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The benefits of a Testamentary Trust

Opinion editorial by Elmarie de Vos, Trust Division at Legatus Trust (201608)
  • In the event of one’s death, any inheritance payable to a *minor heir where no Testamentary Trust has been created, will be paid to the *Guardian’s Fund to be administered until the heir attains the age of 18.  In most cases, all the assets will be converted to cash.  Only in extreme cases (and with extreme measures) will the Guardian’s Fund accept the transfer of a fixed asset.
Under South African law minors cannot receive their inheritance directly.  To prevent funds from being deposited into the Government’s Guardian’s Fund, it is beneficial to create a trust for one’s minor beneficiaries in a will.
  • In the event where there are major children from a previous marriage, a Testamentary Trust allows for the income of the trust to be utilized for the maintenance of a spouse from a second marriage (known as the *Income Beneficiary), while protecting the capital of the Trust for the ultimate beneficiaries (known as the *Capital Beneficiaries).
  • A Testamentary Trust can be utilized to protect the inheritance of a vulnerable spouse/heir.

A Testamentary Trust will qualify to be registered as a Special Trust with SA Revenue Services if:
  • Special Trust A:  A Trust is created solely for the benefit of a person who suffers from any illness as defined in Section 1 of the Mental Health Act or any serious physical disability, where such illness or disability incapacitates such person from earning sufficient income for the maintenance of such person.
  • Special Trust B:  A Trust created solely for the benefit of major and/or minor beneficiaries who are relatives of the deceased and who are alive on the date of death of the deceased (including any beneficiary who has been conceived but not yet born) and where the youngest of those beneficiaries are, on the last day of the a tax year, under the age of 18;
Special Trusts qualifies for tax advantages (income tax and capital gains tax) as these trusts are mostly taxed at the rates applicable to individuals (exceptions do occur).
  • Minor heir – in terms of current legislation any heir under the age of 18 is considered a minor
  • Guardian’s Fund – The Guardian’s Fund falls under the administration of the Master of the High Court.  It is a fund created to hold and administer funds on behalf of various persons, including minors, unborn heirs, missing or absent persons etc.
  • Income Beneficiary – a person who will benefit from the income of the Trust
  • Capital Beneficiary – a person who will ultimately inherit the capital of the Trust
  • Termination:-
  • Testamentary Trust - termination date is a specific date chosen by the Testator/Testatrix whereupon the trust must terminate and the assets duly made over and/or paid to the Capital Beneficiary/ies.
  • Inter Vivos Trust – termination date can be a specific date chosen by the Founder of the Trust whereupon the trust must terminate and the assets duly made over and/or paid to the Capital Beneficiary/ies.  The Founder may also allow for a specific date to be chosen by the Trustees, when they unanimously so decide (discretionary termination).

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