Deciphering Estate Planning: Understanding the Differences Between Inter Vivos Trusts and Wills

In the realm of estate planning, individuals often face a myriad of options when determining how to distribute their assets and safeguard their legacies for future generations. Two commonly utilised instruments in this regard are inter vivos trusts and wills. While both serve as vital components of comprehensive estate planning strategies, they possess distinct characteristics and functionalities. In this blog, we'll unravel the intricacies of inter vivos trusts and wills, exploring their differences, similarities, and respective roles in estate administration under the law of South Africa.

Understanding Inter Vivos Trusts

An inter vivos trust, also known as a living trust, is a legal entity created during the lifetime of the founder (the person establishing the trust) to hold and manage assets for the benefit of beneficiaries. The trust is governed by a trust deed, which outlines the terms, conditions, and beneficiaries of the trust, as well as the powers and responsibilities of the trustees appointed to manage the trust assets.

Understanding Wills

A will, on the other hand, is a legal document that outlines the wishes of the testator (the person making the will) regarding the distribution of their assets upon death. A will allows the testator to designate beneficiaries, specify assets to be distributed, appoint an executor to administer the estate, and address other important matters such as guardianship of minor children and funeral arrangements.

Differences Between Inter Vivos Trusts and Wills

1. Timing of Establishment

   - Inter Vivos Trust: Created during the lifetime of the settlor.

   - Will: Takes effect upon the death of the testator.

2. Asset Management

   - Inter Vivos Trust: Assets are transferred to the trust and managed by appointed trustees during the founder’s lifetime and beyond.

   - Will: Assets are distributed according to the instructions outlined in the will upon the death of the testator.

3. Privacy and Estate Administration

   - Inter Vivos Trust: Operates privately and does not typically undergo the estate administration process, resulting in faster and more efficient asset distribution.

   - Will: Becomes a public document upon death, subject to court oversight and potential challenges from interested parties.

4. Flexibility and Control

   - Inter Vivos Trust: Offers greater flexibility and control over asset management and distribution, allowing for ongoing management and adjustment of trust terms during the founder’s lifetime.

   - Will: Provides a snapshot of the testator's wishes at the time of drafting and may be less adaptable to changing circumstances without formal amendments or codicils.

5. Estate Tax Planning

   - Inter Vivos Trust: Can be used as a tool for estate tax planning and asset protection, particularly for high-net-worth individuals.

   - Will: May incorporate estate tax planning strategies but lacks the ongoing asset protection benefits of a trust structure.

Similarities Between Inter Vivos Trusts and Wills

1. Asset Distribution

   Both inter vivos trusts and wills facilitate the distribution of assets to designated beneficiaries according to the wishes of the founder or testator.

2. Executor or Trustee Appointment

   Both instruments allow for the appointment of executors (in the case of wills) or trustees (in the case of trusts) to oversee the administration and distribution of assets.

3. Beneficiary Designation

   Both inter vivos trusts and wills allow the founder or testator to designate specific individuals or entities as beneficiaries of their estate.

4. Legal Formalities

   Both inter vivos trusts and wills must comply with certain legal formalities prescribed by South African law to ensure their validity and enforceability.

Conclusion

In conclusion, inter vivos trusts and wills serve as indispensable tools in estate planning, each offering unique advantages and functionalities. While inter vivos trusts provide ongoing asset management, privacy, and flexibility during the founder’s lifetime and beyond, wills offer a snapshot of the testator's wishes at the time of death and undergo estate administration to facilitate asset distribution. By understanding the differences and similarities between these instruments, individuals can tailor their estate planning strategies to meet their specific needs, preferences, and objectives, ensuring the effective management and distribution of their assets in accordance with South African law.