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Trusts and Estate Planning

I am amazed! I’ve just been reading an article in IOL written by one of their contributors, entitled “Why a trust requires its own bank account”. She says “Trustees and even service providers justify why separate trust bank accounts are not maintained for trusts”. I am one of those service providers. Then “Little do they know that it is in fact a legal requirement for each trust to have a separate bank account.” This statement is entirely false. It is only necessary if the trustees…

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The vast majority of South Africans should not form a family trust. They fall into five categories. So, if you fall into any one of these groups, don’t waste your time, energy and money. Don’t form a family trust if – You are not expecting to be reasonably wealthy (having income producing investments of R12m upwards) by the age of 65. You don’t care if SARS takes between 32% and 60% of your wealth when you die. You don’t care about protecting your legacy. There is no possibility of your creditors attacking your assets. You cannot afford the fees to…

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It is critical that, before buying an investment property, you do the numbers in order to determine what price you are prepared to pay. If you do them properly, you will realise that finding a good buy is harder than you expected, but that simply forces you to buy with your head and not your heart. Here’s how I did it when I was in the buying mode of my property investment career. You need a modicum of Excel skills because you must build a model into which you can plug the numbers, and see what happens to the monthly…

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If you think that the value of your investment properties is relevant, then your thinking could well be skewed. The only number that really matters is the net rental income that each of the properties produces. And it is the net rental income from which you would calculate the value. Having said that, it is possible that you could sell the property for more than its real worth (based on rental), and that implies that it is a bad investment that should be disposed of, and replaced by one that gives a better return. This typically applies at the top…

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When your trust is to own your trading and investment companies, you need to carefully consider how they should all be interconnected. Most advisors will tell you that the trust should own a holding company that in turn should own the trading and investment companies like this – But that is not ideal, because, although the trading company can declare its excess after tax profits to the holding company as dividends, the holding company then has to lend the money to the investment company so that it can buy more investment assets. Here’s a much better way –…

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In order to protect its assets from your creditors, your trust needs to be discretionary during your lifetime, but when you die, this is no longer necessary, and other considerations kick in. Because you built the wealth in a trust, not only did you protect it from your creditors, but you also protected it from the huge bite that SARS would have taken on your death, and from the subsequent bites that SARS would take on the death of each of the following generations. So this won’t happen – What you want is for the trust income to be…

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There are two types of special trust defined in the Income Tax Act

A special trust type A is a trust set up solely for the maintenance of a person, or persons, who must be related to each other, and with disabilities that prevent them from earning sufficient income to support themselves. A subset of this type of trust is a curatorship trust, which is administered by a curator, who is usually a legal practitioner appointed by the courts.

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We have eleven official languages in South Africa, but the lingua franca is clearly English. Not surprising, then, that those of us for whom English is our home language, tend to be critical of the pronunciation, or choice of words, of those whose home language is one of the other ten. But stop for a moment and think it through. Can you speak that person’s language? Fluently? Correctly? I doubt it. So what right do you have to scoff at them? Rather learn to listen to what is being said. The person is endeavouring to communicate with you, and communication…

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Shareholders and directors commonly draw money from their company without paying PAYE. Their bookkeeper will debit their loan account and these loans typically grow over time to quite significant amounts. When you owe money to your company, you should be charged interest at least at the official rate (which is 1% above the Repo Rate). This interest needs only to be a book entry – Debit Loan Account, Credit Interest Received, and the entry should ideally be done monthly. However, to simplify things, the bookkeeper could be instructed to charge interest on the year end balance at the year end…

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Why would you want to buy an old shelf trust with an equally old shelf company? Well, every natural person is allowed to make donations totaling R100 000 per tax year free of Donations Tax. These donations should be to a company which is owned by a trust, because that’s the way the trust’s affairs should be structured. Clearly, you could not have donated to a company that didn’t exist at the time, which is why you need an old company, and then, you don’t want the company to be worth anything when you sold it (or donated it) to…

