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Trusts and Estate Planning

What happens to the trust income when you retire? Now it’s you that needs the money.

 In our ideal trust structure, the trust owns the investment company, which pays 28% tax, then re-invests the 72% to build the investment portfolio.


Maybe the company must declare dividends to its shareholder, the trust, and these can then flow to you as a beneficiary, like this –


Let’s add up the taxes on say, R100 000 taxable income.

Take off 28% Income Tax paid by the company and that leaves R72 000 available for dividends which will be taxed at 20% or R14 400.

Between them the retirees will get the net dividend, which is R57 600, so the total tax is 42.4% which is a pretty hefty rate of tax for a retiree. So now, our structure is not looking so good after all.

Fortunately, a little creativity can solve the problem quite legitimately. Firstly, I would expect you to have taken the trouble to build loan accounts in the company for you and your spouse. These loan accounts are required (by SARS) to attract interest at the official rate, currently 7,5%. You are both retiring and are over 65. You are allowed to earn R34 500 interest each per year free of tax, so the loans will be R460 000 each (R34 500 / 7.5%) unless you got your arithmetic wrong.

The balance of your needs will be met by having the investment company pay each of you a salary.


Both the interest and the salaries are tax deductible expenses for the company, so it pays no tax on them. Both of you, on the other hand, will deduct the tax threshold of R122 300 each from your salaries and pay 18% on the rest. That means that, with interest, you can earn R705 300 between you and only pay R70 506 tax or 10%. You’ll have a net after tax income of R52 900 per month to retire on.

If that’s not enough, add another R110 000 each and pay the extra tax at 26%. You’ll then be drawing a total of R66 466 per month between you after tax and the average tax rate is 14%.

Bear in mind that in both cases, the company will save 28% tax on your combined gross incomes of salaries and interest. That’s a win/win!


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Looking for even more informative content? Check out the books I have written which have proved to be very popular.

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