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I was chatting to a client on Zoom and trying to do some quick arithmetic at the same time. I didn’t do too well! She had R35m which she wanted to lend to an investment company that would be owned by a new trust. The question was. How much tax would she pay as a result of s7C of the Income Tax Act. s7C says that she would have to charge the company interest on the loan at least at the official rate which is currently 5,25%. Because the company deducts the interest from its taxable income, that’s a negative…

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When you form a trust, you actually become four different people. You as a person whose financial affairs are entirely separate from those of the trust. You as the founder, the person who forms the trust and who has to agree to any changes to the trust deed. You as one of the trustees who will manage the trust for the benefit of the beneficiaries. You as one of the beneficiaries who may benefit from distributions by the trustees. What is important is that you cannot be two or more of these people at the same time. If you are…

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I was chatting in one of my Zoom meetings to a guy who had just finally settled his divorce. He said that when they first agreed to get divorced, it was amicable and there was not problem with the settlement. Then along came the lawyers and suddenly they had a fight on their hands. Two years and ridiculous attorney fees later, they have now agreed on the settlement. Then he came up with an interesting proposition. He said that if ever he were to get married again, he and his future wife would draw up and sign a divorce settlement…

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I’m what is politely called a senior citizen. Do I remember my dad? Why, yes, I know his full name and what he looked like. How he talked and a lot of what he said. Do I remember my granddad? Well, yes, sort of. His name was granddad and he had white hair. He liked gardening and he tickled his onions to make them grow. I don’t remember much more. Do I remember my great-granddad? Um. Well, actually no, not at all. That’s interesting, Derek. So, you’re telling me that your Great-granddad left no footprint! Tell me, Derek, have you…

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The trite answer is “Yes”. But ask me the question and I would say “Why are you thinking of that?” Firstly, is there any benefit to being a founder? The founder has no power once a trust has been formed. The only time their existence is relevant is if the trustees wish to change the trust deed. This cannot happen during the founder’s lifetime without his/her approval. Secondly, is there any disadvantage in having two founders? Just clutter, in that again, the trust deed cannot be changed during the lifetime of the founders without their consent. So, my view is…

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Every one of hundreds of trust deeds that I have read fails to ensure the founder’s legacy. To understand this, we need to first understand what is a legacy. This is best done by example. Alfred Bernhard Nobel died 126 years ago and yet we all know of a man named Nobel. Why? Because, after making a fortune from his invention of dynamite, he did not simply bequeath it to his kids (he didn’t have any), but rather set up what I call a legacy trust. The terms of the trust are that the trustees may not diminish the trust…

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Interestingly, there is no provision for the de-registration of a trust in the Trust Property Control Act. But the Master has given guidance on the matter. All that must be submitted are – The original Letters of Authority Bank statements reflecting a nil balance on the final statement Proof that the beneficiaries have received their (sic) benefits. The first of the above is straight forward. The second will be problematic if, as is usually the case when we form a trust, there never was a bank account. Presumably a Sworn Affidavit to that effect by the Trustees will suffice.

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We have formed hundreds of trusts over the years and I pride myself on the care that goes into the drafting of a trust deed. Why, then, is my own family trust non-discretionary, when all of those that we have prepared for clients are discretionary? To answer that we need to first ask “Why should a trust be discretionary during the founder’s lifetime?”. As I explained in my recent article “Discretionary and non-discretionary trusts“, it is commonly believed that only a discretionary trust protects the trust assets from the founder’s creditors. I take a slightly modified view,…

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I am of the opinion that your trust being non-discretionary after your death is central to the concept of a legacy. That is, a source of income for many generations to come. Only the trust deed can make or allow this to happen. It will need to give you specific authority to make that conversion in your Will. Then, in your Will, you can dictate to all future Trustees that they may not diminish the trust assets and they may only use the trust income in certain ways that you specify. Is this the best route? Firstly, we need to…

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It is very common practice for a husband and wife to both be trustees of the family trust. Regrettably it is also very common for married couples to get divorced. So, how does the divorce affect the trust? And what happens when one or both of them re-marry and have more kids? These are sticky questions and the answers lie in the trust deed and the Trust Property Control Act. Firstly, trustees have a fiduciary obligation to act only for the benefit of the beneficiaries. So, the independent professional trustee must make sure that they keep their disputes away from…

