Trusts are often seen as tools reserved only for the estate planning of ultra-high-net-worth individuals. However, even if your financial resources are more modest, trusts can play a valuable role in protecting your wealth, supporting your loved ones, and transferring assets across generations as you intended.

Used thoughtfully, a trust can help ensure that wealth is managed responsibly long after you're gone. However, a trust is not automatically the right option. When implemented without a clear purpose, it can add unnecessary complexity, administrative burden, and more tax liabilities, potentially undermining rather than supporting your estate plan. Trusts are not a one-size-fits-all solution – their effectiveness depends on careful alignment between the types of assets involved, the needs of the beneficiaries, liquidity considerations, and the long-term objectives you're trying to achieve.

When planning your estate, your focus should always be outcomes, not structures. A trust should serve a clearly defined purpose within an integrated estate plan. Ask yourself a simple but powerful question: 'Is my estate structured around my family's needs, both now and in the future?

Why consider a trust?

A trust is a legal arrangement in which you, as the founder, transfer ownership of assets to the trust, to be managed by appointed trustees for the benefit of named beneficiaries. In estate planning, trusts are a useful way to:

• protect your assets from personal or business risk,
• provide for your minor children or dependants,
• manage your wealth across generations, and
• ensure continuity in your estate in the event of your incapacity or death.

When structured correctly, an estate trust can simplify estate administration. However, a poorly structured trust can complicate both your taxation and governance position.

What's the difference between inter vivos and testamentary trusts?

1. Inter vivos (living) trusts

These trusts are established during your lifetime. Once assets have been transferred into the trust, they fall outside your personal estate and are administered by trustees in line with the trust deed. Inter vivos trusts provide:

• asset protection during your lifetime,
• separation of your personal and business risk,
• intergenerational planning and continuity, and
• protection against future uncertainty.

2. Testamentary trusts

You can create a testamentary trust only through a will, and it comes into effect only on your death. Assets flow into the trust as part of the estate administration process. Testamentary trusts provide:

• protection of inheritances for your minor or vulnerable beneficiaries,
• structured, long-term provision for your dependants, and
• responsible distribution of your wealth over time.

Trusts, wills, and estate planning

You shouldn't set up a trust in isolation. An effective estate plan integrates trust and will structures to ensure clarity, liquidity, and administrative efficiency.

Your will should:

• align with the trust deed,
• clearly deal with assets not held in trust, and
• provide liquidity to cover estate costs and taxes.

It's critical to plan your trust, will, and beneficiary designations with an experienced professional estate adviser.

Asset types in trusts

Not all asset types are equally suited to trust ownership. Some assets benefit significantly from being held in trust, while others may be disadvantaged.

Assets that suit trust ownership:

• Growth assets such as shares or long-term property investments.
• Family businesses where continuity is essential.
• Assets exposed to business or professional risk.

Assets that may not fit your trust:

• Highly liquid assets needed for personal expenses.
• Primary residences (depending on the circumstances).

When deciding whether to place an asset in trust, consider its type, potential for growth, and any liquidity needs. Do not assume that putting an asset into a trust will automatically improve your estate's tax efficiency.

Tax and trusts in South Africa

• Income tax
  Trusts are taxed at a flat 45% on retained income – higher than most personal tax rates. If income is distributed within the same tax year, beneficiaries are taxed at their own marginal rates.
  
  
• Capital gains tax
  Trusts are subject to capital gains tax (CGT) at an effective rate of 36% on asset disposals that attract CGT. This makes careful planning around disposals essential.
  
  
• Loans
  Loans to trusts must also be carefully structured to avoid interest-free loan complications.
  
  
• Estate duty
  When structured effectively, a trust can reduce estate duty exposure by removing future asset growth from your personal estate. However, the South African Revenue Service scrutinises trusts, particularly where founders retain control, so sound structuring and ongoing administration are essential.
  
  
• Donations tax
  When setting up a trust or transferring assets to it, donations tax may apply:
  - 20% on the first R30 million.
  - 25% above R30 million.

Intergenerational wealth planning

One of the most compelling reasons for setting up a trust is to protect your wealth for future generations, especially where there is exposure to personal or business risk, or when families include entrepreneurs who may be financially active and innovative, but vulnerable to setbacks.

A carefully structured trust can:

• shield your assets from personal creditor risk,
• provide stable governance across multiple generations, and
• protect your beneficiaries from poor financial decisions or external influence.

In intergenerational wealth planning, a trust can offer continuity and stability. Rather than assets passing through successive estates – potentially triggering delays, costs, and erosion of value – a trust can preserve capital over the long term while providing controlled, appropriate access to income or benefits as needs arise.

It is important, however, to recognise that asset protection and beneficiary control are not the same thing. If you continue to treat assets placed in a trust as personal assets, you may compromise the trust's legal integrity and tax effectiveness. Independent trustees, clear governance, and disciplined administration are essential.

For some families, trusts are indispensable vehicles for long-term wealth protection, intergenerational planning, and responsible asset stewardship. For others, simpler structures combined with a well-drafted will may achieve their objectives at lower cost with less complexity. The most effective estate plans are designed around people, values, and outcomes – not structures alone.

You should use trusts deliberately, review them regularly, and adapt them as legislation evolves, your family circumstances change, and your asset profiles grow or shift.

Nedbank offers estate planning products and services that include free will drafting and professional estate administration. You can also ask us to call you if you've been appointed executor of someone's estate and need help.