I meet so many people who have a family trust (often three depending on who they bought from) gathering dust in a file somewhere. Often the trusts were bought after attending a seminar on the subject, but because there was no follow through they never got to put the trust(s) to the use for which it was intended. So let’s explore one good reason for forming a trust during your lifetime (it’s called an inter vivos trust meaning “during life”). When you die, you’ll probably leave everything to your spouse and there will be no estate duty and no capital…
Author: zombie
Who should be the beneficiaries of your family trust? Lot’s of clients say that the trust is for their children as beneficiaries, but that is fundamentally unsound. There’s no question in my mind that the beneficiaries must include the client and their spouse as well as their children. The reason is that you simply do not know what the future holds, so be ready to deal with the unexpected. You might be quadraplegic this time next year! You can’t possibly predict that, but it happens to some, maybe you. OK so now we’ve got the immediate family on board -…
There’s a firewall between your creditors and the trust assets, but how strong is it? This gets tested in the courts relatively often and two cases were reported in De Rebus, the Law Society magazine recently. In both cases the firewall held and quite rightly because these trusts were properly constructed and properly administered. The first case was the classic – a divorce. Both the husband and wife were trustees and beneficiaries and her attorney sought to get the trust assets included in the accrual calculations. He claimed that the husband had treated the trust as his alter ego (other…
I get lots of people (always men, oddly enough) who are very concerned about what will happen to all their hard earned wealth once they are dead and no longer able to act as trustee for their trust. Well, the first thing to understand is that when you’re dead, you’re dead. The second thing is that you don’t know in what way circumstances may change after your death. The worst thing you can do is to tie everybody’s hands so that when a real need arises they are not able to fulfil it simply because you wanted to rule from…
The more I read of the new B-BBEE codes, the more I despair. OK, so your company is black owned and your turnover is less then R50m. Great, you get to be Level 1 (Level 2 if only 51% black owned). Does that make you feel good? Why? There are hundreds of thousands of other companies out there with the same score as you! In other words, the market is being flooded with Level 1 and 2 companies. It’s a bit like the hyper-inflation that we saw in Zimbabwe. They just kept printing Zim dollars until there were so many…
If you’ve read my blogs on Investing in Property and on Trusts, or if you’ve been to see me for a no charge chat, you’ll know the right structure for your investments. But how do you fix it if you got it wrong in the first place? I call this unscrambling eggs! If you own investment property in your own name and want to sell it to your trust you’re in for two taxes – Transfer Duty at up to 13% and CGT at up to 18%. You’ll also pay Conveyancer’s fees. For tax purposes the deal is deemed to…
Property is, in my view, a great investment but you gotta get it right! Here’s a trap that you hadn’t thought of – Let’s say your company buys a property using a 10 year bond on which the repayments will be R10 000 per month and the rental income is R10 000. Ignoring everything else, the cash flow is zero right? Wrong! Of that R10 000 bond repayment about R9 000 is deductible interest and R1 000 is capital repayment which is not deductible, so the company will be in for tax on R12 000 in the first year, which…
SARS have brought out a new tax return for trusts (the ITR12T). There’s bound to be more pub talk about SARS clamping down on trusts, but the pub experts simply pass on hearsay and never actually take the trouble to find out the facts. The reality is that there’s nothing to be concerned about here. All SARS want is the following – 1) The trust will have to give proper details of all transactions during the year – no big deal unless you’re Julius Malema maybe. 2) Details of all parties contributing to the trust. Again no big deal except…
When I meet with you, I take quick notes while I’m talking and listening. My PA then opens a file and titles it with your name and your company name (if you have one). My problem has always been retrieving the file as I’ll maybe remember your first name, your surname or you company name, so what filing sequence to use? The only solution in the past was a cross referencing system which took a lot of maintaining and somehow never really worked. Plus I see a lot of people and ended up with hundreds of files, many of which…
Lots of people have written about the new Codes and what is wrong with them. Here’s a short summary of stuff that you may find useful – 1) If you belong to a sector, you must use the sector codes and there aren’t any new ones so you’ll continue to use the old ones until directed otherwise. This is almost certainly to your advantage except for the turnover limits which are softer in the general Codes. 2) If you’re a QSE under the new codes (
