When do you need a testamentary trust?
If you bequeath money to a minor (under 18 years of age) in your will, you would, if you were still alive, be horrified to find that your bequest cannot be fulfilled.
The cash must be deposited into the Guardian’s Fund which is administered by the Master of the High Court. Interest is earned on the money and school fees etc may be paid out of the fund. However, the process, like everything else administered by the Master’s office, is cumbersome and burdensome so is best avoided.
Avoidance is a simple matter. All you need to do is either bequeath the money to your family trust, of which your child is a beneficiary, or, if you have not formed a trust, you can make provision in your will to form a testamentary trust. Many drafters of wills fail to understand that the drafting of a testamentary trust requires the same skills and experience as the drafting of a family trust and frequently dedicate only a few lines to this in the will. In our view it is far better to state in the will that a testamentary trust is hereby formed in accordance with the appended trust deed. This has the advantage that the preparation of the trust deed can receive separate attention from the will itself and that the will and the trust deed can be amended independently of each other.
There is often a distinction between a testamentary trust and a family trust in that the former may well be for the benefit of only one beneficiary or may state what portions of the trust assets and income must be for the benefit of specific beneficiaries, in which case it is not a discretionary trust. However, this does not matter because its purpose is not to protect the trust assets from the beneficiary’s creditors as he/she is a minor and cannot contract with creditors in the first place.
Also a testamentary trust of this nature is taxed at individual persons’ tax rates, whereas a family trust is taxed at very high rates. This distinction is, however, almost totally irrelevant because properly administered trusts of either kind very rarely pay any tax.
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