Protect your legacy with a trust

Your last will and testament is a legal document that sets out how you want your property and assets to be distributed to your beneficiaries. If you are a parent of minors, you should also nominate your preferred guardians in your will.

In your will, you can make provision for the establishment of a trust or trusts, and nominate dependable individuals as your trustees, to manage the funds and assets in your estate. There are different types of trusts and you should base your choice on your personal circumstances and family setup.

Trusts are flexible, versatile and efficient legal arrangements that let you make sure the people and causes you care about benefit from your deceased estate. Trusts can be used for many purposes, including protecting your assets, preserving your legacy, providing for your beneficiaries, and managing the estate tax of your estate. Let's look at the trusts that are commonly used in estate planning.

Types of trusts

South African trust law makes provision for two types: living trusts and testamentary trusts.

1. Living trust: Also known as an inter vivos trust ('between the living'), it is created during your lifetime and comes into effect as soon as it is registered with the Master of the High Court. It is a great vehicle for protecting assets and to use in estate planning.
2. Testamentary trust: You make provision for its establishment in your will and it comes into effect when you pass away. A testamentary trust is usually set up to care for loved ones who cannot receive bequests directly or manage funds themselves, e.g. minor children, individuals with mental or physical disabilities, widows who are not accustomed to managing household finances, etc. Depending on purpose, there are different types of testamentary trusts, e.g. children's trust, provider's trust, widow's trust, etc.

Both testamentary trusts and living trusts can be set up to be either discretionary (trustees have a say in how assets and funds are managed or distributed) or non-discretionary (beneficiaries may have certain vested rights).

What are the benefits of trusts?

Trusts offer several benefits that make them a valuable component of estate planning:

1. Asset protection: Trusts can preserve your legacy by protecting your assets from creditors and legal claims. By owning assets in a trust, you can ensure that they are managed and preserved according to your wishes as set out in the trust instrument (the written declaration that says how the trust should be carried out).
2. Estate planning: Trusts allow you to transfer your assets to heirs and beneficiaries in time-efficient and cost-effective ways.
3. Beneficiaries' care: A trust is an excellent way to look after loved ones when you are no longer able to do so yourself, especially in cases of minor children and individuals with special needs or disabilities.
4. Tax benefits:Assets held in trust are no longer considered part of your deceased estate, so trusts can provide significant estate tax advantages. By structuring a trust with care, you can reduce estate duty, prevent your legacy from being eroded and ensure that your heirs and beneficiaries receive as much of their inheritance as possible.
5. Flexibility: A trust can be tailored to meet your specific needs, e.g. it is up to you whether you want to provide for the ongoing care of a child with special needs, or support a charitable cause you care about.
6. Continuity: Trusts create continuity in the management of your assets. When you place your assets in a trust, your nominated trustees are responsible for the ongoing management of those assets in favour of your beneficiaries.

Whether you are looking to set up a living trust or a testamentary trust, understanding how trusts work could make a meaningful difference to your estate planning. It's a good idea to consult a professional will and estate specialist to help you set up a trust correctly.

Trusts are useful and efficient estate planning tools. They are not only for wealthy people - they are practical solutions for every person who wants to leave a legacy.