How a trust is created: inter vivos vs testamentary
Trusts are classified on four separate axes, and one trust sits on all four at once: how it is created (by deed during life, or by will), who owns the assets (an ownership trust or a bewind), what rights the beneficiaries hold (vested or discretionary) and how it is taxed (ordinary or special). A special trust, for example, can be created by deed or by will and can be an ownership trust or a bewind.
The first axis is how the trust comes into existence. An inter vivos (living) trust is created by a written trust deed while the founder is still alive. Creating the trust and authorising the trustees are different legal events: the deed is lodged with the Master of the High Court, and each trustee may act only once the Master has authorised them in writing (letters of authority). This is the trust used in almost every estate-planning structure, because it lets the founder move growth assets out of their own estate during life. The mechanics are covered in how to register a trust.
A testamentary trust (also called a will trust or trust mortis causa) is created by a clause in the founder’s will and only comes into existence on the founder’s death. The executor administers the estate first and then hands the relevant assets to the trustees of the testamentary trust, who hold them for the named heirs — commonly minor children, who can inherit and own property but need someone to administer it until the age the will sets. Both kinds are governed by the same statute, the Trust Property Control Act 57 of 1988, and both need a founder, trustees and beneficiaries: see the cast of characters.
Special trusts: the gently taxed category
A special trust is not a different legal animal — it is a tax classification in the Income Tax Act 58 of 1962 that gives a qualifying trust a softer tax treatment than an ordinary trust. There are two kinds, and the distinction matters because they are defined differently and only one of them qualifies for some of the section 7C concessions.
A paragraph (a) special trust is a disability trust. It can be created either inter vivos or by will, and it must be set up solely for the benefit of a person (or persons) with a disability as defined in section 6B of the Act, where that disability makes the person unable to earn enough to maintain themselves or unable to manage their own financial affairs (either is enough), and where the trust benefits more than one person they must be relatives of one another. A paragraph (b) special trust is different: it is a testamentary trust created by a deceased person solely for the benefit of that person’s relatives who are alive on the date of death and the youngest of whom is under 18 (a minor). Do not conflate the two: the disability trust is paragraph (a); the testamentary-for-minor-relatives trust is paragraph (b). The Act defines the category in its own words:
“special trust” means a trust created— (a) solely for the benefit of one or more persons who is or are persons with a disability as defined in section 6B(1) where such disability incapacitates such person or persons from earning sufficient income for their maintenance, or from managing their own financial affairs … or (b) by or in terms of the will of a deceased person, solely for the benefit of beneficiaries who are relatives in relation to that deceased person and who are alive on the date of death of that deceased person (including any beneficiary who has been conceived but not yet born on that date), where the youngest of those beneficiaries is on the last day of the year of assessment of that trust under the age of 18 years;
Note — Practitioners call the paragraph (a) trust a “Type A” (disability) special trust and the paragraph (b) trust a “Type B” (testamentary, youngest under 18) — those Type A/B labels are SARS administrative usage, not statutory wording.
The disability that qualifies a paragraph (a) special trust is not a loose, everyday idea of “disabled”. It is the specific section 6B(1) definition, which sets a threshold and requires a formal diagnosis:
“disability” means a moderate to severe limitation of any person’s ability to function or perform daily activities as a result of a physical, sensory, communication, intellectual or mental impairment, if the limitation— (a) has lasted or has a prognosis of lasting more than a year; and (b) is diagnosed by a duly registered medical practitioner in accordance with criteria prescribed by the Commissioner.
The practical pay-off is the tax rate. An ordinary trust is taxed at a flat 45% on retained taxable income and pays capital gains tax at an effective 36% (80% inclusion × 45%). A special trust is instead taxed on the same sliding scale as a natural person, so its capital gains tax effective rate is capped at 18% — half the ordinary-trust rate. The two kinds are not treated identically, though: only a paragraph (a) special trust qualifies for the annual CGT exclusion (R50 000 as SARS publishes it for 2026/27) and, subject to its requirements, the primary-residence exclusion (R3 million as SARS publishes it); a paragraph (b) trust shares the lower inclusion rate but gets neither exclusion. How these rates flow through to beneficiaries is explained in trust taxation.
Unlike a type-B trust, a type-A trust must take into account an annual exclusion amount under paragraph 5 in the determination of the trust’s aggregate capital gain or aggregate capital loss. … The primary residence exclusion in paragraph 45 applies to a “special trust” as defined in paragraph 1, namely, a type-A trust provided it meets the necessary requirements. A type-B trust will therefore not qualify for the primary residence exclusion.
Note — The guide’s monetary figures are dated (it quotes an R40 000 annual exclusion). The amounts SARS now publishes are R50 000 and R3 million — SARS-published, from clauses 15 and 16 of the 2026 Draft Rates Bill; promulgated amendment not located (the enacted amounts are R40 000 and R2 million). The legal distinction between the two kinds of special trust is what matters here.
Bewind trusts: where the beneficiaries own the assets
The second axis is who owns the assets, and it cuts across the others: a trust created by deed or by will, ordinary or special, can be either kind. In the usual ownership trust the trustees hold legal title to the assets and the beneficiaries have no direct ownership — only rights against the trustees. A bewind trust inverts this. In a bewind, the beneficiaries own the trust assets from the outset, and the trustees merely administer or control them on the beneficiaries’ behalf. The name comes from the Roman-Dutch concept of placing property under administration.
