WHAT IT IS
The Widow’s Trust is essentially a Testamentary Trust that is created by a very specific Trust clause in the Will, through which the Testator bequeaths assets to the Trust for the sole income benefit of their Spouse.
Since the Widow’s Trust is classified under the Testamentary Trust category, the Widow’s Trust will only come into existence upon the death of the Testator.
PURPOSE
The Widow’s Trust is a unique estate planning tool used to protect the inheritance of a surviving Spouse, when the Spouse is unable to do so themselves.
Furthermore, the Widow’s Trust is best suited in an instance where a Spouse may have been a “home executive” and has never needed to work and/or handle any financial affairs before and therefore requires some guidance and protection in the event that they are to inherit from their Spouse’s Estate.
WHAT MAKES IT UNIQUE
This form of estate planning gives the Testator control over their inheritance and allows them to ensure that it is used in the best interest of their Spouse when they are no longer around to do so.
The Widow’s Trust can own a property and/or other assets, receive donations and inherit money from the Testator’s Estate to be placed in the Trust. The Spouse will only be eligible to receive the income derived from the Trust and may not access the capital that is placed in the Trust.
TECHNICALITIES
The sole income Beneficiary of a Widow’s Trust must be the surviving Spouse only, no other person may benefit from the Trust during the said Spouse’s lifetime.
The sole income beneficiary of this Trust may also only receive the income that is derived from this Widow’s Trust and may not access the capital.
What is an Income Beneficiary?
An income Beneficiary is someone who may benefit only from the income generated and distributed by the Trust. For example, if there is a property in the Estate, and the property is being rented out by the Trust, the Spouse is able to receive the income derived from the rent received. Income Beneficiaries have no expectation to benefit from the trust capital. For example, if the Trust were to sell this property, the proceeds of the sale of this property would form part of the capital in the
trust and therefore may not be accessed by the Spouse. Income Beneficiaries do have the option to freely make use of trust assets, for example, the Beneficiary may live in the property, if needs be.
In the event of the Spouse’s passing, the nominated beneficiary will become the capital beneficiary of the Trust.
What is a Capital Beneficiary?
A capital Beneficiary will benefit only from the distribution of trust assets, in the case of a Widow’s Trust this is when the Spouse passes away. A capital Beneficiary can also benefit from the profits from the sale of any assets that were held in the Widow’s Trust.
TAX
The utilisation of a Widow’s Trust complies with Section 4q(ii) of the Estate Duty Act 45 of 1955 and therefore such amount bequeathed to a Widow’s Trust is entitled to an Estate Duty deduction.