Trusts and Estate Planning Archives

It is a general rule in tax that transactions between connected persons are deemed to be at market value. Typically, this arises when someone sells their fixed property or shares in a private company to their trust. The question then arises “Who must do the valuation?” and the Income Tax Act and Transfer Duties Act are silent in that regard. They simply say that SARS may challenge any valuation. This means that the seller can determine the market value. And that raises the question “On what basis must the asset be valued?” Generally, companies are valued on their last signed…

I have been wrong all this time! The answer is yes, a trust must register as a taxpayer even though it will never receive taxable income. I dug this up while referencing my upcoming book 16 Steps to Tax Wisdom. Here’s why – s67 Registration as taxpayer.—(1)Every person who at any time becomes liable for any normal tax or who becomes liable to submit any return contemplated in section 66 must apply to the Commissioner to be registered as a taxpayer in accordance with Chapter 3 of the Tax Administration Act s66 Notice by Commissioner requiring returns for assessment…

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…

No. Only shareholders which are companies are exempt. Having said that, if company A is a beneficiary of a trust which owns company B and company B declares a dividend, can the dividend flow through the trust to company A using the Conduit Principle thereby avoiding the DWT? An interesting question. I’m not a tax specialist, but by the way I read s41 and then s1 of the Income Tax Act, in order to be exempt the dividends have to be received by a company which is, either directly or indirectly, a 70% or more shareholder in the company…

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…

So, why get married under an ANC rather than in Community of Property (COP)? Isn’t the latter fairer to both spouses? That depends on the type of ANC contract that you sign. There are two possibilities and I have compared them with COP – With accrual. This is, by far, the most common arrangement and is totally fair in my view. The two parties declare in the contract, what assets they have prior to the marriage. These assets remain uniquely theirs and are not shared by the other party. However, any assets added subsequent to the marriage are separately owned…

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…

When planning an Asset for Share swap using the s42 provisions in the Income Tax Act, you will see that the shares have to be new issues, not existing shares. As we invariably want all of the shares to be owned by a trust, we find it best to use a new company. The way an Asset for Share swap works is the new company issues 100% of its shares to the trust in return for an asset or assets (usually fixed property). There is no tax against this transaction. No CGT, no Transfer duty, no tax. There are, however,…

The answer used to be “Yes”, then it was “No”, and now it is again “Yes”. I guess it all depends on which side of the bed the Master got out of this morning! The problem arises when there’s a need to change the beneficiaries, or when the trust deed was so badly drafted that it is hardly worth the paper that it was written on. A change of beneficiaries should be a rare occurrence if the trust deed was well written in the first place. Usually, it will only be necessary if you’ve bought a shelf trust. However, the…

Transactions, such as the sale of shares or fixed property between related parties are deemed for tax purposes to have been at market value, regardless of the documented transaction value. It often happens that you will want to sell assets into your trust structure and you are a connected person in relation to the trust. So, how are the assets valued? The value of listed shares are published daily, so that one is easy, but what about shares in a private company, or in an investment property? All tax acts are silent on who may perform the valuation, so you…

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…

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…

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…

Trusts and Estate Planning

Market value for connected transactions

Must a trust register as a taxpayer?

The Master’s office does not have backup power!

New trust for aged parents

New laws relating to trusts

Loans to a trust by a connected company

I have just formed a trust. What next?

Are trusts exempt from Dividends Withholding Tax?

Can I donate R100 000 to my trust’s new company before the trust is formed

How do trusts save on tax?

How can I shift all the assets of one trust into another?

How to pull the profit from a Small Business Corporation into a trust structure

Anti Nuptial Contracts

Does your trust exist?

What is the difference between an s42 company and an ordinary company?

Can I replace my trust deed with a new one?

How is an asset valued for tax purposes?

Tax on s7C interest

Can I be a trustee and beneficiary of my own trust?

Write a divorce settlement before you get married