A Guide to Special Trusts – Who Qualifies and What the Benefits Are

For families supporting minor children and/or adults unable to manage their own financial affairs due to disability, traditional estate-planning tools do not always strike the right balance between protection and tax efficiency.

What is less widely understood, however, is that South African tax legislation does provide a more favourable — yet often overlooked — alternative in the form of 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 ordinary trusts are taxed at a flat rate of 45%. As a result, careful structuring is essential to ensure they deliver the intended outcomes.

Special Trusts, recognised by the South African Revenue Service (SARS), are specifically designed for limited circumstances — but where they apply, they can materially improve outcomes for beneficiaries.

“Special Trusts are not a workaround for high trust taxes — they’re a targeted instrument for very specific family situations,” says Stacy Wallace, managing director of Hobbs Sinclair Legacy. “They’re also often underutilised because many people simply aren’t aware that this option exists, or assume all trusts are taxed in the same way.”

Unlike standard trusts, Special Trusts are taxed on a sliding scale aligned with individual tax rates (18%–45%), which can significantly reduce the overall tax burden. In certain cases, they may also qualify for additional relief, including:

• An annual capital gains tax (CGT) exclusion of R40,000
• A primary-residence CGT exclusion
• Relief from donations tax under Section 7C for qualifying interest-free or low-interest loans

SARS recognises two categories of Special Trusts, each with distinct requirements and outcomes. Type A Special Trusts are established solely for the benefit of individuals with a permanent mental or physical disability that renders them incapable of managing their own financial affairs. The condition must be both permanent and irreversible, with qualifying criteria defined in Section 6B(1) of the Income Tax Act.

“Type A Special Trusts are fundamentally about protection and continuity,” Wallace explains. “They ensure that vulnerable beneficiaries are financially supported within a structure that is both tax-efficient and legally robust.”

Type B Special Trusts, on the other hand, are testamentary trusts created through a will for the benefit of minor children. These structures exist only 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 level of tax relief as Type A trusts. They are excluded from key benefits such as the CGT exclusions and the Section 7C relief.

“This distinction is often overlooked,” says Wallace. “Clients hear ‘Special Trust’ and assume uniform benefits, but the reality is far more nuanced. The type of trust ultimately determines the tax outcome.”

Despite their advantages, Special Trusts are not a flexible planning tool for general use. Qualification is subject to strict requirements and approval by SARS, with close scrutiny of both the trust structure and its beneficiaries. This places significant emphasis on how the trust is established.

“If the trust deed or will is not correctly drafted from the outset, the trust simply won’t qualify,” Wallace notes. “There’s no room for ambiguity — SARS looks closely at both the intention and the wording.”

From a governance perspective, it is generally recommended that a trust has 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 favourable framework than standard trusts, they do not replicate all the tax advantages available to individuals. They do not qualify for personal tax rebates, medical tax credits, or certain interest exemptions.

“Special Trusts serve a clear purpose, but they are not a blanket fix for trust taxation,” Wallace concludes. “The key is understanding when they are appropriate — and structuring them correctly from day one.”