Choosing the Right Family Trust

A trust is a versatile legal structure that provides families with asset protection, efficient estate planning, and long-term financial management. However, choosing the right type of trust for your family requires a thorough understanding of your financial goals, family dynamics, and legal requirements.

What is a Family Trust?

A family trust is a legal entity where assets are transferred to be managed by trustees for the benefit of designated beneficiaries, typically family members. It is governed by a trust deed, which outlines the terms and conditions under which the trust operates.

Family trusts are primarily used for:

  • Protecting assets from creditors.
  • Minimizing estate duty.
  • Providing financial security for future generations.

Which Type of Family Trust Will Suit My Family’s Needs?

The choice of trust depends on your objectives and the specific needs of your family. Below are the most common types of trusts used in South Africa:

1. Discretionary Trust

A discretionary trust is the most commonly used trust for families.

  • How it Works: Trustees have the discretion to decide how the trust’s income or assets are distributed among the beneficiaries. This flexibility allows the trustees to adapt to changing family needs or circumstances.
  • Benefits:
    • Flexibility in asset distribution.
    • Protects assets from creditors of beneficiaries.
    • Effective tax planning, as income can be distributed to beneficiaries in lower tax brackets.

Best For: Families with complex needs or those requiring flexibility in managing and distributing assets.

2. Testamentary Trust

A testamentary trust is created in terms of a will and comes into effect upon the death of the testator.

  • How it Works: Assets from the deceased’s estate are transferred into the trust, and trustees manage the trust for the beneficiaries.
  • Benefits:
    • Ensures minor children or vulnerable beneficiaries are cared for.
    • Provides structured financial management after the testator’s death.
    • Reduces the risk of mismanagement or misuse of inherited assets.

Best For: Parents with young children or dependents who need ongoing financial support.

3. Living Trust (Inter Vivos Trust)

A living trust is created while the founder is alive and is often used for estate planning purposes.

  • How it Works: Assets are transferred into the trust during the founder’s lifetime. Trustees manage these assets according to the terms of the trust deed.
  • Benefits:
    • Protects assets from creditors and insolvency.
    • Minimizes estate duty upon the founder’s death.
    • Ensures continuity in asset management during and after the founder’s lifetime.

Best For: Families looking for long-term asset protection and estate duty savings.

4. Special Trust

A special trust is designed for specific beneficiaries, such as individuals with disabilities or special needs.

  • How it Works: The trust provides financial support to the beneficiary while ensuring their long-term care and well-being.
  • Benefits:
    • Beneficial tax treatment compared to other trusts.
    • Tailored to meet the unique needs of the beneficiary.

Best For: Families with dependents who have disabilities or special needs requiring lifelong care.

5. Business Trust

Although not specifically for family purposes, a business trust can be used to separate personal and business assets.

  • How it Works: The trust owns and manages business assets on behalf of the family or beneficiaries.
  • Benefits:
    • Protects business assets from personal creditors.
    • Ensures continuity in business management.

Best For: Families with substantial business interests seeking asset protection and succession planning.

Factors to Consider When Choosing a Family Trust

When deciding which type of trust is best for your family, consider the following factors:

  1. Purpose of the Trust
    • Are you protecting assets from creditors?
    • Do you want to secure financial support for dependents?
    • Is minimizing estate duty a priority?
  2. Family Dynamics
    • Are there minor children or vulnerable dependents?
    • Are there potential disputes among family members over inheritance?
  3. Tax Implications
    • Trusts are subject to unique tax rules in South Africa, and understanding the tax implications is critical.
  4. Costs and Administration
    • Trusts can be costly to set up and maintain. Ensure you have the resources to manage these expenses.

Which Trust is Best for Your Family?

For most families, a discretionary trust is the best option due to its flexibility and ability to adapt to changing circumstances. However, a testamentary trust is ideal if the primary goal is to provide for minor children or dependents after the founder’s death.

Families with special needs beneficiaries may benefit most from a special trust, while those with significant assets or business interests may consider a living trust or business trust.

Ultimately, the best type of trust for your family depends on your unique circumstances and goals.

Choosing the right type of trust is a crucial step in securing your family’s financial future and ensuring your assets are managed according to your wishes. At Burger Huyser Attorneys, we specialise in helping families create tailored trust structures that align with their goals and comply with South African law.

If you’re considering setting up a trust or need advice on trust management, contact Burger Huyser Attorneys today for expert guidance. Let us help you make the best decision for your family’s financial security.

Contact Burger Huyser Attorneys, and book a consultation.

To speak to one of our experienced attorneys in South Africa for immediate assistance, contact us on the numbers below:

Randburg call 061 516 6878; Roodepoort call 061 516 0091; Sandton call 064 555 3358;  Pretoria call 064 548 4838;

Centurion call 061 516 7117; Alberton call 061 515 4699; Bedfordview call 061 536 3223

DISCLAIMER: Information provided in this article does not, and is not intended to constitute legal advice. READ MORE