Trust Planning

EstatePlan_1Whether you are wealthy or not, it is important to put plans in place to ensure that the assets in your estate are properly transferred to your loved ones after you pass away. Tax, estate and financial planning are all part of this planning process. There is one other aspect, which is not commonly considered in estate planning strategies: Trusts.

Trusts can be established as part of the estate planning process, and are viewed as part of your estate. If you want to set up a Trust, it is important to engage a professional who understands the implications of doing so.


Here are some of the different types of Trusts you can set up:

1. Testamentary Trust (mortis causa)

These are commonly used to protect the interests of dependents such as minor children, who cannot manage their own affairs. In certain circumstances, the testamentary trust could also be used as a guardian or special trust, which is only activated after you pass on .

There are also various other trust options, which are:

Discretionary trust

In a discretionary trust, the trustees decide which income or capital can be paid. All income that is not allocated is taxable. Discretionary trusts are very flexible and can accommodate any changing family or financial circumstances.

Vested trust

In a vested trust, the income and beneficiaries are pre-determined, and the income beneficiary is liable for any tax obligations. The person who receives the income may also be the person who receives the capital. The capital beneficiary receives immediate property rights, if the terms of the trust are sufficiently met.


2. Living trust (inter vivos)

This trust vehicle keeps your assets out of the estate, which helps to limit estate duty. The trust is set up during your lifetime, and is a good way to protect your assets for future generations.

There are several established living trust structures:

The vesting or discretionary family trust

The founder and trustees agree to set up the trust, and the founder’s assets are sold or donated to the trust, creating a loan account. If assets are donated, the trust is subject to donation tax implications. The trust may also acquire other assets through purchase or inheritance

The business trust

The private business trust can be a discretionary trust or a bewind structure, which means that the trust capital holds vesting rights. In this case, the business trust is used primarily to carry on a business with the intention of making a profit.

The charitable trust

Under the terms of the Income Tax Act, charitable trusts are not required to pay tax.

Special trusts

A special trust may only be set up to protect the interests of someone who is described in the Mental Illness Act 18 of 1973 as mentally ill or who has a serious physical deformity.

Benefits of trusts

  • As a trust’s assets are protected, they cannot be attached if you or a trustee becomes insolvent.

The assets are also protected if you are a trustee and you have signed surety on any of the assets.

  • The trust protects the financial well-being of your dependents, who may be minor children, handicapped individuals or dependents with special needs; or dependents who have questionable spending habits.
  • Trusts help to simplify your estate administration when you are no longer able to do so yourself, and also minimise your tax obligations.

If you are thinking about setting up a trust, there are various aspects to consider:

  • It is important to know and understand the duties under the Common Law and the Trust Property Control Act
  • The appointed trustees must be independent and must be involved in all trust decisions
  • The tax considerations of setting up a trust
  • Remember that in a trust, your assets are separated from you so you no longer own the assets.