Trusts and Estate Planning Archives

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…

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…

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…

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…

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.

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,…

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…

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…

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…

Let’s deal with the easy one first. A trust bank account is an ordinary bank account that the trustees of a trust must, in accordance with the Trust Property Control Act, open if they receive money on behalf of the trust. The first (and often only) money they receive will usually be the R100 donation that a badly drafted trust deed (i.e. the vast majority of trust deeds) claims that the founder made in order to form the trust. The money must be deposited into the trust bank account and will be used up in bank charges within a month…

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%…

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…

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…

Trusts and Estate Planning

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

How can I make sure that I am remembered?

Can a trust have more than one founder?

What is a legacy trust?

How do I de-register a trust?

Why my trust is non-discretionary

Discretionary and non-discretionary trusts

What happens when married trustees get divorced?

What can go wrong with a trust?

What is the difference between a trust bank account and a trust account?

How can a trust save on tax?

How a trust can protect your legacy

When should a trust own assets directly?