How a trust fits into your estate plan

If you knew you were going to die tonight, would you know what the Estate Duty implications would be in your estate? Would there be enough cash or liquidity in your estate to pay the different costs that would arise? Are your assets as a business owner protected? Have you made sufficient provision for your old age? Have you considered the implications if you ever suffer from Alzheimer's Disease or simple senile dementia? Finding answers to these questions is what estate planning is all about. Many people believe that estate planning is having a will, but it is just one part of the plan. A trust may in certain instances be a valuable estate planning tool.

The Wikipedia definition of estate planning is deceptively simple – “The process of disposing of your estate”. This definition implies that you can arrange your financial affairs while you are alive for your own benefit, as well as for the benefit of those who you favour after your death (your legacy). This is therefore a great deal more than just the retirement planning performed by most financial advisors. An estate plan should be flexible enough to ensure that future adjustments resulting from factors such as changing laws, financial situation and/or family needs can be made. It is wise to review your estate plan every year to cater for any changes, before it is too late.

The benefits of having a trust as part of your estate plan:

  • Limit the increase in the value of your estate - If you transfer an asset to a trust, the asset’s value grows in the trust, and not in your hands. However be mindful of the new Section 7C of the Income Tax Act that taxes interest-free loans to a trust, which may erode this benefit, if you sold the assets to the trust on loan account.
  • Continuity - Trusts continue to pay benefits to dependants after you die. Bank accounts and cash reserves of a trust will not be frozen during the winding up of your estate. 
  • Succession planning - If the intention is to retain an asset in a family in perpetuity for the benefit of generations to come, then a trust, in particular, could be the ideal vehicle for achieving this goal. Consider a holiday home in a prime location which could be used by the family. Not only would the trust facilitate perpetual succession, it would also allow the beneficiaries to have fair access to the property in the long term.
  • Liquidity - If an individual has not structured and properly planned his/her assets, cash, property portfolio, insurance portfolio, and business interests, his/her assets may have to be liquidated to compensate for any taxes and outstanding debt upon his/her death. Because a trust stands as a separate instrument, your death will not affect any assets in the trust. 
  • Taxes and costs of over 30% can be saved upon your death - Estate Duty (20%), Capital Gains Tax (up to 18%), Executor’s Fees (3.99% of the gross estate), transfer costs and bond cancellation costs. Although it should never be the primary motivation for setting up a trust, a trust, if properly planned, managed and controlled, can act as a significant shelter against future estate duties. 
  • Your minors are protected - Under South African law, a minor, in general, cannot inherit because they do not have contractual capacity. Therefore upon the death of a parent, the assets held in the parent’s personal name are liquidated and the proceeds invested in the Guardian’s Fund at low interest, with limited access thereto until the minor turns 18. It therefore makes sense to proactively structure assets in a trust as part of your estate planning, when minors may inherit. 
  • Incapacitated persons are protected - Setting up a Special Trust for a mentally disabled or incapacitated person allows for the safe custody of assets, while at the same time benefitting from lenient tax treatment.
  • Ring-fence maintenance obligations post death - create a trust on the death of the spouse who has the maintenance obligation so that the trust takes over the maintenance obligation and continues paying income to the ex-spouse. When the maintenance obligation expires, the balance of the capital in the trust can be distributed to the deceased’s heirs. 
  • Multi-ownership of assets - Some assets cannot be divided (for example businesses, farms and other property). By placing these types of assets in trust, the heirs can be the beneficiaries of the income generated by the assets. The heirs are also protected from each other’s creditors, as well as potential claims by spouses upon divorce, or potential claims of creditors upon sequestration of an heir.


Although many people believe that estate planning equals a will plus some provision for retirement, there is much more to it. A trust can address your needs and risks in your estate plan, but ensure that it does not exist in isolation and contradict your wishes in your will. If the terms of the trust contradict your will, it will override the will, as a trust is a contract, which cannot be overriden.


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