Families supporting vulnerable dependents – whether minor children or disabled adults – often struggle to find estate-planning tools that protect wealth without incurring heavy tax penalties. A highly effective, yet largely overlooked, solution lies in South African law: special trusts.
While trusts remain a widely used and effective estate-planning structure in South Africa, their tax treatment differs from that of individuals: most simple trusts are taxed at a flat rate of 45%. As a result, careful structuring is necessary to ensure that they deliver the desired results.
Special trusts, recognized by the South African Revenue Service (SARS), are specifically designed for limited circumstances – but where they apply, they can improve outcomes for beneficiaries.
“Special trusts are not a solution to high trust taxes – they are a targeted tool for very specific family situations,” says Stacey Wallace, managing director of Hobbs Sinclair Legacy.
“They are often underutilized because many people don't know this option exists, or assume all trusts are taxed the same way.”
Unlike standard trusts, special trusts are taxed on a sliding scale consistent with individual tax rates (18%-45%), which can significantly reduce the overall tax burden. In some cases, they may also be eligible for additional relief, including:
- Annual capital gains tax (CGT) exclusion of R40,000
- Primary-residence CGT exclusion
- Donation tax relief under section 7C for eligible interest-free or low-interest loans
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special belief categories
SARS recognizes two categories of special trusts, each of which has different requirements and consequences.
Type A Special Trust Are established solely for the benefit of individuals who have a permanent mental or physical disability that renders them unable to manage their own financial affairs. The condition must be both permanent and irrevocable, with the eligibility criteria defined in section 6B(1) of the Income Tax Act.
“Type A special trusts are fundamentally about security and continuity,” explains Wallace. “They ensure that vulnerable beneficiaries are financially supported within a structure that is both tax-efficient and legally sound.”
Type B Special TrustOn the other hand, testamentary trusts are created through a will for the benefit of minor children. These structures only exist until the beneficiaries reach the age of 18, at which point the trust no longer qualifies as a special trust.
Importantly, Type B trusts do not enjoy the same tax relief as Type A trusts. They are excluded from key benefits such as the CGT exclusion and Section 7C relief.
“This difference is often overlooked,” says Wallace. “Clients hear ‘special trust’ and assume similar benefits, but the reality is far more nuanced. The type of trust ultimately determines the tax outcome.”
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Not for general use
Despite their advantages, special trusts are not a flexible planning tool for general use. Eligibility is subject to strict requirements and approval by SARS, in which both the trust structure and its beneficiaries are closely examined. This places significant emphasis on how trust is established.
“If the trust deed or will is not drafted correctly from the outset, the trust will not qualify,” says Wallace. “There is no room for ambiguity – SARS looks closely at both intent and words.”
From a governance perspective, it is generally recommended that a trust have at least three trustees, including at least one independent trustee with relevant professional experience in trust administration. This strengthens oversight and aligns with increasing regulatory expectations.
While special trusts offer a more favorable framework than standard trusts, they do not replicate all the tax benefits available to individuals. They are not eligible for individual tax exemptions, Medicare tax credits, or certain interest exemptions.
Wallace concluded, “Special trusts serve a clear purpose, but they are not a complete solution to trust taxation.” “The key is to understand when they are appropriate – and to structure them correctly from day one.”