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There are numerous articles on what can go wrong with a trust but, because they are mostly written by copy and paste “experts” they tend to be over theoretical and mostly miss the most obvious mistakes. In fact, I have not read one article that deals with the fundamental errors that are so common. Here’s what I see in practically every trust deed that I am asked to read – The initial donation is R100. That means that the trustees must open a bank account (which they usually don’t do) and deposit the R100 (which they almost…

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Trusts are taxed at 45% and their CGT rate is 36%. That’s why I so often hear that “SARS is targeting trusts”. So, how is it that trusts are one of the main instruments for saving tax? Firstly, no properly structured trust should ever earn income tax or capital gains, so the above two taxes are totally irrelevant. How is that? A trust should only own shares in companies, and it is the companies that make the profits and pay the taxes, not the trust. So we’re dealing with 27% Income Tax (when the new rate kicks in) and 21,6%…

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I read a paid-for article this morning. It was advertorial by Sanlam Private Wealth and written by one of their trust “experts”, Christine Bornman. It was all about how a discretionary trust protects a legacy through succeeding generations by preventing the future beneficiaries from “looting” the legacy. It cites the well known fact that wealth bequeathed to your children is unlikely to survive beyond about two generations. So build it in a trust and bingo! problem solved. Not so, say I. As the article points out, your succeeding trustees are most likely to be your descendants (along with a few…

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I have never professed to understand investment instruments. You know, those mysterious things that Financial Service Providers talk about so glibly? So I was delighted to hold a Google meeting with a real professional. His name is Halvar Mathiesen and he’s one hell of a clever guy. Here’s his website. He’d read some of my blog articles but had only bought my book the day before. He wanted to discuss some points where he had a “slightly different perspective”. This was going to be fun! All the more because he has a First Class Honours in Electrical Engineering and…

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I read with interest a recent Constitutional Court ruling that adopted children are descendants. As such they are beneficiaries of a trust in which the beneficiaries are defined to include descendants. The report referred to the Children’s Act 2006 which, evidently, defines adopted children as descendants. However, in this case, the trust deed was signed prior to 2006. It was argued that the Act could not be applied retrospectively. The Con Court found in favour of the adopted children. I struggled with the Children’s Act, with which I am not familiar and couldn’t find the relevant definition. However, I did…

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Let’s assume you owe money to the bank(s), the Municipality, SARS and a few retail outlets, and that you could make arrangements with all of them to pay off your debts over a period of time. And that you have sufficient income to be confident of sticking to these repayment agreements. So now you ask whether you should make these undertakings, or allow bankruptcy to proceed. There’s no simple answer to this one, but let’s give it a go. There’s the moral question. Should I make others suffer (financially) to reduce my own suffering? My answer? Yes to SARS, Yes…

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There’s a lot of misconception about SARS, trusts and taxes. Why? Because trusts are taxed at 45% and their CGT rate is 36%, so the buzz is that SARS is going for trusts. Not so! Consider this. I have no doubt that practically every politician has a trust. That’s where the dirty money goes. And, of course, it is politically correct to appear to be leaning heavily on these things that only rich people have. But that’s all smoke and mirrors. Do trusts ever actually pay tax? Not where I come from. Here’s why. A trust should never own anything…

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Actually, it is of no importance at all. It is the IT number that distinguishes one trust from another. So, unlike companies, there can be numerous trusts with the same name, but none with the same IT number. But, please be kind to whoever keeps trust documents on file. Do not make “The” a part of the trust’s name. It’s much more difficult to find “The Charlie Family Trust” amongst a whole load of other “The” entities, than it is to find the “Charlie Family Trust”.

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Not only is the answer a resounding “Yes”, but after bequeathing everything to your spouse if you die first, the next line in your will should almost certainly say that if you die together, then you bequeath everything to the trustees of your trust in their capacity as trustees. Why? Because you’ve already gone to great lengths to set the trust up with your children and siblings as beneficiaries. Your Will also appoints your succeeding trustee(s), so that’s taken care of. And if you are also permitted by the trust deed, to change the trust from discretionary to non-discretionary…

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