Trusts in South Africa: types, uses and how to set one up

A trust is a legal arrangement where assets are held and managed by trustees for the benefit of others. Used well, a trust protects vulnerable beneficiaries and preserves wealth across generations. Used without proper advice, it can be costly and create more problems than it solves. Here is what you need to know.

The two main types

Inter vivos trust (living trust)

Created during your lifetime by a trust deed. Assets are transferred into the trust and managed by trustees. It is often used to hold a family home, a business interest, or investments, and to plan for continuity and protection.

Testamentary trust (will trust)

Created in your will and only comes into existence on your death. It is most commonly used to look after assets for minor children or a dependant who cannot manage money themselves, so that an inheritance is held and applied responsibly rather than paid out as a lump sum.

What trusts are used for

• Protecting minor children's inheritances instead of the Guardian's Fund.
• Providing for a family member with special needs over their lifetime.
• Holding a family asset, such as a farm or business, across generations.
• Continuity, so that assets are managed without interruption if you die or become incapacitated.

How a trust is set up and run

Trusts in South Africa are regulated by the Trust Property Control Act 57 of 1988 and supervised by the Master of the High Court. To create an inter vivos trust you need a properly drafted trust deed, trustees who are willing to act, and registration with the Master, who issues letters of authority before the trustees may act. Trustees carry real legal duties and must keep the trust's affairs separate from their own.

Is a trust right for you?

Trusts suit some families very well and others not at all. They carry setup and ongoing administration costs, and they have tax consequences that need to be weighed against the protection they offer. The honest answer often depends on the size and nature of your estate and who you are trying to protect, which is exactly the kind of thing to talk through before committing.