Estate planning is often seen as a task reserved solely for the wealthy. In reality, it is an important pillar of financial wellness for anyone who wants to ensure their loved ones are protected and their assets are managed according to their wishes.
Wills and trusts are two critical tools in this achieving this objective, says Sharon Hamman, Senior Legal Adviser at Momentum.
“While Wills and trusts are often viewed in a similar context, they serve distinct purposes as part of the estate and succession plan,” she explains. “Rather than choosing one over the other, many families find that using them simultaneously, in conjunction with each other, provides the most robust protection.”
A Will is your final directive
A Will is a legal document that outlines exactly how you want your assets to be distributed and who should care for your family after your passing.
“For parents, one of the most important functions of a Will is to nominate legal guardians for minor children,” says Hamman, adding that it also allows you to specify exactly who receives what, including sentimental items – from family heirlooms to jewellery – to prevent potential conflict among heirs.
Your Will also appoints an executor as the trusted individual or professional who will oversee the winding up of your estate. By appointing a professional, a reputable executor to administer your estate, you can rest assured that the administration process will be dealt with in due time and with the necessary care, skill and respect it deserves.
There are various requirements that must be met for a Will to be legally valid and therefore it is important to consult with a financial adviser or fiduciary specialist to assist with the drafting thereof. A financial adviser can also ensure that your Will is executable – meaning that your wishes and instructions expressed in the Will can be complied with – due to sufficient provision being made for debts, estate expenses, etc.
You can amend your Will at any time, especially when personal circumstances change, making sure to revoke all previous Wills. Your last dated Will takes effect upon death and must go through a formal legal process before it can be executed. Once lodged with the Master’s Office, it becomes a public document, and a formal administration process will then have to be followed before assets can be released to beneficiaries.
A trust provides continuity and protection
A trust is a legal entity that can either be created during your lifetime or upon your death in terms of your Will, and is typically used to hold and manage assets for the benefit of others.
Trusts are private arrangements. Hamman explains that unlike a probated Will, the details of a trust’s assets and its beneficiaries generally remain out of the public record. Assets held within a trust are protected from beneficiaries’ personal creditors, making it an invaluable tool for safeguarding a family’s financial future.
Unlike a Will, a trust does not die with you. Created and used as part of a financial plan during your lifetime, it provides for a seamless succession of assets between generations, ensuring beneficiaries continue to receive support without waiting for an estate to be wound up. It protects the assets held in trust against estate administration costs, estate creditors and death related taxes.
When creating a testamentary trust in your Will to administer and manage assets for minor children upon the death of a parent/s, you should consider the time delay between death and the setting up of the trust, as it will be created as part of the estate administration process – leaving assets in the estate while the trust is being created. In these instances, the estate plan plays a vital role to secure interim funding for living expenses, emphasising the vital role the financial adviser plays when considering and implementing these structures.
Managing complexity
Trusts offer a level of structured governance that can handle complexity with ease. For blended families, trusts can be structured to provide for a surviving spouse during their lifetime while ensuring the remaining capital eventually passes to children from a previous marriage. This balances the needs of all family members and reduces the risk of inheritance disputes.
For heirs unable to manage finances due to disability or other vulnerabilities, a trust provides a protective wrapper. Trustees can manage the funds to ensure the beneficiary’s long-term care and quality of life are maintained.
For those with international interests, offshore trusts can be highly effective to protect assets and provide for intergenerational wealth transfer. They help avoid the complexities surrounding multi-jurisdictional probate and situs tax and can bypass forced-heirship rules that exist in certain territories.
The tax landscape
“There is a common misconception that trusts are purely tax-avoidance vehicles,” says Hamman. “This is actually not the case. Trusts are under increased scrutiny from SARS and various anti-avoidance provisions are contained in the Income Tax Act. However, despite being subject to higher tax rates, their primary value lies in risk management and fiduciary care. The value of knowing assets are protected from mismanagement or external claims administration costs often outweighs potential tax consequences, truly leaving a positive financial legacy for future generations.”
A complementary approach
Hamman stresses that Wills and trusts are not in competition with each other but can be effective partners as part of your estate plan. A popular strategy for some families involves a “pour-over trust,” where any assets held in an individual’s name at the time of death are directed into a pre-existing trust – where the trust is the beneficiary of the estate and the family members the beneficiaries of the trust.
“Whether you are protecting a minor child’s inheritance, providing for long-term care of a special needs child, managing a family business across generations, or simply ensuring a peaceful transition of sentimental belongings, the combination of a clear, valid and executable Will and a well-structured trust offers a proactive way to reduce risk,” says Hamman.
“There are many factors that may influence the appropriate use of Wills and trusts. Working with a financial adviser to guide you on the best option for your circumstances is non-negotiable. It empowers you to make the right decisions for you and your family and ensure your legacy remains a source of support and not one of stress for those you leave behind.”
