Your will is an essential part of estate planning, as it stipulates how you want your assets dealt with upon your death. Your estate refers to everything you own and owe, from property and cars to investments and debts. Efficient estate planning will ensure that your estate is set up in tax-efficient way that benefits you during your lifetime and your beneficiaries after you die.
The main function of both wills and trusts is to name beneficiaries for your property. In a will, you simply describe the property and list who should get it. Using a trust, you must do that and also “transfer” the property into the trust.
Testamentary trust / Will trust
A testamentary trust is also known as a “will trust”, as they are created in terms of the will of a deceased person. They therefore only come into existence after the death of the founder. The implication is that during your life your assets will not be protected, and on your death, taxes will be paid first on the value of the estate, before it is transferred into the trust.
Testamentary trusts are particularly suitable for the protection of the interests of minors (because minor children cannot, in terms of South African law, inherit anything) and other dependants who are unable to take care of their own affairs on the death of the person supporting them, if such a person is a salaried worker without too many assets.
Testamentary trusts are created at the winding up of a deceased estate, following a specific stipulation in a person’s will that a trust be set up. Such a stipulation serves the same purpose as a trust deed.
The terms of a testamentary trust are typically not as detailed as those for an inter vivos trust, which often causes problems with its execution. Sometimes, a full trust deed is attached to a will, instead of incorporating the usually shorter provisions of a testamentary trust in the body of the will. This serves to provide additional comfort and assurance that the testator’s wishes will be honoured.
If, for any reason, the will is invalid, the trust will not come into effect. The Master of the High Court has the power to declare this type of trust invalid, unlike an inter vivos trust, where the Master of the High Court has no such power. This may have grave repercussions for your loved ones.
Generally, the terms of a will trust cannot be amended, but the Trust Property Control Act does give the court certain powers to amend this type of trust instrument. This makes a testamentary trust inflexible.