The Testamentary Trust: Pros and Pitfalls
While a testamentary trust is a sound financial instrument, practical delays in the current environment can leave your dependents vulnerable.
Why Use a Testamentary Trust?
A testamentary trust is created within your Last Will and Testament and only comes into existence after your death. The primary advantages include:
- Low Upfront Cost: No registration fees are paid during your lifetime—only the cost of drafting the Will.
- Zero Maintenance: Since it isn’t active yet, you avoid ongoing accounting, banking, and independent trustee fees while you are alive.
The Reality of Execution Delays
The practical execution of these trusts through the Master of the High Court can be a lengthy process, potentially leaving financial dependents “high and dry.”
Stage 1: Executor Appointment
In the current environment, obtaining formal appointment from the Master can take 1 to 6 months.
Stage 2: Trust Registration
Once the Will is accepted, registering the trust and receiving Letters of Authority can take another 4 months.
Stage 3: Asset Transfer
Transfer of assets only happens after trustees are authorized and the liquidation account is approved.
Often Overlooked Clauses
Two critical details can impact your trustees’ ability to protect your beneficiaries:
- ⚠️ Amendment Clauses: Does the Will allow for the trust to be updated if laws or circumstances change?
- ⚠️ Security Exemptions: Are trustees exempt from furnishing security? Without this clause, the Master may require expensive insurance before they can act.
Is there a better option?
Consider an Inter Vivos Trust. While it involves higher upfront costs and minimal annual fees, it offers:
- Immediate control and continuity upon death.
- A significantly faster and easier estate winding-up process.
- Greater protection for dependents who cannot wait months for liquidity.
Consult a professional to ensure your dependents have enough capital or life cover while your estate is being processed.
Created by: Theoniel McDonald, CFP®
Managing Director, Wealth Associates
