Death eventually knocks on everyone’s door. While it is an uncomfortable certainty, it serves as a timely reminder of the importance of proper estate planning. A well-considered estate plan provides peace of mind that sufficient provision has been made for loved ones and that assets will be managed and transferred efficiently after death. In South Africa, trusts are frequently used as part of this process and, when correctly structured and administered, trusts can be an exceptionally powerful estate planning tool.

Why trusts matter in Estate Planning

Estate planning is aimed at protecting and preserving assets not only during one’s lifetime, but also thereafter. Trusts are particularly effective in this regard because they allow for the separation of ownership and control. Assets are owned by the trust, administered by trustees, and held for the benefit of beneficiaries. This separation can assist in minimising the value of your personal estate, protecting assets from personal risk, and ensuring continuity and succession across generations. However, these benefits are only achieved where the trust is properly established in compliance with the Trust Property Control Act 57 of 1988 and administered as an independent legal vehicle.

Protecting assets and limiting Estate Duty

One of the key advantages of a trust is asset protection. Where assets are transferred to a trust while the founder is solvent, those assets generally fall outside the reach of personal creditors. Although the beneficiaries may continue to enjoy the use and fruits of the assets subject to the discretion of the trustees, ownership vests in the trust. Trusts are also effective in stabilising the value of your personal estate for estate duty purposes. Assets with significant growth potential can be transferred to a trust (although the tax consequences of such transfer should be considered), with future growth occurring outside the founder’s personal estate, thereby limiting estate duty exposure on death.

Caring for beneficiaries across generations

In addition to the above, trusts are particularly useful where beneficiaries are minors, vulnerable, or require special care. Trustees can manage and control trust assets over time, ensuring that benefits are applied responsibly and in accordance with the founder’s wishes. Once validly established, a trust can also continue indefinitely, unaffected by the death of a founder or beneficiary, allowing for efficient and uninterrupted succession planning.

Despite these advantages, trusts are not without risk. Poor administration, failure to properly fund the trust, excessive control by the founder, or non-compliance with tax and administrative obligations can cause a trust to backfire. SARS has, in recent years, significantly increased its scrutiny of trusts, particularly where trusts are treated as mere alter egos of their founders or where statutory, tax and administrative compliance is lacking. In such cases, the intended estate planning benefits may be lost, and serious tax and legal consequences may follow.

A structure that demands ongoing care

For this reason, the establishment and ongoing management of a trust should never be approached lightly. Trusts involve costs, administrative obligations, and continuous compliance requirements, all of which must be weighed against the intended purpose and benefits of the structure. Estate planning, including the use of trusts, should always be approached holistically, considering individual circumstances, financial capacity, and long-term objectives, and should be revisited regularly as life circumstances, regulations and legislation may change.

The start of a new year presents an ideal opportunity to begin with a clean slate by reviewing your estate planning and trust structures. Changes in legislation, tax practice, family dynamics, or asset portfolios can all impact the effectiveness of an existing plan. Regular reviews with a qualified legal advisor ensure that your trusts remain compliant, effective, and aligned with your broader estate planning goals. When properly structured and maintained, a trust can protect your legacy and provide lasting security for future generations. However, when done wrong, it can come at a very real and costly price.

Disclaimer: This article is the personal opinion/view of the author(s) and does not necessarily present the views of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever, and no action should be taken on the basis thereof unless its application and accuracy have been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken based on this content without further written confirmation by the author(s).