Trusts and Estate Planning

Let’s suppose that your parents are both 65 years old. They own shares in a (Pty) Ltd company which you run worth R5m. Cost zero their home worth R5m. Cost R3m a company which owns unbonded investment properties worth R10m. Cost R7m Should they form a trust? Let’s assume that the trading company value will increase by 5% a year on average. nominal property values will increase at, say, 9% per year on average. inflation averages 7% Now let’s suppose that at least one of them lives to be 85 years old. What will be the nominal values of their…

Generally, when you appoint an Independent Professional Trustee, you can dump them anytime you want, because the Trust Deed says that the majority of trustees can remove a trustee (except that they cannot remove you). However, what if there are only 2 trustees, you and the professional? Again, this should not be a problem as long as the trust deed allows you to appoint additional trustees. You will simply appoint a new professional and the two of you will remove the first. Of course, the simplest way is to ask the professional to resign, which any self respecting professional would…

There are so many things that can go wrong with a trust deed that I devoted a whole chapter to this in my book “16 Steps to Wealth” Here are a few of them – The founder makes a donation of R100 to form the trust, but that means the Trustees are obliged, in terms of the Trust Propert Control Act, to open a bank account and deposit the R100. Because this hardly ever happens, then, in my view, the trust was never…

It’s not unusual to have a trust or two lying around doing nothing. Especially if you were persuaded to buy three trusts when you really only needed one. So, I occasionally get asked to quote to de-register a trust. Here’s my advice. Distribute all remaining trust assets (if any) to beneficiaries and keep evidence of having done so. Submit your Beneficial Owner return to the Master. We’re still not confident about how to do this, but it will soon become routine. Then, forget the trust and ignore SARS. What will happen? The trust will gather dust in some Master’s office.

Let’s take a simple scenario that I come across almost daily. You own a R1,5m property and would prefer it to be owned by the company that your trust owns. It cost you R1m. We look at the cost of the transfer and it adds up CGT about R82 000 Transfer Duty R12 000 Conveyancer’s fees about R27 000 That’s a whopping R121 000 You have the money available, but is it worth it? (a) You don’t do it and you die in, say, 40 years’ time. Assume inflation averages 7,2% and there’s no change in the tax laws. Value…

The first change is not actually a change, but the result of my having finally come around to the fact that trusts must register as taxpayers. Here’s the effect – It is not a simple job any more as we also have to appoint a representative, a process that SARS has made unnecessarily difficult. We charge R2 800 for this registration. Trusts are not automatically provisional taxpayers. Annual tax returns must be submitted despite their being Nils. We charge R720 if there were no distributions. The next change is the result of the Taxation…

Would you believe? The Master of the High Court offices are overwhelmed with a backlog due, they claim, to Covid. And now, with load shedding taking about 4 hours out of most working days, they don’t have generators. So what do they do during those four hours? Well, we do know that they close their doors and allow no members of the public in for follow-ups etc. Then, knowing their general attitude towards their work, I doubt that they do anything except scroll through their favourite social media app. And so, we wait, and wait, and wait.

Why would you want to form a trust for your aged parents? Firstly, here’s why you wouldn’t. The cost of transferring assets into a trust structure may be prohibitive. They can include – Transfer Duty Capital Gains Tax Securities Transfer Tax Conveyancer’s fees Depending upon the remaining life of the second dying of the parents, the protection from taxes on death of the gain in value of the assets may not warrant the above costs Their estate may not be big enough, bearing in mind the allowances for CGT and Estate Duty on death. Then why would you? The above…

As part of its efforts to (unsuccessfully) avoid grey listing, South Africa, at the end of 2022 promulgated the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act. This new Act amended 3 other Acts, amongst them, the Trust Property Control Act. Here’s what it did. Definition of “beneficial owner” (of the trust property) includes amongst others, the Founder, the Trustees and any beneficiary referred to by name. 11(1) The trustees are required to (e) record the prescribed details relating to accountable institutions which the trustee uses as agents to perform any of…

As accountants we are very much aware that loans to shareholders by their company need to bear interest, otherwise the interest is deemed to be a dividend and subject to Dividends Withholding Tax. But what I missed until recently is that, because trusts are defined as “persons” in the Income Tax Act, this also apples to loans by companies owned by a trust to the trust itself. Normally, this would never happen as, why would the trust need a loan? However, it did come up and I had to go to the Act s64E(4)(a) and (b) to unscramble my head.

Here are some Do’s – If we didn’t form your trust, then it was probably formed with a donation of R100. You MUST open a bank account and deposit that R100, otherwise your trust was not actually formed. Keep a copy of the first bank statement on file. Once the R100 has been used up in bank charges, close the bank account. You don’t need it. If we didn’t form your trust, then the trustees are probably required, in terms of the Trust Deed, to hold annual meetings. Make sure that they do and that minutes are kept. Otherwise they…

This question arises because it only takes about a week to form a company but 6 to 8 weeks to form a trust. You want your trust to own this new investment company, but only the company has been formed. The trust is still in process at the Master’s office. The end of February is approaching and you and your spouse each want to make the R100 000 donation to the company on loan account before the tax year ends. If you miss the deadline, that’s R200 000 loan account missed. So, you make the donation and the trust is…

I’m often asked to help someone form a trust so that they can save on tax. My first response disappoints them, because a trust does not save any tax in the short term, unless you abuse its purpose and use the conduit principle to syphon income  out to low taxed beneficiaries. And even that can easily fall foul of s7 of the Income Tax Act. My second response, however, always wakes them up. If you build wealth in your own name, or even worse in a company that you own, then you will lose a third or more of it…

I guess the first question is why would you want to? I can’t think of many good reasons, but these are thoughts that come to mind – Your trust is registered as a taxpayer and you’ve read my book “16 Steps to Wealth”.  Now you know that you were ill advised and prefer a trust that is not registered. Your trust doesn’t actually exist, because the initial cash donation was never made or banked. Now you want a valid trust. You have a messed up structure in the old trust and can’t figure out a way to clean it up.

Your trading company can only qualify as an SBC if the shareholders are all natural persons. There are other conditions, but this is the one that I want to deal with today. Because of this, you would normally want yourself to be the shareholder rather than your trust. But you do want your trust owned investment company to have the profits in order to invest them. How do we do that? It’s a bit of a balancing act. The investment company rents assets (computers, vehicles, furniture etc.) to the SBC. You have to leave enough profit in the SBC to…

Probably not. Why? Because the trust deed almost certainly states that the trust was founded by a donation of R100 from the founder to the trustees, on behalf of the trust. It is not formed by the process of registration at the Master’s Office. Let’s see what happened to the R100 in your case. The Trust Properties Control Act states that whenever the trustees receive money, they must open a bank account in the name of the trust and deposit the money into it. And there’s the problem. Can you produce a bank statement showing that deposit of R100? If…