Generally, we are all familiar to some degree with the concept of a trust which is established during the lifetime of the trust donor or founder. This presupposes that the donor of the trust transfers ownership of certain assets to a board of trustees. These trustees will own the assets in a fiduciary capacity for the benefit of a defined class of beneficiaries. This type of trust is known as an inter vivos trust as it is established during the lifetime of the donor.
There is another type of trust called a testamentary trust which is created upon the death of an individual, the “testator” of the Last Will and Testament. The terms of the trust are set out in detail in the Will of the testator who is planning his estate. These terms will typically set how an inheritance or specific assets will be managed by appointed trustees for the benefit of named beneficiaries.
There are no restrictions as to who these beneficiaries can be, but typically they are normally minor children or heirs with special needs, who may not be able to manage a significant inheritance by themselves.
One of the main advantages of a Testamentary Trust is that the testator has peace of mind that a particular heir’s inheritance is administered, invested and managed according to his or her wishes.
In the event that a Testamentary Trust is not set up, a minor child’s inheritance will be paid to the nominated guardian of the child for safekeeping – and no further guidance or control.
When instructing through the Will that a Testamentary Trust must be established on his or her death, the testator nominates a choice of trustees. The testator would normally choose people with administration and legal skills and a family member who would understand the needs of the minor child, who is the heir.
A significant benefit in respect of a Testamentary Trust when a minor child or a disabled person is the beneficiary, is that the trust can be registered as a Special Trust with the South African Revenue Service. This allows the Testamentary Trust to be taxed at the same rate as natural persons, whereas all other trusts are taxed at the maximum marginal rate of 45% from Rand 1.
Should you require any advice when considering your estate planning please call one of our specialist financial advisors.
This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted. (E&OE)
FPM Risk and Wealth Management
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