Setting Up a Testamentary Trust in Your Will
A will decides who inherits. A testamentary trust decides how and when they receive it. For parents of young children, or anyone leaving assets to someone who cannot yet manage them, that difference matters a great deal.
Setting up a trust in your will is one of the simplest ways to bring your wills and trusts planning together, and it costs far less than most people expect.
What Is a Testamentary Trust?
A testamentary trust is a trust created in your will. Unlike a family trust registered during your lifetime, it only comes into existence after your death, which means there is nothing to register, fund or administer while you are alive.
Your will sets out the rules of the trust: who the beneficiaries are, who the trustees will be, which assets go into it, and when the beneficiaries become entitled to the capital. After your death, the executor transfers those assets to the trustees, who manage them on the beneficiaries’ behalf.
If you are weighing up a testamentary trust against a trust set up now, our commercial and trust services cover both options.
Keeping Your Children’s Inheritance Out of the Guardian’s Fund
A minor cannot take control of an inheritance. Without a trust, money left to a child under 18 is usually paid into the Guardian’s Fund, administered by the Master of the High Court.
The fund keeps the money safe, but it was never designed for day-to-day family life. The child’s guardian must apply to the Master for payments towards school fees, medical costs or living expenses, and each request takes time. Then, on the child’s 18th birthday, the full balance is paid out in one lump sum, whether or not they are ready for it.
This is exactly what happens when a parent dies without the right structure in place, as we explain in Dying Without a Will: Who Inherits in SA? A testamentary trust replaces that process with trustees you have chosen, who can pay for the child’s needs as they arise and hold the capital until an age you consider sensible, such as 21 or 25.
Who a Testamentary Trust Protects
A testamentary trust is most valuable when the person inheriting needs someone to manage the assets for them. It is worth considering if you want to provide for:
- Minor children, so their inheritance is managed for their upbringing and education rather than frozen until 18.
- A child or relative with a disability, who may never be able to manage an inheritance independently.
- Adult beneficiaries who are vulnerable, whether because of inexperience with money, addiction, or pressure from others.
- Blended families, where you may want a surviving spouse to receive income for life, with the capital passing to your children afterwards.
How to Set Up a Trust in Your Will
The trust is only as good as the clause that creates it. When we draft one, we work through four decisions with you:
- Beneficiaries and assets. Decide who benefits and what goes into the trust. This can be your whole estate or specific assets, such as the family home or life policy proceeds.
- Choose at least two people you trust, ideally including one independent trustee, such as a professional. The Master may require an independent trustee in some cases, and your will should exempt your trustees from furnishing security, which the Master can otherwise require at the trust’s cost.
- The rules. Set out how income and capital may be used, at what age beneficiaries receive the capital, and what happens if a beneficiary dies first.
- Linked documents. Check that your life policy nominations do not pay directly to a minor and bypass the trust. Retirement fund death benefits work differently: they are allocated by the fund’s trustees under section 37C of the Pension Funds Act, not by your will or your nomination.
After your death, the trustees accept their appointment and apply to the Master for Letters of Authority before they can act. Our guides on how to register a trust in South Africa and how long it takes to register a trust walk through that process and its timelines.
Tax and Ongoing Duties
Trusts in South Africa are generally taxed at a flat rate of 45%. A testamentary trust can be treated more favourably: where it is created for relatives and the youngest beneficiary is under 18, it may qualify as a special trust taxed at individual rates. Trusts for beneficiaries with a qualifying disability can enjoy similar treatment.
Trustees must still keep proper records, submit annual tax returns, and maintain the trust’s beneficial ownership register with the Master. Choosing capable trustees is therefore as important as getting the wording right.
Plan Your Will and Trust Together
A testamentary trust does not need to be complicated, but it does need to be drafted correctly. Vague wording, unsuitable trustees or a forgotten policy nomination can undo the protection you intended.
Our wills and estate planning services include drafting testamentary trusts that fit your family, your assets and the people you want to protect. If you have young children or a vulnerable loved one, speak to our team about adding a trust to your will.