5 compelling reasons to incorporate a trust into your estate plan

Trusts are versatile estate planning tools that can be tailored to suit your specific objectives, assets, beneficiaries, and planning horizon. Whether preserving wealth, protecting vulnerable heirs, or managing taxes, trusts offer unique advantages. This article explores five effective ways to use a trust as part of your estate plan.

Safeguarding the inheritance of minor children

South African law limits the contractual capacity of minors, which creates complications when leaving assets directly to children under the age of 18. Where a minor is nominated as a beneficiary—for example, on a life insurance policy—those funds will be administered by the Guardian’s Fund until the child reaches adulthood.

Accessing these funds can be cumbersome and subject to administrative limitations, including capped annual withdrawals and approval by the Master of the High Court. A more practical solution is to set up a testamentary trust in your Will. This type of trust only comes into effect upon your death and allows assets earmarked for your minor children to be managed by trustees of your choice, providing structure, oversight, and the flexibility to meet your children’s evolving financial needs.

Caring for beneficiaries with disabilities

Where a family member is mentally or physically disabled and unable to manage their affairs, a trust can be used to provide sustainable financial support. A Type A special trust, established in terms of Section 6B(1) of the Income Tax Act, is specifically designed for this purpose. Provided the beneficiary meets the definition of ‘disability’ under the Act, the trust will enjoy favourable tax treatment—being taxed at the same progressive rates as individuals and benefiting from annual capital gains exclusions. The trust can be formed during the founder’s lifetime (inter vivos) or through a Will (testamentary), depending on the family’s planning needs. 

Reducing estate duty through growth asset transfer 

For high-net-worth individuals, growth assets can significantly increase the estate duty payable at death, with estate duty levied at 20% on the dutiable value of estates up to R30 million, and at 25% on the value above this threshold. One effective way to mitigate this tax is to transfer growth assets into a living trust during your lifetime. By donating or selling the asset to the trust, the base value is effectively ‘pegged’ in your estate, while all future growth accrues within the trust. While a sale creates a loan account in the founder’s estate, the growth on the asset—whether in property, shares, or investments—takes place outside of the estate, thereby reducing the dutiable amount on death. Over time, this structure can result in substantial savings on estate duty and executor’s fees, especially if assets are expected to appreciate significantly.

Shielding personal assets from business risk

Entrepreneurs and business owners often face increased financial risk, including potential insolvency or litigation. A correctly established living trust can be used to separate personal assets from these risks by transferring ownership of selected assets to the trust. These may include a primary residence, investment property, or a family portfolio. When set up and administered correctly, the trust creates a legal distinction between the founder’s personal estate and the trust's assets. However, for this protection to be upheld, the trust must be valid in law, and the founder must relinquish control of the trust’s assets to the trustees. Keep in mind that courts may disregard a trust structure if it is found to be a sham, or if there is evidence of fraudulent intent. As such, it is critical to maintain proper trust governance and to seek specialist fiduciary advice during setup and administration.

Preserving family assets across generations

Trusts are highly effective succession planning vehicles, particularly for families looking to preserve a growth asset—such as a farm, family business, or holiday property—for future generations. In these circumstances, an inter vivos trust can be created to acquire the asset, often through a sale agreement. The transaction results in a loan account which forms part of the founder’s estate, while the asset itself is retained and managed within the trust. All future growth then occurs in the trust and does not attract estate duty in the founder’s estate.

Importantly, the trust deed can define how income and capital are to be distributed among beneficiaries, and whether the trust is discretionary or vested in nature. This allows multiple heirs to benefit from a single asset without requiring it to be physically divided or sold, offering both continuity and long-term preservation of family wealth.

When used appropriately, trust is one of the most flexible and effective tools in the estate planner’s toolkit. That said, trusts require careful structuring, proper governance, and ongoing compliance to remain effective and legally sound. As such, it is important to engage with an experienced fiduciary practitioner or independent financial advisor to determine whether a trust structure is suitable for your specific planning needs.

* Odendaal is a Certified Financial Planner at Crue Invest.

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