“In
his will, deceased A bequeathed his entire estate to his children,
subject to the lifelong usufruct by his wife. There were no
testamentary stipulations.
“Deceased B bequeathed his entire estate to his children and
stipulated that their inheritances be placed under the control of
his trustees, who were to administer them in trust with powers
included in the so-called standard trust clauses. This was made
subject to the condition that his wife would be entitled to the full
net income from the assets, the right to occupy the house free of
charge, and the right to the use of movable assets, such as the
furniture and the motor vehicle, until her death.”
Botha explains that in the case of A, it means that only the fixed
property will be transferred into the names of the children. The
other assets will be handed and paid over to his wife, who will have
control over those assets, may invest them in her name and may
occupy or let the property.
In
estate A the usufructuary is personally responsible for the payment
of rates and taxes and the normal maintenance costs of the usufruct
assets, but not for repairs owing to normal wear and tear. She has
no right of alienation of the usufruct assets, unless this is done
in conjunction with the eventual heirs, the children.
The
assets in the name of a usufructuary can therefore easily become
mixed up with her personal assets. At the time of her death they
will then form part of her estate assets and the children will have
to submit claims for their inheritances, which will be distributed
only once her estate has been wound up. Furthermore, there is the
risk that there might not be sufficient assets in the estate to
distribute the inheritances in full.
The
assets in B’s estate, on the other hand, will be handed to the
trustees of the testamentary trust who will control and invest them
in the name of the trust. If the wife does not want to occupy the
house, the trustees will let it. In this case the trustees will
also be responsible for paying the same expenses with regard to
trust assets, including repairs and short-term insurance premiums,
from available trust funds.
Everything is done in the name of the trust. Trustees also have the
right to alienation if given the authority in terms of the will and
the persons concerned have consented thereto. Trust assets are also
identifiable and available fairly quickly after the death of the
wife and the dissolution of the trust.
“In
both the above-mentioned cases the objectives are the same,” says
Botha. “The spouses of both deceased are entitled to the net
income, occupation of the house and the use of movable assets. The
value of both rights is also deductible for estate duty purposes.
“The
most important difference is that the usufructuary in estate A
personally will exercise control (with possible risk) and no fees
will be payable, whereas the assets in trust will be controlled at a
fee, but with virtually no risk.”
Botha points out that in cases where the assets pass to a trust,
sufficient funds must be made available to cover expenses and fees.
It is also recommended that movable assets such as furniture,
vehicles and firearms should not be placed in trust, but should
rather be bequeathed to a specific person.
Article supplied by Sanlam Trust
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