Trusts and Estate Planning Archives

In theory, yes you could, but in practice that would be a very silly thing to do. Perhaps the best way to illustrate this is that about 15, maybe 20 years ago, I studied trusts very carefully and wrote a trust deed template for use with all future clients. That template has served me well, but because trust case law keeps changing, the requirements of the Master of the High Court keep changing and because I keep thinking of subtle but important little tweaks, I am constantly changing the template. Now if I, recognised as one of the country’s…

We always recommended an independent professional trustee. Now it is a “must have” The reason for the recommendation dates back about 12 years to the Badenhorst vs. Badenhorst case. The Badenhorsts were getting divorced and Mrs wanted 1/2 of Mr’s assets. He didn’t have any – they were all owned by a living trust that he had set up previously. Mrs Badenhorst took him to court and won the case. The judge said that Mr Badenhorst’s trust only had his brother as the other trustee, they never discussed the trust (i.e. there were no minuted meetings), Mr B bought and…

In a word, No! So what do we mean by the Asset Protection function of trusts? One important function of a living trust is to protect assets from your creditors if you should be bankrupt, or even if you should be attacked by your creditors. There are three important things to remember – 1) The trustees must never sign surety for any of your personal debts, because the firewall would break down for that creditor. 2) If the creditor is on the trust’s side of the firewall (such as when the trust takes out a bond), then the related assets…

There are a few simple mistakes that people make when writing their wills. Here they are – 1) Don’t write a joint will with your spouse. Rather two separate wills. 2) Leave everything to your spouse so that your R3,5m Estate Duty allowance passes to him/her. 3) Then, if you die simultaneously, leave everything to your living trust, so that your trustees can look after the beneficiaries in accordance with their needs from time to time. 4) Never bequeath money to a minor, because the money will have to be deposited in the Guardian’s Fund. Rather…

I often get asked “If assets are owned by my company, are they protected from my creditors?”. The answer is usually no. Why? If you own the shares in the company, then the shares are assets in your name which can be attacked by your creditors. If they get your shares, they get the assets. So no protection there. If, on the other hand, you own shares in two companies, the creditors of the one company cannot attack the assets of the other company simply because you’re the shareholder of both. The “Limited” in (Pty) Ltd means that the shareholder’s…

I write a free will for anyone who buys a trust from us and one for their spouse as well, but I never write a joint will for both of them. Why? Jane and Trevor had a joint will leaving everything to each other when the first died and then the entire estate to their two children in equal portions when the second died. After Jane died, one of their children had a serious road accident and was restricted to a wheelchair. The other was making a stash as a businesswoman. Trevor died and the estate…

I was recently asked this rather interesting question and my response was “Yes, most definitely”. Why? My reply stands on two pillars – Firstly, the capital which would be an asset of some kind, such as fixed property or shares in a company, has not been distributed, it is either still held by the trust or has been disposed of by the trust. Either way, that’s a separate transaction from the Capital Gain. The separation of the capital gain has not changed the asset. It is still a piece of fixed property or it is still the same shares. Secondly,…

There are direct costs and there are opportunity costs. Let’s look at the direct costs first. Capital Gains Tax Because you are a connected person in relation to the trust, the sale (you would not want to make it a donation) will be deemed to be at market value and CGT will apply at up to 18% of the increase in value over the base cost (purchase price plus cost of improvements) as if you had sold the house to a third party. But don’t despair! Because this is your primary residence, you are allowed to make a capital gain…

I am often asked whether it is wise to put one’s house into a trust. There are two answers – Yes and No. If you formed the trust mainly to protect assets from your creditors, then you may consider it worthwhile protecting your house in the same way. Be aware that if the house is bonded, then you will have to re-negotiate the bond and that particular creditor (the mortgaging bank) will be on the trust’s side of the firewall, so the house will only be protected from your creditors, not those of the trust itself. Also, if the house…

Your trading company is high risk and makes surplus money. Your investment company is low risk and wants money to invest. How should they sit in a trust structure? Not so long ago, I would have suggested that you use a holding company to create the link between the other two companies, whilst protecting the investment company from the trading company risk. The trading company declares its excess money as dividends to the holding company and no Dividends Withholdings Tax is levied because the shareholder is a company and not an individual or trust. The holding company then…

