Most South Africans approach estate planning as if it were a single decision. Draft a will, name an executor, sign the document, and move on.
In practice, estate planning is a set of layered decisions about which structures to use, in which combination, for which assets. The right answer depends on what you own, how you own it, who you want to benefit, and what tax exposure you are trying to manage.
This article breaks down the main structures available under South African law, what each one does, and when it makes sense to use it.
Structure 1: The Inter Vivos Trust
An inter vivos (living) trust is created during your lifetime. You transfer assets into the trust, which then holds them on behalf of named beneficiaries. The trust is a separate legal entity, and it owns the assets, not you.
What it protects against:
- Estate duty: assets held in the trust do not form part of your personal estate on death and are therefore not subject to estate duty under the Estate Duty Act 45 of 1955 in the same way as personal assets are.
- The Master’s freeze: because trust assets are not in your estate, they are not frozen during the winding-up process and can continue to be administered immediately.
- Creditor claims against your personal estate in certain circumstances, depending on how the trust is structured and how long assets have been held in it.
When it makes sense:
- You own property, particularly residential property with significant value.
- You have minor children who cannot legally inherit directly.
- Your net estate is likely to exceed the R3,5 million primary abatement (verify current threshold with SARS).
- You are in a blended family and need to balance obligations to a current spouse and children from a previous relationship.
- You own business interests where continuity after your death is critical.
What to be aware of: Transferring assets to a trust during your lifetime may trigger donations tax, currently at 20% on donations above R100,000 per year per donor (verify the current annual exemption with SARS). The cost-benefit analysis between paying donations tax now versus estate duty later depends on your specific figures and requires professional modelling.
SARS also scrutinises inter vivos trusts carefully. A trust that is not genuinely independent, where the founder retains effective control or the trustees act without proper decision-making authority, may be disregarded for tax purposes. The trust must be administered correctly under the Trust Property Control Act 57 of 1988 to be effective.
Structure 2: The Testamentary Trust
A testamentary trust is created by your will and comes into existence only after your death. It is not a structure that holds assets during your lifetime, but it is an instruction in your will for assets to be held in a trust for specified beneficiaries rather than distributed directly.
What it protects against:
- Direct inheritance by minor children, who cannot legally hold assets in their own names.
- Lump-sum distributions to beneficiaries who are not financially equipped to manage large inheritances, for example, young adults, dependents with disabilities, or beneficiaries with spending or debt problems.
- Rapid dissipation of an inheritance that was intended to provide long-term support.
When it makes sense:
- You have minor children and want assets held and managed until they reach a specified age.
- You want to provide for a dependent with special needs without affecting their access to social grants or other support.
- You have adult beneficiaries for whom an immediate lump sum would not serve their long-term interests.
What to be aware of: Because a testamentary trust only comes into existence after death, the assets that fund it still form part of your personal estate during the winding-up process. This means they are subject to estate duty and the Master’s freeze in a way that inter vivos trust assets are not. A testamentary trust protects the distribution, but not the estate itself.
Structure 3: The Private Company (Pty) Ltd as a Holding Structure
Holding assets, particularly business interests or investment property, through a private company rather than in your personal name can form part of an integrated estate planning approach.
What it does: When assets are held in a company, what you own is not the asset itself but shares in the company. On your death, those shares form part of your estate. However, the company itself continues to function, and does not cease to exist because a shareholder dies. This provides operational continuity that personal ownership does not.
A company can also be combined with a trust structure, where the trust holds shares in the company. This places the shareholding outside your personal estate while allowing the company to operate independently.
What to be aware of: Holding assets in a company does not, by itself, reduce estate duty. You still own the shares, and the value of those shares is included in your dutiable estate. The structure becomes more effective when combined with a trust, a buy-and-sell agreement, or other mechanisms. Running a company also introduces ongoing compliance obligations: annual financial statements, tax returns, CIPC filings, and governance requirements that must be maintained.