I was checking out a competitor’s website. On the home page was a special offer and below it >Click hereClick here< So then I ran across the top tabs and found one that said "Order here". I clicked on that and was presented with the usual form to fill in with all my details. After submitting that I was asked to "Please select a branch". I selected Sandton, then the type of product that I was looking for. Now I was given a list of 3 different options. I chose one of them (the simplest) and guess what? No products…
Again, I owe this one to Sedley Burger way back in 1983. There are four stages of learning – Unconciously Incompetent. This is when you don’t even know that you don’t know. Like a baby who doesn’t know that it can’t drive a car. In this state, you won’t ask questions to add to your knowledge because you wouldn’t even know what questions to ask. You need to become aware of your lack of knowledge before you can move beyond this level. Often it is someone else who brings this to your attention. It happens more often than you may…
Where do people look when they want a plumber, a holiday, an auditor, a computer techie, a job etc.? It used to be the Yellow Pages (notice how they’ve shrunk lately?) Now it’s the internet, or more specifically, Google. So you need to be where they are going to look. First off you must have a website. This is no longer a luxury, it is an absolute necessity. There are two ways of going about this – 1) Learn how to build it yourself. I took just two one-day lessons on Joomla! and from there built our site (the other…
Yes, I worry, just like the rest of you. Stupid really. If you think back on all the things you worried about during your life to date, the chances are that none of them happened or, if they did, like when I was bankrupt at the age of 40, you lived through it and almost certainly came out of it a better person. But then, does worry have some value perhaps? This got me thinking and I came up with 5 stages of worry – Carefree Concern Worry Fear Panic So when does worry help us in life and when…
I’m often asked how to go about buying investment property. How and where do you look for the bargains? I think it’s important to understand first off that the bargains are the result of distressed sellers (that is, owners who for one reason or another have to sell). A distressed seller can arise from – a death where the executor of the estate needs to liquidate the assets in order to distribute them equitably, – a divorce where the asset has to be split between two parties – a re-location where the owner(s) are moving to another town/country – a…
We’ve figured out how a trust should hold investment property, but what happens when you retire? Is that still the best structure? Remember that we had the trust owning a company which in turn owned the property portfolio? That was great, because the company paid tax at 28% and then re-invested the net income back into the portfolio to build its wealth. But when you retire, you want the income to flow out to you (that’s why we set it all up in the first place). The obvious way is that the company pays a dividend to its shareholder (the…
Firstly, how does a trust get to own assets (apart from the miserable R100s worth that you donated to it)? It starts off with nothing, so in order to buy investments it must borrow the money. There are two sources – you or the banks. Generally, the banks tend to be reluctant to lend to trusts, so although you may get lucky, the normal source is you. You could perhaps borrow from a bank and then on-lend to the trust. Or you could stand surety for the trust’s borrowings from the bank. Either way, if things go wrong with the…
Of course none of us want to sign surety for someone or something else’s debt, but there are times when it is unavoidable. Typically, you would have to sign surety for – Your company’s overdraft facility Your company’s leases and instalment sale agreements Your trust’s property company’s mortgage bond agreements All of the above are unavoidable and are not too onorous. After all, you’ve protected your growth assets against your possible bankruptcy by holding them in a trust so if the surety is called and you go bankrupt as a result, well, at least the trust assets are safe (except,…
Why plan to live forever? We’re all going to die sometime surely? Well, yes, but when? That’s the million dollar question isn’t it? Could be tomorrow, could be when you’re 110! By the way the oldest living people ever all seem to have finally called it a day between about 113 and 117 years old, seems like that really is the limit, although one dear old duck in France made it to 122 (source: Wikipedia). The women seem to beat the men by about 2 years. Don’t Google “Images”, they will make you want to die young! Oh, and another…
Some advisors will tell you that you can use trusts to save loads of tax by “income splitting”. Here’s how it works – Instead of leaving the income in the trust and paying 40% (now 45%) income tax, the income is awarded to beneficiaries (before the end of February) and will be taxed in their hands at their marginal tax rate. If their rate is low, then the tax saving is significant. Yes, this is sometimes the right way to go, but normally we would want to keep the income in the trust and use it to build its investments…