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TRUSTS
What They Actually Do, What They Cost, and Where They Go Wrong
✎ By Gittins Attorneys · ⌛︎ 8 min read · ➤ 20 August 2026
This is the third instalment in our four-part newsletter series on estate and succession planning. The first edition dealt with what shapes your estate and the taxes it must carry. We looked at getting your will right. This week we turn to trusts: the structure most often recommended, most often misunderstood, and most often set up badly.
A trust is a powerful tool. It is not a product to be bought off the shelf, and it is not the answer to every estate planning problem. Whether it works for you depends on why it was created, how the trust deed is drafted, and how the trust is actually run afterwards. Most of the trust disputes we see stem from the last two, not the first
WHAT A TRUST ACTUALLY IS
A trust is created when a founder transfers ownership of assets to trustees, who hold and administer those assets for the benefit of beneficiaries, on the terms set out in a trust deed. The trustees own the trust property in their official capacity only: section 12 of the Trust Property Control Act 57 of 1988 keeps trust property separate from a trustee’s personal estate. That separation is the source of almost every benefit a trust offers.
Two consequences follow, and both are routinely underestimated:
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Once assets are in the trust, they are no longer yours. You may continue to influence how they are dealt with as a trustee, but you cannot treat them as your own, and a court will not respect a trust that you do.
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Trustees may not act until the Master of the High Court has issued letters of authority in terms of section 6(1). Agreements signed by a person who has not yet been authorised are void, and our courts have set aside transactions on exactly this basis.
THE MAIN TYPES OF TRUSTS
Inter vivos (living) trusts
Created during your lifetime by way of a trust deed lodged with the Master. Typically used to hold growth assets: fixed property, investments, shares in an operating company, or a family business.
Testamentary (mortis causa) trusts
Created in your will and only coming into existence on your death. This is the standard mechanism for providing for minor children. Without one, a minor’s cash inheritance is generally paid into the Guardian’s Fund administered by the Master, from which the guardian must then claim as expenses arise.
Discretionary trusts versus vested (bewind) trusts
In a discretionary trust, beneficiaries have no more than a hope of benefit; the trustees decide whether, when and how much to distribute. In a vested or bewind trust, the beneficiary’s right to income or capital has already vested, and the trustees merely administer. The distinction is not academic: a vested right forms part of the beneficiary’s own estate and is exposed to that beneficiary’s creditors, divorce and insolvency. Most family trusts should be discretionary, but many deeds inadvertently create vested rights through loose drafting.
Special trusts
A special trust is created for the benefit of a person with a disability; a Type B special trust is a testamentary trust for the benefit of minor relatives. Both are taxed on the sliding scale applicable to natural persons rather than at the flat trust rate, with the more favourable individual capital gains tax treatment. Whether a trust qualifies is a technical question, and the status is often available but never claimed.
Trusts within a wider structure
Trusts frequently sit alongside other entities rather than replacing them: a trust holding the shares in an operating company, a separate property-owning trust, or a trust used for employee incentive or B-BBEE ownership arrangements. Whether an asset should be held personally, in a company, in a trust, or in a combination is a structuring decision with tax, control and succession consequences, and it should be taken before assets are acquired, not afterwards.
WHAT A TRUST IS GENUINELY GOOD AT
Pegging growth in your estate
Once an asset is properly transferred to a trust, future growth in its value accrues to the trust and not to you. Your estate is effectively frozen at the value of what you received in return, which is the single most effective way of limiting future estate duty and capital gains tax exposure on a rapidly appreciating asset.
Continuity
A trust does not die. Trust assets are not frozen while a deceased estate is reported and wound up; they do not wait on the Master, and they do not attract executor’s remuneration. Where a business, a farm or a rental portfolio must keep operating without interruption, this is often the decisive consideration.
Protection of minors and vulnerable beneficiaries
A trust allows you to provide for a minor child, a beneficiary with a disability, or a beneficiary who cannot manage money, without handing over a capital sum outright and without recourse to the Guardian’s Fund.
Protection against creditors
Because trust property is not owned by you personally, it is in principle beyond the reach of your creditors. This protection is real, but it is prospective only. Assets moved into a trust when insolvency is already looming can be set aside as dispositions without value or in fraud of creditors, and the protection is lost entirely where the trust is found to be a sham.
WHAT A TRUST COSTS YOU: CONTROL & TAX
Trusts are the most heavily taxed entity in our system. A trust that retains income is taxed at a flat rate of 45% from the first rand, with no sliding scale and no rebate. Capital gains are included at 80%, giving an effective capital gains tax rate of 36%, against 18% for an individual.
The usual answer is the conduit principle: income and capital gains vested in resident beneficiaries in the same tax year are taxed in the beneficiaries’ hands, often at materially lower rates. That relief is not automatic. It depends on the deed permitting it, on a properly minuted trustee resolution, and on the vesting occurring in the correct year.
Getting assets into the trust also has a cost, and the method matters:
Donating an asset attracts donations tax at 20%, rising to 25% once cumulative donations exceed R30 million, and triggers capital gains tax on a deemed disposal at market value.
