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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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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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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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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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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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I guess we all want to leave a decent legacy. It’s probably the only thing that we will be remembered for in a few generations’ time. D’you remember your grandparents? Sure you do. But what do you know of their parents? And their parents’ parents? Of course, you will not be aware of those people who have left a legacy to their descendants, because that’s a different family, but I’m sure you’ve heard of a guy called Nobel? He invented dynamite and left a legacy that…

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Just as the sale of shares in a company owning mainly residential property is deemed, for Transfer Duty purposes, to be the sale of the property, so too is the sale of a trust that owns residential property. A trust will be recognised as having been sold when there is any change of trustees. So what if it was a shelf trust sold for the purpose of buying residential property? Firstly, we prefer not to sell shelf trusts as there’s double work involved, first to form the trust, then to change it. However, occasionally a client…

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If you have the intention of becoming reasonably wealthy, then you should form your trust now, or as soon as you can afford it. The cost is currently R12 400 and you’ll also need a company for R1 980. But why the urgency? The answer lies in s56(2)(b) which allows all natural persons to donate up to a total of R100 000 each tax year free of Donations Tax. Now, you and your spouse may not have R100K just lying around waiting to be donated, but you can still donate (before 28 February each year) and owe the money to…

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Yes, you can, despite my having written an article recently stating that this allowance was terminated on 28 February 2018. I was completely suckered by a member of SAIPA – that’s the wannabe institute of junior accountants who have gone through various names in the past trying to sound like professionals. These were CFA mimicking a very proud and respected body in the UK. They got barred from using that name, so they then called themselves CPA, which, in the USA means the same as CA(SA) does here. They got barred from using that name, so then they finally settled…

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That only depends on the Trust Deed. There is no legal requirement for a trust to prepare financial statements but some trust deeds include such an obligation along with other unnecessary requirements such as that the trustees must meet at least once a year to consider the financial statements. The problem with stipulations such as these is that if the trustees fail to abide by them they lay the trust open to an interpretation that it is a sham, since they are not taking it seriously themselves. Our advice is to keep the obligations of the trustees to a minimum.

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We have been forming trusts for about 20 years. Many of them are formed with me as the Donor and my wife Helen and I as trustees. They are the put on the shelf to mature and be sold when someone needs a trust urgently or wants an old one. Then we change the trustees, beneficiaries etc. and usually leave me in place as the Independent Professional Trustee. And now, many years down the track, the Johannesburg Master has suddenly decided that the Donor cannot be the Independent Trustee. Not only did it take her and her predecessors about 20…

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The decision as to what a trust should own is largely dependent on the main purpose for which it was created. Although most trusts serve both purposes, some are formed principally for estate planning and others for asset protection. Let’s look at each of these – Estate planning Your objective here is to minimise the Estate Duty and CGT, both of which kick in on death. Estate Duty is based on the net value of your estate, whilst CGT is levied on the gain in value of each asset from the date of purchase to the…

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So, your trust owns investment properties and is liable for 45% tax on the net income. You read my article about how this should have been structured. Is it too late to put it right? Fortunately, it can still be done thanks to s42 of the Income Tax Act. You need to do an asset for share swap. Here’s how it works – You need to slip a company between the portfolio and the trust. Ideally, it needs to be a company that you newly form. Then the first issue of shares is in favour…

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There’s a simple answer to that one. You don’t! There’s one bunch of attorneys who claim to be experts on trusts. And yet, they will try to convince you that you need four trusts, not just one. According to them you need a family trust to hold your personal effects, a residence trust to hold your primary residence, a share trust to hold your shares and a property trust to hold your investment properties. They argue that this is necessary in order to isolate risks, but they miss the point completely. Actually, I’m sure they know this, but, like Woolies,…

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A company is taxed at 28% and a trust at 45%, so it’s a no brainer, or is it? If you own shares in your investment company and you go belly up financially, the shares will form part of your insolvent estate and will be sold. Not good. If your trust holds the investments, they are protected from your creditors, but what about that tax rate? Best is for your trust to own a company which, in turn, owns the investments. Income is taxed at 28% and the investments are protected from your creditors. Now, that’s a no-brainer!…

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