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Many people worry about what will happen to their family trust when they die, but interestingly, it is on death that the trust proves its greatest benefits. It is, after all, a device in which to build (and protect) wealth so that when you die, there are no taxes to pay and the wealth that you built during your lifetime is there as a legacy for your family and for future generations. So let’s look first at what doesn’t happen when you die – the trust pays no tax as a consquence of your passing. Compare this to the 35%…

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I always figured that Search Engine Optimisation (SEO) was a waste of the R60 000 to R100 000 that the specialists wanted to charge. Surely not everyone can be on the front page of a Google search? Take a typical search. It comes up with 6 adverts and 10 articles. If you want to be one of the ads, learn how to use Google Ads. Google offers excellent free training. Alternatively, pay someone to do the job for you. If you want yours to be one of the 10 articles, then you need a brilliant SEO campaign, and no amount…

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Once your company is in de-registration process at CIPC, the bank won’t help you with any facilities, your tenders won’t be accepted and life ain’t gonna be fun!

How did that happen? Quite simply, you didn’t submit your annual returns to CIPC, either because you didn’t respond to our email reminding you that the return was due, or, we are not your service provider.

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There are two principal taxes that kick in when you die. The first derives from the fact that you are deemed to have sold your assets to your deceased estate at the moment of death at market value. That means that the gain in value of growth assets, such as shares in any companies, fixed property, investment cars, works of art etc, will be subject to Capital Gains Tax, usually at 18%. The first R300 000 is not taxed and your primary residence only gets taxed if the gain exceeds R2m, but these allowances don’t count for much if, for…

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Most South Africans are married either under an anti-nuptial contract (ANC) with accrual or a traditional marriage. The latter is marriage in community of property which means that there is only one estate and this is owned equally by the spouses. Under an ANC with accrual, what each spouse brings into the marriage remains theirs. There are then two separate estates which increase in value equally after marriage. However, there are certain increases which do not get shared – 1) Distributions from trusts or deceased estates, donations from third parties. 2) Damage awards from slander or defamation type of…

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For how many generations do you want to be remembered? Do you want to be like the guy on the left, or the guy on the right?   They both built the same wealth up until they died. The guy on the left owned it in his own name and SARS took about a third of it when his spouse died. There wasn’t enough left to generate the passive income that he had promised his kids, so the…

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We form and sell shelf companies, so I guess that it is not surprising that we occasionally get a call from someone who wants to sell their dormant company to us. The answer is always “No”. Why? Because we do not know for certain that the company was always dormant. It could have some nasty skeletons in the cupboard. Sure, we can check on its tax and CIPC status, but that’s about all. Companies are often asked to sign surety against a dept of the shareholder and that is the scarey one because it would be impossible to trace.

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I have always held that a Non Government Organisation (NGO) is simply an organisation which is governed by a Constitution as opposed to a Non Profit Company (NPC) which is governed by a Memorandum of Incorporation. I would state categorically, that a NPC is registered at CIPC, but that an NGO is not registered. They can both, however, register as a Non Profit Organisation (NPO) with the Department of Social Development. We own Gallagher Combined School NPC and it is registered as a NPO, so I was speaking with some experience. Then along came a client…

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I guess that you are familiar with the Estate Duty allowance of R3,5m? If you bequeath everything to your spouse, then his/her allowance becomes R3,5m multiplied by two. That is R7m. But what happens to the allowance if he/she subsequently marries, bequeaths everything to his/her new spouse and then dies? Is it now R3,5m x 3? The answer lies in s4A(2) of the Estate Duty Act – s4A(2) Estate Duty Act (2) Where a person was the spouse at the time of death of one or more previously…

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This is a bit like asking the cost of a Rolls Royce – if you have to ask, you can’t afford it! But it’s not quite like that. The problem is that if you are too price conscious, you can end up forming a seriously flawed trust and when you later come to us to fix it, our fees will be higher than our fees to form a solid trust in the first place. On Google, we’ve seen “From R499”, click on that and it’s now “From R799”, but then it tells you that is for the trust deed only.

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