Section 7C of the Income Tax Act 58 of 1962 then treats the interest you forgo on an interest-free or low-interest loan to a connected trust as an annual donation, taxed at 20%. The official rate of interest changes over time and old calculations should not be relied on.
The attribution rules in section 7 of the Income Tax Act and the Eighth Schedule can tax trust income and gains in the hands of the donor, undoing the intended benefit where the arrangement is a donation in substance.
Selling the asset to the trust on loan account avoids donations tax on the transfer itself, but still triggers capital gains tax, and leaves the outstanding loan as an asset in your personal estate for estate duty purposes.
Immovable property attracts transfer duty, and a residence held in a trust does not qualify for the primary residence exclusion available to natural persons. Moving the family home into a trust is frequently a false economy.
The practical point is this: a trust is not, in itself, a tax saving. It is an estate freezing and asset protection structure that carries a tax cost, and the value lies in structuring the entry, the funding and the annual distributions so that the cost is managed rather than incurred by accident.
WHERE TRUSTS GO WRONG
The alter ego trust
This is the most serious risk, and the most common. Where the founder continues to deal with trust assets as if they were personally owned, ignores the trust’s separate existence, and treats co-trustees as a formality, a court may look behind the trust form. The consequences are exactly the opposite of what was intended: trust assets taken into account in a divorce and accrual claim, exposed to creditors, or included in the founder’s estate. Our courts have repeatedly emphasised that the core idea of a trust is the separation of control from enjoyment, and a trust that does not observe that separation invites attack.
Generic trust deeds
A deed downloaded or reused without thought is the origin of most later problems: beneficiary classes that are too narrow or too wide, no workable mechanism for appointing or removing trustees, no power to make the distributions the family actually needs, or amendment clauses that do not work. Amending a deed later requires the consent of everyone with accepted rights under it, which can be impossible once beneficiaries have accepted benefits.
Trustees who do not act as trustees
Trustees must act jointly unless the deed provides otherwise, must apply the degree of care, diligence and skill required by section 9(1) of the Trust Property Control Act, and cannot simply defer to the founder. A trustee who signs whatever is placed in front of them carries personal liability without the benefit of control.
No separation in practice
No separate bank account, personal expenses paid from trust funds, no annual resolutions, no minutes, no financial statements. Each of these is evidence that the trust is not a genuine trust, and together they are usually fatal in litigation.
The independent trustee
For family trusts, and particularly where the founder, trustees and beneficiaries are the same small group, the Master will generally require the appointment of an independent trustee who is not a beneficiary. This is not an administrative irritation; it is a substantive protection of the trust’s validity.
Trusts that are never revisited
Deceased or resigned trustees who are never replaced, beneficiary provisions overtaken by divorce or remarriage, loan accounts that have never been documented, and letters of wishes that no longer reflect reality. A trust that is not reviewed periodically will not do what you set it up to do.
COMPLIANCE OBLIGATIONS TRUSTEES UNDERESTIMATE
The Trust Property Control Act was significantly amended with effect from 1 April 2023. Trustees are now required to establish and record the beneficial ownership of the trust, keep the prescribed information on beneficial owners, and lodge and maintain a beneficial ownership register with the Master.
Trustees must also disclose their capacity as trustee to accountable institutions such as banks and attorneys when acting in that capacity. Non-compliance is a criminal offence carrying a substantial fine or imprisonment, and the Master is entitled to act against trustees who do not comply.
Separately, trusts must register with SARS, submit annual income tax returns even where the trust is dormant, and report distributions to beneficiaries through third-party reporting. Trustees who have quietly ignored these obligations for years should regularise the position rather than wait to be found.
THINGS TO REMEMBER
A trust protects you only to the extent that you genuinely give up control. If you cannot accept that, a trust is probably the wrong structure.
Trusts are the most heavily taxed entity in the system. Distributions to beneficiaries, correctly resolved and correctly timed, are usually the answer, but they must be done every year.
The family home is rarely a good candidate for a trust.
The trust deed is the whole trust. Have it read properly before you rely on it, and before you accept a deed drafted for someone else.
How you get assets into the trust matters as much as whether you do. Donations tax, capital gains tax, transfer duty and section 7C all need to be modelled beforehand.
Keep the paperwork: separate bank account, annual resolutions, minutes, financial statements and an updated beneficial ownership register.
Review the trust after any major change, and at least every few years, in the same way you would review your will.
WHAT'S COMING NEXT IN THIS SERIES
Next week we close the series with a practical walk-through of how a deceased estate is administered, from reporting the estate to the Master of the High Court through to final distribution, including the timelines and the costs involved.
Trusts reward careful set-up and punish neglect. Whether you are considering a trust for the first time, hold assets in a trust that has not been looked at in years, need a deed reviewed or amended, need trustees appointed or removed, or need help bringing a trust’s compliance and beneficial ownership position up to date, Gittins Attorneys Inc. is able to assist you from start to finish. If any of this raises questions about your own structure, business or family circumstances, get in touch with us — we’d be glad to help you put it right.
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