Trusts explained: How the wealthy protect their money – and how you can too

Most people have heard the phrase ‘trust fund baby’. It usually brings to mind old money, private schools, inherited privilege and families who seem to have been financially secure for generations.

For many South Africans, a trust sounds like something reserved for the ultra-wealthy – something far removed from ordinary families, entrepreneurs and professionals who are simply trying to build a better future.

But that is not the full picture.

Across South Africa, a new generation of wealth is being created. Entrepreneurs, business owners, executives and professionals are building meaningful assets from the ground up. No inheritance. No head start. Just hard work, risk, discipline and sacrifice.

And once that wealth has been created, the next question becomes just as important: how do you protect it? Because building wealth is only half the job. Preserving it for the next generation is where many families fail.

We have all seen the stories. A family business that disappears after the founder dies. A farm or property portfolio sold off piece by piece. Siblings fighting in court. Children inheriting too early, too quickly, or without proper guidance. Wealth that took a lifetime to build can be lost within a single generation if there is no structure around it.

This is where trusts can play an important role.

In simple terms, a trust is a legal arrangement where assets are managed by trustees for the benefit of beneficiaries. The person who creates the trust is usually called the founder. The trustees are responsible for managing the assets according to the trust deed, and the beneficiaries are the people who may benefit from the trust.

When used correctly, a trust can help protect assets, manage succession, provide for children, reduce estate planning complications and ensure that wealth is passed on in a controlled and responsible way.

In South Africa, there are mainly two types of trusts most families should understand.

The first is an inter vivos trust, often called a living trust or family trust. This is created during your lifetime. Assets such as property, business interests or certain investments may be transferred into the trust, depending on the structure and advice received.

The second is a testamentary trust. This is created through your will and only comes into effect after death. This can be especially important where minor children are involved. A minor may inherit, but they cannot manage assets in the same way an adult can.

Without proper planning, funds intended for a child may end up being managed through processes outside the family’s preferred control. A testamentary trust allows you to set rules for how assets should be managed and when children should receive access.

One of the major reasons wealthy families use trusts is estate planning.

Estate duty in South Africa is levied at 20% on the first R30 million of a dutiable estate and 25% above that, with a basic abatement of R3.5 million. For families with growing businesses, farms, investment portfolios or property assets, estate duty can become a major liquidity problem.

This is not theory. Many families only discover the issue after someone has died. The estate may be wealthy on paper, but there may not be enough cash available to pay taxes, executor fees, debts or other costs. This can force the family to sell assets at the worst possible time.

A properly structured trust can help prevent some of that pressure. If growth assets are transferred correctly, the future growth may take place outside the founder’s personal estate. The goal is not to avoid tax illegally.

The goal is to create a structure that protects the family from unnecessary disruption and gives the next generation a better chance of preserving what was built.

But trusts are not magic. They are not tax loopholes. And they are not a place to dump every asset you own.

For example, your primary residence should be considered very carefully before being placed in a trust. Individuals may qualify for a primary residence capital gains tax exclusion, and the 2026 Budget proposed increasing this exclusion to R3 million. A trust does not ‘live’ in the house, so personal tax benefits may be lost if the structure is not carefully considered.

The same applies to retirement assets and investment portfolios. In some cases, holding investments personally may provide better tax flexibility, especially where annual exclusions, personal tax brackets or retirement income planning are relevant. A trust can be powerful, but it must be used strategically.

Another important issue is how assets get into the trust.

You can donate assets, but donations tax must be considered. The South African Revenue Service (Sars) confirms that natural persons now have an annual donations tax exemption of R150 000, with donations tax applying above the exemption.

Alternatively, a trust may acquire assets through a loan arrangement. But interest-free or low-interest loans to trusts are closely regulated under Section 7C, which was designed to prevent people from shifting wealth into trusts without appropriate tax consequences.

This is why professional advice is essential. A trust created cheaply, without proper legal and tax guidance, can become a very expensive problem later.

One of the most important features of a good trust is independent governance. Many families make the mistake of appointing only family members as trustees. While this may feel natural, it can create problems if the founder still appears to control everything personally.

A trust needs to be properly administered, with real trustee decisions, minutes, records and independent oversight.

Sars, the courts and the Master of the High Court are far more alert to weak or abusive trust structures than they were in the past. Beneficial ownership reporting, Section 7C and attribution rules all show that trusts are no longer a place to hide assets. They must be properly run.

But that does not make trusts less valuable. It simply means the days of lazy trust planning are over.

A trust is not about secrecy. It is about structure. It is not about dodging tax. It is about protecting assets, managing risk and creating continuity.

For business owners, property investors, blended families, families with minor children, and high-net-worth individuals, a trust can still be one of the most powerful planning tools available.

The key is to ask the right question. Not: “Should everyone have a trust?”

The better question is: “What assets am I trying to protect, who am I trying to protect them for, and what could go wrong if I do nothing?”

Because doing nothing is also a decision.

And for many South African families, it is the most expensive decision of all.

Final thought: A trust will not make you wealthy. But it can help protect the wealth you have already built. Used correctly, it can turn a lifetime of sacrifice into a lasting legacy – not just for your children, but for the generations that follow.