That ownership difference is the whole point for estate planning. Because a bewind’s beneficiaries already own the assets, those assets form part of the beneficiaries’ estates and are reachable by their personal creditors — the very exposures an ownership trust is built to avoid. A bewind is therefore generally a weaker shield than a discretionary ownership trust, and is used in narrower situations (for example, holding a specific asset for a named child who is intended to own it). The Trust Property Control Act applies to both, so trustees of a bewind still owe the statutory duties and still need letters of authority.
Vested vs discretionary rights
Cutting across all of the above is the most important practical distinction of all: what rights the beneficiaries actually have. In a vesting trust the income, gains or assets are already vested in the beneficiaries, who therefore hold fixed vested rights — an established entitlement, even where the deed postpones payment. In a discretionary trust the trustees decide each year whether and how much to distribute, so a beneficiary has only a contingent or discretionary right — a hope of benefiting, coupled with the right to insist on proper administration. The SARS trust return guide draws the line plainly:
Under a vesting trust the income or capital gains or assets of the trust are vested in the beneficiaries, and the beneficiaries are said to have vested rights to the income or assets of the trust. … Under a discretionary trust, the trustees usually have the discretion as to whether and how much of the income or capital of the trust to distribute to the beneficiaries. In these circumstances, the beneficiaries merely have contingent/discretionary rights (hope or spes) to the income or capital of the trust …
For tax purposes “beneficiary” is read very widely, so even a beneficiary who only has a contingent right — for example one whose benefit depends on reaching a certain age — is already a beneficiary. SARS spells this out in Interpretation Note 67, which first quotes the statutory definition:
“[B]eneficiary” in relation to a trust means a person who has a vested or contingent interest in all or a portion of the receipts or accruals or the assets of that trust;
It then adopts a leading textbook’s reading of that definition, and says SARS agrees with it:
The authors of Income Tax in South Africa comment as follows on this definition: “… This definition thus includes both capital and income beneficiaries. It is considered that so-called ‘discretionary beneficiaries’, whose interests are dependent upon the decisions from time to time of the trustees, have contingent interests as contemplated in the definition and are therefore ‘beneficiaries’ as defined, irrespective of whether or not they have ever been in receipt of any distributions or have formally accepted benefits. … A contingent beneficiary whose rights are dependent upon reaching a specific age, will, it is submitted, also be a ‘beneficiary’ prior to that date, notwithstanding that the interest is entirely conditional upon survival to a future date;” SARS is in agreement with the authors’ comments on the definition of “beneficiary”.
Note — The words inside the inner quotation marks are the textbook authors’, not the statute’s; the final sentence is SARS’s own. Whether a particular person has such rights remains, in the authors’ words, “a question of fact to be determined by examination of the trust deed”.
Which type should you use?
That last warning — that a trust the founder runs as their own pocket can be looked through — is not just commentary. The leading Supreme Court of Appeal authority on the abuse of the trust form is Parker, where Cameron JA explained what can happen when there is no real separation between control and enjoyment:
The court in Parker framed the “piercing” of the trust form as something a court may do in a suitable case, and added that the Master should insist on an independent outsider as trustee for every family trust where all the trustees are beneficiaries who are related to one another. It is the seminal warning against abuse of the trust form. The “alter ego” test comes from a later case, Badenhorst v Badenhorst [2005] ZASCA 116; 2006 (2) SA 255 (SCA), where the Supreme Court of Appeal counted trust assets as the husband’s own on divorce because he controlled the trust de facto. The practical antidote to both is genuine independence and real, minuted joint decisions.
The Master already applies the Parker guidance when a trust is first registered. Under Chief Master’s Directive 2 of 2017 (para 3.8), where the deed shows a family business trust — the trustees can contract with outside parties who become the trust’s creditors, the trustees are all beneficiaries, and the beneficiaries are all related to one another — the Master must consider appointing an independent trustee: an outsider with no family link to the founder, trustees or beneficiaries and no interest as a beneficiary, though not necessarily a professional. The Master may dispense with this where the founder shows good cause, or instead require security or annually audited financial statements, with the auditor told to alert the Master if creditors are likely to be harmed.
Frequently asked questions
An inter vivos (living) trust is created by a written trust deed while the founder is alive; the trustees may act only once the Master issues letters of authority. A testamentary trust is created by a clause in a will and only arises on death, when the executor hands the assets to the trustees. The living trust pegs an estate during life; the testamentary trust looks after heirs after death. See how to register a trust.
A special trust is an Income Tax Act category taxed more gently than an ordinary trust. A paragraph (a) special trust is a disability trust (inter vivos or by will) for a person with a disability under section 6B; a paragraph (b) trust is a testamentary trust for the deceased’s relatives whose youngest member is under 18. Special trusts use the individual sliding scale — CGT effective rate capped at 18%, not the 36% an ordinary trust pays.
A bewind trust is one where the beneficiaries own the assets outright and the trustees only administer them — the opposite of the usual ownership trust, where trustees hold title and beneficiaries have no direct ownership. Because the beneficiaries already own the assets, those assets sit in their estates and are reachable by their creditors, so a bewind is generally weaker for asset protection.
In a vesting trust the income, gains or assets are already vested in the beneficiaries, giving them fixed vested rights. In a discretionary trust the trustees decide each year whether and how much to distribute, so beneficiaries have only a contingent right — a hope (spes). Most family estate-planning trusts are discretionary, because that flexibility lets trustees direct income and gains to the beneficiary taxed most efficiently. See how trusts are taxed.
The strongest choice is a discretionary inter vivos ownership trust. Because the trustees — not the beneficiaries — own the assets and no beneficiary has a vested right, the property is generally beyond the reach of personal creditors. A bewind is weaker because the beneficiaries own the assets. Protection only holds if the founder genuinely gives up control — an alter-ego trust can be disregarded.