Trusts Explained Simply: When Do You Actually Need One?

Someone told you that you need a trust to protect your assets or save tax. It sounds important, but also expensive and confusing. Trusts can be very useful in the right situation, and unnecessary in others.

What is happening

A trust is an arrangement where one person (the founder) hands over assets to be managed by trustees for the benefit of other people (the beneficiaries). In South Africa, trusts are governed by the Trust Property Control Act and overseen by the Master of the High Court. Trustees must be authorised by the Master before they can act.

There are two main types. A testamentary trust is created in your will and only starts after your death. It is simple and cheap to set up, and it is the most common way to protect an inheritance for young children, so it is managed until they are older rather than going to the Guardian's Fund. A living (inter vivos) trust is set up while you are alive, often to hold a home, a farm, a business or investments for the family.

Trusts are useful to protect children or dependants with disabilities, to keep a family business or land together, and in blended families where you want to provide for different people fairly. They are not a simple tax saver. Trusts pay tax at higher rates than most individuals on income they keep, must submit tax returns, and must lodge beneficial ownership details with the Master. Trustees have real legal duties and can be held personally liable.

Is this you?

• You have young children and want their inheritance managed well.
• A family member has a disability and needs lifelong support.
• You own a family home, farm or business to keep together.
• You have children from different relationships.
• Someone is selling you a trust mainly to save tax.

30-second self-check

Answer yes or no.

• Do you have children under 18 or a dependant with a disability?
• Would your children inherit a significant amount if you died?
• Do you own a business, farm or family property to keep in the family?
• Do you have a blended family?
• Do you have trusted people willing to act as trustees for many years?
• Could you afford ongoing trustee, accounting and tax costs?

0-1 yes: A trust is probably not necessary. A good will and the right beneficiary nominations may be enough.
2-3 yes: A testamentary trust in your will may be the simplest fit. Ask an estates attorney.
4 or more yes: A trust could be worth considering. Get advice on the type of trust, the costs and your trustees before you set one up.

What you can do next

• Today: Write down who depends on you and what they would inherit.
• This week: Speak to an estates attorney or fiduciary practitioner about whether a testamentary trust in your will is enough.
• This month: If you need a living trust, get written costs, the tax position and the trustees' duties explained before you sign.
• Choose trustees you trust who understand money, and talk to them before you name them. Being a trustee is a real responsibility.

Your tool

Trust Suitability Guide - answer questions about your family and assets to see whether a trust might help, which type fits, and what to ask a professional.

When to get professional help

Speak to an estates attorney, fiduciary practitioner or tax practitioner before creating a trust or moving assets into one. Planning for dependants after your death can stir worry and grief, and it is fine to talk that through too.
Who can help: Estates attorney, fiduciary practitioner, tax practitioner, FSCA-authorised financial planner

Getting help in South Africa

The Master of the High Court (justice.gov.za) registers trusts, authorises trustees and keeps beneficial ownership records. SARS (sars.gov.za) explains how trusts are taxed. The Fiduciary Institute of Southern Africa (FISA) represents fiduciary practitioners who specialise in wills, trusts and estates.