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Trusts and Estate Planning

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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So you want to form a trust for the kids? Really? Only for them? What about you and your spouse? You know that they say “The best thing that the rich can do for the poor is to stay rich”? Well, its also true that the best thing that you can do for your kids is to look after yourself first. After all, nobody knows what the future holds, so you don’t know what your future needs will be. First off, you need to grow wealth. Second, you need to protect it from your creditors. So you grow it in…

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There’s some pretty stupid tax legislation out there that leads to taxes that SARS hasn’t a hope of collecting. Here are some of them – 1. Transfer Duty on sale of shares in a company owning residential property. If the shares in a company owning mostly residential property (a so-called residential property company) are sold, then this is deemed to be the sale of the property itself. The sale then attracts Transfer Duty. The problem that SARS has is that the only place where the sale of shares is recorded is in the Share Register, which sits on the server…

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The question of whether a trust owned company Financial Statement must be reviewed or audited has tossed me around like being in a tumble dryer. It all stated back in 2008 when the new Companies Act was published (it only came into effect in 2011). It separated companies into three main classes. Those with a Public Interest Score (PIS) of 350 or more. Those with a PIS of less than 350, and, of those, ones which were owner managed. As a high PIS implies multi-million Rands turnover, trust owned companies inevitably have a PIS of less than 350. So the…

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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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