This article first appeared in Personal Finance Magazine 3rd quarter 2017

A paragraph or two in your will is not always enough to ensure that your wishes will be fulfilled after your death. To protect the inheritance and the financial well-being of your child or spouse, you might need to consider a testamentary trust.

When it comes to estate planning, one of a parent's biggest fears is that his or her child’s inheritance will be used for purposes other than for what it was intended. 

You may also fear the long-term safety of the capital you leave to your spouse if he or she remarries. To secure your bequest, standard wording is normally used in the body of the will: “The bequest to my spouse will be excluded from any joint estate or from any accrual claim or from the matrimonial powers of the spouse.” Unfortunately, this is insufficient to protect your loved one's financial stability. 

Where spouses are married in community of property, the day-to-day expenses and incomes of both spouses fall within the bounds of the joint estate. Bequests subject to the above-mentioned paragraph, how-ever, fall under the heir’s own estate. People who are married in community of property can therefore have two estates: the joint estate and their own estate. 

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Say, for example, your wife remarries after your death, and the marriage is in community of property. She will have access to her own estate and the joint estate, but she will have no access to her new husband’s estate. Likewise, her husband will have no access to her own estate.

There are, however, a few aspects that are not covered by the above-mentioned standard paragraph, some with dire consequences. 

The first is that the new husband could exert influence on your wife to make the money accessible by placing inherited capital in a joint account or sponsoring their activities. 

The second is more important and much scarier. Although the new husband will not have access to your wife’s separate estate, that’s not the case with their debtors. In a marriage in community of property, one spouse’s debtors become both spouses’ joint debtors. That means that, if your wife marries someone with large debts, the new husband’s debtors will also become her debtors. As such, the debtors can claim from her separate estate. There is no wording to add into a will to counteract this. 

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Even if the couple is married out of community of property, in the case of the insolvency of either spouse, all assets are repossessed to service the debt. The “innocent” spouse must then prove that the asset wasn’t purchased with communal money. In the case of bequests, however, this shouldn’t be too difficult to prove. 

Using a testamentary trust
The only way to protect the assets is by using a testamentary trust. In this case, the will dictates that all assets are to be kept in a trust for the benefit of the heir. If the trust is managed by a professional trustee, you can rest assured that the money will be used as you intended until the moment the trust ends – a date that can be determined in the will.

Another benefit of using a trust is the strict financial discipline it instils. If you fear that your heir lacks the necessary knowledge and know-how to be able to manage his or her finances effectively, a well-run trust will put your mind at rest. 

Testamentary trusts also have a much better tax position than normal trusts. If the youngest beneficiary of a trust is below 18 years old, the trust will not be taxed at 45 percent, like other trusts, but on the normal sliding scales. Additionally, there are no donations tax issues or the risk of having to pay estate duty. 

If you want to protect the value of the legacy you leave behind for your spouse or child, consider a testamentary trust. Don’t place all your hope on one paragraph in your will. 

Advocate Ronald King is the head of strategic research and support at PSG Wealth

- PERSONAL FINANCE ONLINE