How to use trusts in estate planning

Trusts are important tools in your estate planning toolkit because they can play a big role in ensuring that your loved ones are provided for after you pass away. And when used correctly, wills and trusts can work together very effectively to carry out your wishes.

How to use trusts in estate planning

Drafting a will is an essential part of estate planning and your will is also the place where you can make provision for the creation of different types of trusts to fulfil specific functions within your estate.

Testamentary trusts, as the name suggests, are established in line with your last will and testament and come into being when you pass away. There are three main types of testamentary trusts:

  1. children’s trust protects minor children, and dependents who are not able to manage their inheritance themselves. In the case of minor children, these trusts remain in force until the children reach the ages specified in the will and are capable and mature enough to manage their own finances. For tax purposes, testamentary trusts may be recognised as Special Trust Type B and this could offer a financial benefit, provided the legal requirements are met. Make sure you get the correct advice if you need to include this in your will.
  2. widow’s trust provides financial support and security to a surviving spouse, who should be the sole beneficiary of income from the trust for their lifetime. Not only are these trusts used to provide income for surviving spouses, but they also preserve capital so that an inheritance can ultimately pass to the children.
  3. A provider’s trust gives ongoing financial support and care to dependents with disabilities or special needs. For example, children with autism or Down’s syndrome often outlive their parents, so provider’s trusts are good vehicles for securing their inheritance. Special needs children may also require specific medical care and making provision for this after a parent’s passing can be taken care of with a provider’s trusts.

Establishing trusts has legal and financial implications, so make sure that your choice of trust is in line with your estate planning goals and complies with South African estate law. You should also think carefully about who you name as trustees before writing those individuals’ names into your will.

Your estate advisor or a professional estate planning expert will be able to guide you on the appropriate trusts for your circumstances. They must ensure that trusts are set up correctly so that the estate administration process does not delay the finalising of your estate, and your beneficiaries can be cared for without interruption after you pass away.

By understanding how wills and trusts work together, you can do your estate planning in such a way that it safeguards your assets and secures your legacy for your heirs and beneficiaries.

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