Two types of trusts
There are generally two options available to you, namely a testamentary or an inter vivos trust. Your personal needs will determine your choice.
A testamentary trust is set up as an instruction in your will after your death. An inter vivos trust, on the other hand, is created by way of a contract and not a will, and comes into operation while you are alive.
You may not necessarily need an inter vivos trust, but if you don't make provision in your will for a testamentary trust, any assets you leave to minor children will go to the Guardian's Fund. This fund is administrated by the Master of the High Court and it can be administratively cumbersome for your children’s caregiver to claim from it.
A testamentary trust is a good option for single mothers who may have very specific needs and wishes linked to their children’s welfare after their death.
A big benefit of a testamentary trust is that you can nominate separate people to act as a guardian for your children and as a trustee for your estate. Keeping these responsibilities separate can help prevent a situation where a nominated guardian may abuse your child’s inheritance.
A parent can nominate a competent and trusted person as a trustee, or can consider appointing a professional trustee such as a trust company, for example, Sanlam Trust. After your death and in the case of a testamentary trust, the Master of the High Court will issue your trustees with a Letter of Authority and ensure that the proper process is followed thereafter.
A testamentary trust or inter vivos trust can also be very useful for blended or ‘reconstituted’ families, in other words, where one or both parents have children from previous marriages. In that way you can provide separately for both ‘branches’ of the family and possibly avoid disputes later.
Trusts offer many financial planning benefits which are often overlooked or which people just aren’t aware of. Discuss your options with a licensed financial adviser.