When a person dies in South Africa, the law must, as a matter of course, immediately step in. The Administration of Estates Act 66 of 1965 (“Administration of Estates Act”) requires that an executor be appointed, creditors be paid, and assets distributed.
If there is a valid will in terms of the Wills Act 7 of 1953 (“Wills Act”), the deceased’s wishes are duly followed as far as is feasible. If not, the operation of the Intestate Succession Act 57 of 1988 (“Intestate Succession Act”) comes to the forefront. Many South Africans assume a will is the only tool they will need. However, the process via the Administration of Estates Act is through overburdened public functionaries, and time-consuming, and costly. For this reason, the Trust Property Control Act 7 of 1953 (“Trust Property Control Act”) provides a potentially more suitable alternative: the trust.
THE WILL AND THE ADMINISTRATION OF ESTATES ACT
A will is an indispensable part of estate planning. In terms of section 2 of the Wills Act, the will must comply with the prescribed formal requirements; the will ought to be in writing and signed by the testator and two competent witnesses.
Upon a person’s death, the Administration of Estates Act[1] kicks in, and provides for a formal process that includes the following:
- Reporting the estate: Section 4 provides for the reporting of the deceased estate to the Master and the lodging of the original will within the prescribed period.[2]
- Appointment of an executor: Section 18 provides for the appointment of an executor to administer the deceased estate.[3]
- Notice to creditors: Section 29 requires the executor to give notice to creditors, allowing them an opportunity to lodge claims against the estate.[4]
- Executor’s remuneration: In terms of the First Schedule for the Administration of Estates, the executor is entitled to remuneration of 3.5% on the gross value of assets, together with VAT where applicable.[5]
- Intestate succession: Where a person dies without a valid will, the Intestate Succession Act instead governs the distribution of the deceased’s estate.[6]
The deceased estate may also be liable for estate duty in terms of the Estate Duty Act 45 of 1955 (“Estate Duty Act”). The administration of the estate takes place under the supervision of the Master of the High Court, with the executor responsible for carrying out the administration process in accordance with the applicable legislation.
THE TRUST AND THE TRUST PROPERTY CONTROL ACT
Section 1 of the Trust Property Control Act defines a ‘trust’, on the other hand, as an arrangement in terms of which trustees hold and/or administer trust property for the benefit of beneficiaries.[7] It is, further, crucial to examine and understand the different types of trusts.
Inter vivos trust: An inter vivos[8] trust is created during the founder’s[9] lifetime in terms of a trust deed and is registered with the Master.[10] Once assets are transferred to the trust, the trust property vests in the trustees and no longer forms part of the founder’s estate for purposes of the Administration of Estates Act and Estate Duty Act.
Testamentary trust: A testamentary trust is created in terms of a will and comes into existence only upon the testator’s death. The trustees are appointed and supervised in accordance with the applicable provisions of both the Administration of Estates Act[11] and Trust Property Control Act.[12]
Trustees are required to act independently and in the best interests of beneficiaries. A trust may not lawfully be used as a device to defeat creditors or evade legal obligations, as expanded below.
SOME PRINCIPLES ARISING FROM RECENT SOUTH AFRICAN CASE LAW
- Badenhorst v Badenhorst 2021 (4) SA 548 (SCA): The Supreme Court of Appeal upheld that a trust is a separate legal entity. However, where a spouse abuses the trust as an ‘alter ego’, the court may include trust assets for purposes of the accrual.[13]
Legal Principle: The Trust Property Control Act must be complied with, and the independence of trustees is mandatory.
- Commissioner for the South African Revenue v The Executor, Estate Late N J Ndyefane 2023 ZASCA 94: The Supreme Court of Appeal applied section 3(3)(a) of the Estate Duty Act and held that pension benefits paid to a testamentary trust do not form part of the estate.[14]
Legal Principle: Lawful estate planning within provisions of the Estate Duty Act is permitted.
- In re: Estate Late Rautenbach; Master of the High Court v Rautenbach 2022 ZAGPJHC 123: The High Court upheld the role and authority of the executor under the Administration of Estates Act. It held that an executor must finalise estate liabilities before transferring assets to testamentary trustees.[15]
Legal Principle: A testamentary trust does not circumvent the ordinary principles of the Administration of Estates Act.
COMPARISON OF A WILL AND A TRUST IN TERMS OF SOUTH AFRICAN LAW
In law, a will and a trust serve different, yet often complementary functions.
Legal framework
A will is governed by the Wills Act[16] and administered under the Administration of Estates Act.[17] This encompasses the supervision of the Master, creditor processes, and the administration of the deceased estate, whereas a trust is governed by the Trust Property Control Act. In a similar vein, an inter vivos trust is administered by trustees outside of the Administration of Estates Act process.