There are two potential benefits – asset protection and estate planning I’ve dealt with the first in another article, so what about estate planning? Two taxes kick in on your death (or that of your spouse dying second if you have bequeathed everything to each other). Estate Duty at 20% or 25% is taxed on you net assets at the time of death. There’s an allowance of R3,5m each and that is often enough to leave the house untaxed. You are deemed to have sold your assets to your deceased estate at the moment of death…

Our CRM system recently sent reminders to all of our trust clients to donate R100 000 to their trust owned company before the 28th of February. Here’s why – Every natural person is allowed to donate a total of R100 000 each tax year free of Donations Tax (which otherwise is 20%). If you (and perhaps your spouse) donate R100 000 on loan account for the next 5 years, you will then owe the company R500 000 and have shifted R500 000 out of your future deceased estate. Say the company then wants to raise a bond to buy an…

I often get asked what happens to the assets of a trust in the event of a divorce, especially if the spouses are both trustees. The first thing to fully understand is that the assets are owned by the trust (or its company) and not one of the spouses getting divorced. The other spouse can be thought of as a potential creditor trying to break through the firewall protecting the trust assets. His or her attorneys will, (because this is what they learned at University and is about all they know about trusts), try to prove that the trust is…

Trusts are taxed at 45%, but that rarely matters because they should not earn taxable income, and, if they do, it should bypass the trust completely. Here’s how. Provided taxable income received by or accrued to a trust is distributed to a beneficiary prior to the trust’s tax year end (28 February), then it may flow through a pipe, or conduit, directly to the beneficiary without touching the trust at all. The nature of the income is unchanged. That is, a dividend remains a dividend, interest remains…

Does it make sense to donate assets to your trust structure? Oddly enough, despite Donations Tax, it sometimes does. There are two ways to move owned assets into a trust structure. Let’s look at the most common method – 1) Sell the asset on loan account. Because the trust and its company are connected persons to the seller, the transaction will be deemed to be at market value for all tax purposes. Let’s say that the asset cost R4m and the deemed market value is R6m. The seller will pay Capital Gains Tax and, if the asset is fixed property,…

This week, I came across an unusual reason for forming a trust. The problem my client was faced with: My visitor was the second wife in a polygamous marriage in community of property. It appeared that the husband wanted to treat both of his wives equally during his lifetime and upon his death. Accordingly, he had purchased some residential units intended to provide his two wives with income upon his death. Even if all of the properties were equal now, they would not be equal in value at the time of his death, and thus there was the possibility that,…

Of course, it is only those who expect to become reasonably wealthy that should form a trust, but for them it’s never too soon to start. You could be forgiven for thinking that the time to form a trust is when your assets (particularly the shares in your company) are about to gain sufficient value that their sale to the trust would result in your having to pay Capital Gains Tax or before the value of residential properties owned by your company grows above R900 000 since the sale of the shares to a trust leads to Transfer Duty as it…

I often get a call from someone whose creditors or spouse are after them and he or she urgently needs a shelf trust so that he/she can move their assets into it to protect them. That is exactly what trusts cannot do. It’s the word “move” above that is the problem. There are only two ways to move assets into a trust. You can either donate them or sell them to the trust. Let’s look at each of these in turn. Donating your assets The problem here is Donations Tax, which is 20% of the total value of your donations…

Trusts and Estate Planning

Can I form my family trust myself?

Does my trust need an independent professional trustee?

Can a trust prevent bankruptcy?

10 things to remember in your will

Can a company protect my assets?

Why a joint will is a bad idea

Can a capital gain be distributed to income beneficiaries of a trust?

What does it cost to put my house in a trust?

If I put my house in a trust, is it protected from creditors?

How to structure your trading and investment companies within your trust

Is there a benefit if I put my house in a trust?

Why you should donate R100K to your trust owned company

Trusts and divorce

How income bypasses a trust using the conduit principle

Donating assets to a trust

Trusts for polygamous marriages

It’s never too soon to form a trust

What a Trust cannot do