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Inter Vivos (Living) Trusts & Estate Duty
Key Takeaways for Trust Founders
- Pegging the Value: Selling assets to an Inter Vivos (Living) Trust freezes the value of those assets in your personal estate.
- Tax-Free Growth: Because the Trust owns the asset, all future capital growth happens outside your estate, completely bypassing the 20% Estate Duty.
- The Section 7C Trap: You can no longer give the Trust an interest-free loan without triggering Donations Tax. Careful structuring is required.
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Unlike a Testamentary Trust (which only springs into existence when you die), an Inter Vivos Trust is created while you are still alive. Historically, it has been the ultimate wealth-preservation tool for wealthy South African families, designed specifically to shield generation-spanning assets from crippling Estate Duty.
The Strategy: "Pegging" Asset Value
You cannot simply "give" your wealth to a trust without paying a massive 20% Donations Tax upfront. Instead, the standard estate planning strategy works like this:
- You establish the Trust and appoint Trustees and Beneficiaries.
- You sell your growth asset (e.g., a farm, a block of flats, or a share portfolio) to the Trust at fair market value.
- Because the Trust has no cash, the purchase price remains outstanding as a Loan Account owed to you by the Trust.
The magic happens over time. The loan account in your personal name never grows in value, but the asset inside the trust compounds year after year.
Scenario: The R5m Property Over 15 Years
The Situation: Sarah owns a commercial property worth R5,000,000. She expects it to double in value over the next 15 years. Let's look at what happens if she keeps it in her own name versus moving it to an Inter Vivos Trust today.
Option A: She keeps it in her personal name
She dies 15 years later. The property is now worth R10,000,000.
The full R10m forms part of her Gross Estate. Assuming her R3.5m abatement is used elsewhere, her estate owes 20% on the R10m.
Estate Duty Liability: R2,000,000
Option B: She sells it to a Trust today
She sells the property to the Trust for R5m on a loan account. The Trust now owns the property. Over 15 years, the property grows to R10,000,000.
When Sarah dies, her estate only owns the frozen R5,000,000 Loan Account. The R5,000,000 in capital growth belongs to the Trust, which does not die and pays no estate duty.
Estate Duty Liability (on the R5m loan): R1,000,000
The Catch: Section 7C and Donations Tax
SARS caught on to this strategy. To counter the massive loss in estate duty revenue, they introduced Section 7C of the Income Tax Act.
Under Section 7C, if you grant a loan to a trust and do not charge interest (or charge less than the official SARS repo-linked rate), the "interest you should have charged" is classified as a continuous, annual donation to the trust.
As of the 2026/2027 National Budget, the annual Donations Tax exemption has been increased to R150,000 per individual (up from R100,000). This is excellent news for trust founders! You can offset the "deemed interest" generated by Section 7C against this new R150,000 exemption, allowing you to shield larger loan accounts from Donations Tax without paying cash to SARS every year.
Is a Trust Still Worth It?
Yes, but it is no longer a "set-and-forget" loophole. Because Trusts in South Africa are heavily taxed on income (a flat rate of 45%) and Capital Gains (an effective rate of 36%), you should never put highly-taxed, interest-bearing cash into a trust.
Living Trusts are best utilized for long-term capital growth assets that you intend to keep for multiple generations, protecting them from Estate Duty, Executor fees, and the bankruptcy of individual heirs.
Calculate the Value of Your Loan Accounts
Do you already have a loan account with a Trust? Remember, that loan is an asset in your personal name. Enter it into the "Gross Assets" field of our calculator to see your tax exposure.
Go to the Estate Duty Calculator →