THE DIFFERENCE BETWEEN A DISCRETIONARY LIVING TRUST and a TESTAMENTARY TRUST

Regardless of the type of trust, the administration of trusts is governed by the provisions of the Trust Property Control Act 57 of 1988. The Act holds trustees to account for any maladministration or non-compliance. The trustees may only act as mandated in the trust deed so one’s intentions and objectives need to be clearly and adequately expressed. For this, you need a professional. A Trust Specialist can answer all your questions and explain both the advantages and disadvantages of a trust in South Africa. If you are considering having a trust set up, these are some of the facts you need to know.

1. A DISCRETIONARY LIVING (INTER VIVOS) TRUST:

In estate planning, The Discretionary Living Trust enables people to provide for:

• Asset Protection
• Succession Planning
• Disability Protection

A Discretionary Living Trust is based on the law of contract. These trusts have the following characteristics:

• A Trust is created by a founder (also known as a settlor or donor).
• The persons responsible for administering the Trust are called the Trustees.
• The founder makes a donation to the Trustees for the benefit of beneficiaries.
• Trustees can be individuals or a corporation.
• The founder can be one of the Trustees.
• The founder can be a beneficiary.
• The people for whose benefit a Trust is created are called beneficiaries.
• Trusts can be created for just about any objective of the founder as long as it is not illegal or against public policy.
• Trusts can literally last forever.
• Trusts, to be effective, should be in writing and signed by the founder and the Trustees.
• Trust beneficiaries do not have to sign the Trust document.
• When the founder puts property in a Trust, the founder funds the Trust.
• The Trusts are created by contract and are always created during the lifetime of the founder.
• They are often referred to as will substitutes.
• Provision can be included to permit amendments.
• They are free from estate winding-up procedures and costs.

2. A TESTAMENTARY TRUST

A Testamentary Trust is based on the law of testation and succession.

• Testamentary Trusts can only be created in a valid will.
• They have no life until the testator/testatrix dies.
• They are never created to benefit the maker, so they do not provide for asset or disability protection.
• Because it is will-based, there is no privacy.
• It has to go through the deceased estate process which incurs costs i.e. estate duty calculations and executor fees.
• The trustees act only as administrators, and do not have the same extensive discretionary powers as the Trustees of a Discretionary Living Trust.
• They offer no flexibility.
• They cannot be amended after the demise of the testator or testatrix.

In our professional opinion, the benefits of a Discretionary Living Trust far outweigh the benefits of a Testamentary Trust.