Financial Planner Theoniel Mc Donald CFP Unpacks Testamentary Trusts

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Quite often parents with dependents bequeath their assets at death to a trust drafted in the Last Will and Testament, known as a testamentary trust. 

Several benefits make a very compelling argument to justify this concept, among them the following: 

  • The trust is only registered at the office of the Master of the High Court after the date of death which means the testator doesn’t initially incur any registration cost as in the case of inter vivos trusts. The only fee payable before the date of death is for the drafting of the Will.
  • With the trust only being registered after death, no ongoing accounting, banking and independent trustee fees are incurred.

The current environment has brought about some risks that are worthwhile considering if this is an instrument that you have or are considering using in your Will. 

The principle is sound, although the practical execution may leave your dependents (especially financial dependents) high and dry during a time when they may be most vulnerable. 

To give context, it is important to first understand the process. 

An executor is nominated in the Will of the deceased to act at the time of death. 

This executor then approaches the office of the Master of the High Court to be formally appointed. This appointment process in the current environment can take anywhere between 1 to 6 months. 

Once the executor is appointed and the Will is accepted by the Master, a certified copy of that Will is then used to register the testamentary trust. 

The Will is noted as the deed of the testamentary trust. 

The Master then issues a Letter of Authority formally appointing the trustees to manage the trust for the benefit of the beneficiaries. This process could take a further 4 months. 

The process is also dependent on all the relevant parties being available to provide the necessary information to facilitate this registration.

Only after the trustees have been authorized (and the liquidation and distribution account in the deceased estate is approved by the Master for distribution) can any transfers to the trustees of the testamentary trust take place to be used for the benefit of the beneficiaries. 

If any policies or living annuities are bequeathed to the testamentary trust, then the dependents will surely be left to their own financial means while this process is concluded.

Other important factors that are often missed are clauses that allow for testamentary trusts to be amended, as well as clauses that exempt trustees from having to furnish security to act as such. 

Both could have adverse impacts on the trustees’ ability to act as trustees and to manage the trust for the benefit of the beneficiaries. 

Even so, in many cases the use of a testamentary trust may still make sense. 

I would encourage you to consult a professional to consider the above and if using a testamentary trust still makes sense to you, to make sure enough capital or life cover is available to provide for your financial dependents while the structure is being put in place. 

Another option to consider instead of a testamentary trust, is to rather draft an inter vivos trust and to bequeath the assets to this trust to be used exclusively as per the wishes of the testator/testatrix. 

This may have more of an upfront cost with a minimal annual fee if structured correctly – a small price to pay for more control and an estate much easier and faster to wind up. 

* Theoniel Mc Donald CFP® is Managing Director of Wealth Associates Central, Strategic Marketing Director of Wealth Associates South Africa, and is Vice President of the Financial Intermediary Association (FIA).