Structure 4: The Buy-and-Sell Agreement
If you own a business in partnership with others, whether in a formal partnership, a close corporation (if still operating one), or a private company, a buy-and-sell agreement is one of the most important structures you can put in place.
What it does: A buy-and-sell agreement is a contract between business partners that provides a mechanism for the surviving partner(s) to purchase the deceased partner’s business interest from the estate, at a predetermined value, funded by life cover. Each partner takes out a life policy on the other, with the surviving partner as beneficiary. On the death of one partner, the surviving partner receives the policy proceeds and uses them to buy the deceased’s share from the estate.
What it protects against:
- The estate being forced to sell a business interest at an unfavourable price, under time pressure, during the winding-up process.
- A surviving business partner being forced into an unwanted partnership with the deceased’s heirs.
- The business being unable to operate effectively while the estate is frozen.
- Disputes between the deceased’s family and the surviving business partner over valuation and control.
What to be aware of: The life cover funding the agreement must be structured correctly to remain outside the deceased’s dutiable estate, typically by having the surviving partner own the policy, not the deceased. The agreement must also include a mechanism for updating the business valuation regularly, as the cover that was appropriate five years ago may be significantly below the current value of the business.
Structure 5: Life Cover Held in a Trust
Life cover is not a structure in itself; the way it is owned and who is nominated to receive the proceeds determines how it is used in estate planning.
If the policy pays into the deceased estate, the proceeds may be available to the executor and can form part of the estate for administration and estate-duty purposes. If the policy is structured so that a trust or other nominated beneficiary receives the proceeds directly, the money can usually be accessed more quickly and used to provide liquidity for dependents, settle liabilities, or help fund estate costs, subject to the legal and tax treatment of the policy.
What it helps protect against
- Liquidity pressure, especially where most wealth is tied up in property or other illiquid assets.
- Forced asset sales at unfavourable prices to cover estate costs and debts.
- Delays in providing financial support to dependants while the estate is being wound up.
What to be aware of: The trust must be properly established and independently administered. The cover amount should be based on the estate’s real exposure, including potential estate duty, capital gains tax on death, executor’s fees, and outstanding debts, rather than only on income replacement needs.
Structure 6: Retirement Fund Nominations Under Section 37C
Retirement fund death benefits, from pension, provident, and retirement annuity funds, do not form part of your estate. This makes them a distinct element of estate planning that is frequently misunderstood.
Under Section 37C of the Pension Funds Act 24 of 1956, death benefits are distributed at the discretion of the fund trustees, not according to your will. Your nomination form is considered, but it is not binding. The trustees are required to identify all financial dependents, whether nominated or not, and distribute in a manner they consider equitable.
What this means for your planning:
- Your will has no authority over these funds.
- Naming a beneficiary on a nomination form does not guarantee that the person receives the benefit.
- The value of retirement fund benefits should be considered alongside, not instead of, your estate plan, because it represents wealth that travels outside the estate entirely.
A well-structured estate plan accounts for this by modelling what your dependents will receive from the fund separately from what they will receive from the estate. This ensures that the overall picture is coherent by not leaving certain beneficiaries over-provided for and others without provision.
How These Structures Work Together
No single structure covers every risk. The most effective estate plans combine structures based on individual circumstances.
A typical integrated approach for a South African business owner or property holder might look like this:
- An inter vivos trust holds the family home and investment property, keeping those assets outside the estate and providing continuity.
- A private company holds the operating business, with shares owned by the trust.
- A buy-and-sell agreement funded by life cover provides a clean exit mechanism for business partners.
- Additional life cover held in the trust provides liquidity to meet estate costs without requiring asset sales.
- A will addresses personal assets not held in the trust, names the executor, and establishes a testamentary trust for any minor children who may inherit directly.
Each element addresses a specific gap. Together, they ensure that wealth reaches the intended beneficiaries with minimum loss to tax, delay, and dispute.