Costs
According to the First Schedule of the Administration of Estates Act, an executor is entitled to a remuneration fee of 3.5% (plus VAT) on the total value of the estate assets. A trust incurs setup establishment and annual trustee fees, but no executor’s fees are payable on assets held in the trust.
Tax implications
The Estate Duty Act imposes estate duty on the dutiable estate.[18] Assets in an inter vivos trust are excluded.[19] However, trusts are taxed at 45% on income in terms of the Income Tax Act.[20]
Timeframes
Administration of an estate under the Administration of Estates Act may take 6 to 24 months.[21] Trustees can distribute trust assets immediately in accordance with the provisions of the trust deed.
Purpose and suitability
A will can be instituted to appoint guardians to care for any minor children and to deal with assets that are not held in trust. Further, in terms of section 25 of the Administration of Estates Act, if parents die intestate, the Guardian’s Fund will administer the children’s inherited money.[22]
However, it is preferable for parents to stipulate the consequences of their passing in full to any unforeseen hurdles for their minor children. Provision can be made for a testamentary trust in their wills, where trustees will administer the trust until the children reach the age of majority.[23] This provides a lawful mechanism for protecting and managing the children’s inheritance. The trust can also safeguard asset protection, privacy, and provision for persons with disabilities, as contemplated by the Trust Property Control Act.[24]
Therefore, the law does not require a choice between one or the other. It permits and often requires both.
WHICH IS BETTER: WILL VS. TRUST AND WHEN TO USE WHICH
In South Africa, a will is best for simplicity. It is the standard way to state who should inherit your assets and works well for straightforward estates. A trust is better for protection and control. It is useful when you have minor children, family members who need financial management, a large or complex estate, or concerns about debt and privacy. Many people use both together: a will to direct assets, and a trust to manage them.
CONCLUSION: UPHOLDING THE LAW TO PROTECT YOUR FAMILY
Estate planning is not simply about what you own, but about ensuring the orderly administration, protection and distribution of your assets in accordance with your wishes. Without proper planning, an estate is subject to statutory administration which often results in delays, costs and a lack of privacy.
A valid will ensures testamentary freedom, the appointment of executors and guardians, and certainty for beneficiaries. A trust provides an additional mechanism for asset protection, continuity, and the safeguarding of interests of minor or vulnerable beneficiaries. In most instances, the most effective approach is a combination of both instruments, tailored to the needs of the estate and the family.
At Adriaans Attorneys, we can assist you with selecting and implementing the appropriate estate planning tool and will guide you through every step of the process. Contact us today to ensure your affairs are in order and your legacy is secured.
[1]S 2 of Administration of Estates Act 66 of 1965 (“Administration of Estates Act”). [2]S 4 of Administration of Estates Act. [3]S 18 of Administration of Estates Act. [4] S 29 of Administration of Estates Act. [5] S 51(1)(a) of Administration of Estates Act. [6] S 2 of Administration of Estates Act. [7] S 1 of Trust Property Control Act 57 of 1988 (“Trust Property Control Act”). [8] The term “inter vivos” is a Latin phrase which means “between the living” or “during one’s lifetime”. [9] The “founder” is the living person who created the trust, signs the trust deed, and transfers the initial assets and/or funds into the trust during their lifetime. [10] S 4 of Trust Property Control Act. [11] S 18 of Administration of Estate Act. [12] S 6 of Trust Property Control Act. [13] Badenhorst v Badenhorst 2021 (4) SA 548 (SCA) para 22. [14] Commissioner for the South African Revenue vs v The Executor, Estate Late N J. Ndyefane 2023 ZASCA 94 para 17. [15] In re: Estate Late Rautenbach; Master of the High Court v Rautenbach 2022 ZAGPJHC 123 paragraph 31. [16]S 2 of Wills Act 7 of 1953 (“Wills Act”). [17] S 2 of Administration of Estates Act. [18] In a South-African deceased estate, the term “dutiable” means any assets, owned by the deceased that can be taxed for estate duty by SARS after deducting debts and exemptions. [19] S 3(2) read with S 3(1) of Estate Duty Act 45 of 1955 (“Estate Duty Act”). [20] S 25B of the Income Tax Act 58 of 1962 (“Income Tax Act”). [21] S 29 and 35 of Administration of Estates Act. [22] S 25 of Administration of Estate Act. [23] S 6(1) of Trust Property Control Act. [24] S 6 of Trust Property Control Act.
Trust And Estates Paralegal
While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes and should not be construed as legal advice.
Add a Comment