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The importance of a Testamentary Trust and why you need one

A properly drafted Will is essential to ensure that your specific testamentary requirements are catered for, whilst taking into account the necessary estate planning mechanisms available to you. This will allow for your estate to be distributed according to your wishes and protects your heirs from unnecessary hardship on your passing.

A significant tool available in preparation of your Will is a testamentary trust (also called a “mortis causa trust”). A testamentary trust is a trust created in your Will and only comes into existence on your death. It is managed by the trustees (nominated in your Will), for the benefit of the beneficiaries, in accordance with the instructions in your Will. A testamentary trust can be created for a number of reasons, for example:

Minor children

Minor children (i.e. under the age of 18) cannot have inheritance awarded to them in South Africa. Any inheritance due to a minor will have to be liquidated (excepting immovable property) and paid to the Guardians Fund for investment until they reach the age of majority. Whilst the heir and/or guardian may request release of a portion of funds from the Guardians Fund prior to majority being reached, it may not be according to your wishes and create unnecessary hardship for your loved ones. A testamentary trust allows for the inheritance to be administrated by the nominated trustees, according to your wishes and for the benefit of the minor until the child attains the age of majority (or such later age as you may choose).  Whilst immobile property can be transferred to a minor, it is often impractical and creates difficulties as a court order will be required should the property need to be sold prior to the heir attaining the age of majority.

Heirs incapable of managing their own affairs

Certain of your heirs may be incapable of managing their own affairs (i.e. mentally or physically incapacitated), or you may feel that an heir’s inheritance will be better managed and preserved if administered by trustees on their behalf. A bequest to a testamentary trust affords you the peace of mind that the heir’s financial needs will be catered for (to the extent that the trust funds allow) in line with your directions. Your Will should stipulate the powers of the trustees and provide direction to the trustees on what needs of the heir should be met by the trust. Generally, the trustees will invest the funds in a prudent manner to allow for the best returns, but each trust will need to be looked at on an individual basis.

Making sure that you have a well-structured, legal Will in place is the last gesture of responsibility to your loved ones. 

Please feel free to contact Robert Montgomery, director and head of our estates department, should you wish to discuss your Will.


Disclaimer

This article is not intended to provide legal advice; it is for general information purposes only and to provide a general understanding of the law.  It is advisable that advice relating to the specific circumstances of your matter be sought from an attorney before acting upon the content of this article.  This article is written at a particular point in time and accordingly may not always reflect the most current legal developments, legislation and/or judgments which may be applicable from time to time. The author and/or Rushmere Noach Incorporated are not responsible for any errors or omissions in the content.