Trust as an estate planning tool

In the previous article “What is a trust” we gave an overview of the different trusts, in which we made reference to estate planning.

In this article we will be focusing shortly on the living trust (inter vivos trust) that is created during the founder’s lifetime, as a tool for estate planning.

A living trust can hold or be the owner of various types of assets, which can include cash, fixed property, investments, movable property, etc.

When a living trust is used as a mechanism for estate planning, then a distinction must be made between living trusts and wills as both are instruments for estate planning. A living trust does not replace a will; it is merely a separate estate planning tool – separate from your will.

In the event that none of your assets has been transferred to a living trust or other legal entity, all such assets will form part of your estate when you pass away.  The effect is that none of your assets are then excluded from the value of your estate and this might have an influence on the Estate Duty payable to SARS.

Currently estate duty is payable on the estate of every person who dies and whose net estate is in excess of R3.5 million.  Estate duty is then charged at the rate of 20%.

It is clear from the above that if your net estate value is in excess of R3.5 million, it makes sense to make use of, for instance, a living trust as an estate planning tool to reduce your net estate value to less than R3.5 million.

The living trust thus helps you to plan to keep the net asset value of your estate below the threshold and therefore not attract further estate duty.  In the trust deed you need to determine who the income beneficiaries will be during the currency of the trust and who the capital beneficiaries will be when the trust terminates. It is normally provided that the trust will terminate on a date to be determined by the trustees.

In essence a living trust (inter vivos trust) can be used to effectively limit the value of your estate and thus to limit estate duty payable. The living trust also serves to protect trust assets from the creditors of your estate, and therefore safeguards such assets for the beneficiaries of the trust.


Alex de Wet