Most parents with young children have thought about who would care for them if the worst happened. Fewer have thought about who would manage the money. Yet the two questions are closely linked. Life cover, retirement benefits, a home and savings can add up to a substantial inheritance, and a child cannot manage any of it.
A testamentary trust is the usual way to solve this problem. It is a trust created in your will that comes into existence only when you die, and it allows trusted people to manage your children’s inheritance until they are old enough to take control themselves. This article explains how testamentary trusts work, what happens without one and the decisions you need to make when setting one up.
What happens if you leave money directly to a minor?
A child under 18 is a minor under the Children’s Act 38 of 2005 and cannot take control of an inheritance. If your will leaves assets directly to a minor child, or if you die without a will and your children inherit under the intestate succession rules, the money will usually be paid into the Guardian’s Fund, which is administered by the Master of the High Court under the Administration of Estates Act 66 of 1965.
The Guardian’s Fund is safe, and interest is earned on the capital. But it has real drawbacks:
- the child becomes entitled to the full amount at 18, an age at which few young people are ready to manage a significant sum;
- guardians must apply to the Master for payments for the child’s maintenance and education, which can be slow and administratively demanding; and
- the funds are not invested with the child’s particular needs or goals in mind.
Leaving everything to a surviving spouse or a relative, with an informal understanding that they will “look after” the children, is also risky. The assets legally belong to that person and can be lost through their own divorce, insolvency, death or poor decisions.
How a testamentary trust works
In your will, you direct that some or all of your estate, for example the inheritance of your minor children, must be held in a trust. You name the trustees, the beneficiaries and the rules the trustees must follow. On your death, the executor transfers the relevant assets to the trustees once the estate has been wound up.
The trust is governed by the Trust Property Control Act 57 of 1988. Before trustees may act, the Master must issue them with letters of authority. Trustees must keep trust property separate from their own, act with care, diligence and skill, keep proper records and account for the trust’s assets. They must also keep a register of the trust’s beneficial owners and lodge that information with the Master, a requirement introduced by the 2022 amendments to the Act aimed at combating money laundering.
Life policy proceeds can also be directed to the trust, which allows insurance cover to be combined with the rest of the inheritance under the same management. Retirement fund death benefits are different: under section 37C of the Pension Funds Act 24 of 1956, the fund’s trustees decide how to allocate those benefits among dependants, although they may take your wishes into account.
Key decisions when setting up a testamentary trust
Choosing the trustees
Your trustees will make financial decisions for your children for many years. Consider a combination of a family member or friend who knows your children, and an independent or professional trustee who brings expertise and objectivity. Avoid appointing only one person, and think about who will replace a trustee who dies or resigns. It is often sensible not to appoint the children’s guardian as the sole trustee, so that the person caring for the children is not also the only person controlling the money.
The age of vesting
You can choose when the capital passes to your children, for example at 25 or in instalments at 21, 25 and 30. Until then, the trustees can use income and capital for the children’s maintenance, education and wellbeing.
How much discretion the trustees have
Decide whether trustees may use capital for specific needs, such as university fees, a first vehicle or a deposit on a home, and whether they must treat all children equally or may respond to different needs. A letter of wishes, separate from the will, can guide trustees without binding them.
What happens if a child dies
The will should say who benefits if a child dies before the vesting age, for example that child’s own children or the surviving siblings.
Security and fees
The Master may require trustees to furnish security unless your will exempts them. Professional trustees charge fees, so agree the basis of remuneration in the will or with the trustees in advance.
Tax considerations
Trusts are generally taxed at a flat rate of 45% on income and with a higher effective capital gains tax rate than individuals. However, a testamentary trust created solely for the benefit of the deceased’s relatives, where the youngest beneficiary is under 18 at the end of the tax year, can qualify as a special trust under the Income Tax Act 58 of 1962. A special trust of this kind is taxed on the sliding scale that applies to individuals, and at the lower individual inclusion rate for capital gains. That status falls away once the youngest beneficiary turns 18, after which the trust is taxed at the ordinary trust rates. The trust’s structure and distribution policy should be planned with this in mind.
Assets left to a testamentary trust still form part of your estate for estate duty purposes, so a testamentary trust is primarily a tool for protecting children, not for reducing estate duty.
Checklist for parents
- Make or update your will, and appoint guardians for your minor children.
- Include a testamentary trust for any inheritance passing to minor children.
- Choose at least two trustees, including an independent trustee, and name alternates.
- Set the age or ages at which capital vests, and give trustees clear powers for maintenance and education.
- Decide what happens if a child dies before the vesting age.
- Review life policy and retirement fund beneficiary nominations so they align with the will.
- Prepare a letter of wishes for the trustees.
- Review your will after any major life event, such as a birth, marriage, divorce or a significant change in assets.
How O’Reilly Law can help
We draft wills with testamentary trusts for parents of minor children and dependants with special needs, advise on the choice of trustees and guardians, and coordinate with financial advisers so that life cover and other assets flow to the trust as intended. Through O’Reilly Fiduciary, we can also act as executor and assist trustees with their duties after a death.
Contact us to protect your children’s inheritance.
Related reading: Dying without a will: how intestate succession works · Choosing an executor, and what executors actually do
This article is general information and not legal or tax advice. Correct as at November 2026.