What These Structures Cannot Do
It is worth being direct about limitations.
Trusts and other structures do not eliminate tax obligations, but they restructure them. SARS has consistently strengthened its scrutiny of arrangements that appear designed solely to avoid tax, and structures that lack genuine substance or independent administration are at risk of being disregarded.
The Income Tax Act 58 of 1962 includes provisions that attribute trust income to the founder in certain circumstances. The Trust Property Control Act imposes genuine administrative obligations on trustees. A trust that exists on paper but is operated as if the founder still owns the assets personally will not achieve its intended purpose and may create additional liability.
Effective structures require proper setup, ongoing administration, and periodic review. They are not once-off solutions.
When to Review Your Structures
Estate and trust structures should be reviewed whenever there is a material change in your circumstances or in the legislative environment. Key triggers include:
- Marriage, divorce, or the formation of a new relationship.
- The birth of children or grandchildren.
- Acquisition of significant assets, including property, business interests, and investments.
- Changes in the value of existing assets that affect estate duty modelling.
- A change in business ownership arrangements or partner relationships.
- Amendments to tax legislation, particularly around estate duty thresholds, donations tax, or retirement fund rules.
- The death of a named trustee, beneficiary, or executor.
Legislation in this area does change. Budget announcements have historically adjusted estate duty thresholds and abatements, and proposals affecting retirement fund taxation have been debated in recent years. Staying current requires an ongoing professional relationship, not a one-time consultation.
Secundes works with individuals and businesses to establish the right structures from the outset, and to maintain them as your circumstances change. Speak to our team to get started.
Frequently Asked Questions
What is the difference between an inter vivos trust and a testamentary trust?
An inter vivos trust is created during your lifetime and holds assets immediately. A testamentary trust is created by your will and only comes into existence after your death. Inter vivos trusts offer broader protection, including keeping assets outside your dutiable estate and outside the Master’s freeze, while testamentary trusts primarily protect how assets are distributed after death, particularly to minor children or vulnerable beneficiaries.
Does putting assets in a trust mean I no longer own them?
Legally, yes. When assets are transferred to a trust, they are owned by the trust, and not by you personally. This is what allows them to fall outside your dutiable estate. However, you can be both a trustee and a beneficiary of a trust, which means you retain involvement in how the assets are managed. Trusts must be genuinely independent to achieve their intended tax and estate planning benefits.
Will a trust protect my assets from creditors?
In certain circumstances, yes, but not automatically or unconditionally. If assets are validly transferred into a properly constituted and independently administered trust well before any financial difficulty arises, they may be protected from personal creditor claims. However, transfers made to defeat creditors, or transfers made shortly before insolvency, can be challenged and set aside by a court. The answer depends on the facts of each case, so professional advice is essential.
What happens to a trust when I die?
The trust continues. Because the trust is a separate legal entity and the assets belong to the trust, not to you personally, your death does not trigger the winding-up process for trust assets. The trustees continue to administer the trust in accordance with the Trust Deed. This is one of the primary benefits of an inter vivos trust: it provides continuity and immediate access for beneficiaries, without waiting for the Master’s process.
Is a buy-and-sell agreement the same as a shareholder agreement?
No. A shareholder agreement governs the relationship between shareholders while the business is operating, including decision-making, dividend policy, and dispute resolution. A buy-and-sell agreement specifically deals with what happens to a shareholder’s interest on death, disability, or other exit events. The two are complementary but distinct. Many businesses have shareholder agreements without buy-and-sell provisions, leaving a significant gap in their succession planning.
How much does it cost to set up a trust in South Africa?
Costs vary depending on the complexity of the structure, the professionals involved, and the assets being transferred. You should obtain a specific quote from a qualified accountant. What is worth noting is that the cost of setting up a trust is typically modest relative to the estate duty, executor’s fees, and delays it is designed to prevent.
While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of 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.