Trusts Explained in Plain Language

The word "trust" can sound like something only for wealthy families with lawyers on speed dial. Yet many ordinary South Africans use a simple trust to protect children after a death. It helps to understand the basics before anyone sells you one.

What is happening

A trust is an arrangement where one person (the founder) hands over money or property to be looked after by trustees for the benefit of other people (the beneficiaries). The trustees must manage the property honestly and carefully, following the rules in the trust deed or the will.

There are two main kinds:

• A testamentary trust is created in your will and only starts after you die. It is often used so that money for minor children is managed by people you trust until the children are older, instead of going into the Guardian's Fund at the Master's office.
• An inter vivos (living) trust is set up while you are alive, with a written trust deed. Families sometimes use these to hold a home, a farm or a business.

In South Africa, trusts are governed by the Trust Property Control Act 57 of 1988. Trustees must receive "letters of authority" from the Master of the High Court before they may act. Since recent anti-money-laundering changes, trustees also have to keep records of who the real beneficial owners of the trust are and share them with the Master.

Trusts are not magic. They cost money to set up and run, have their own tax rules, need proper records and bank accounts, and trustees can be held personally responsible if they mismanage trust property. A trust that exists only on paper, with one person doing as they please, can be challenged.

Is this you?

• You have young children and worry about who will manage their inheritance.
• You support a family member with a disability who may never manage money alone.
• Someone has suggested a family trust for your home or business.
• You have been named as a trustee and are not sure what that means.
• You are a beneficiary and cannot get information from the trustees.
• A relative left property in a trust and the family is confused about who owns it.

30-second self-check

Answer yes or no to each question.

• Do you have children under 18 or a dependant who cannot manage money?
• Would they inherit a meaningful amount, such as a home, policy payout or pension?
• Does your will leave money to minors without saying who manages it?
• Has someone offered to set up a trust without explaining the yearly costs?
• Are you a trustee who is unsure of your legal duties?
• Are you unsure whether a trust is right for your situation?

0-1 yes: A trust may not be needed right now. A clear will could be enough.
2-3 yes: It is worth asking a qualified person whether a testamentary trust in your will makes sense.
4 or more yes: Get proper advice soon, so your family is protected and you do not pay for something unsuitable.

What you can do next

• Today: Write down who depends on you and what they would receive if you died. Include life cover, pension and the home.
• This week: Think about two or three people you trust to manage money for your children. Ask if they would be willing.
• This month: Discuss with an estates attorney or fiduciary whether a testamentary trust in your will is enough, or whether a living trust is worth the cost.
• Ask for all costs in writing: setup fees, yearly administration fees, accounting and tax.
• If you are already a trustee, ask for a copy of the trust deed and the letters of authority, and keep separate records for the trust.

Your tool

Estate Planning Readiness - a short check that shows whether your will, guardian choices and any trust plans fit together, and what to raise with a professional.

When to get professional help

Always get advice before setting up a living trust or moving a house or business into one, because the tax and legal effects are hard to undo. Get help too if you are a trustee facing a dispute, or a beneficiary who feels shut out.
Who can help: attorney_estates, fiduciary_estate, financial_planner_fsca, tax_practitioner, accountant

Getting help in South Africa

The Master of the High Court registers trusts and issues letters of authority. See justice.gov.za for your nearest office. Estates attorneys (check registration at lpc.org.za), fiduciary practitioners and registered tax practitioners can set up and run trusts. If a financial adviser recommends a trust linked to an investment, check that they are authorised by the FSCA at fsca.co.za.