Trusts and Estate Planning Archives

Many of you would like to the know fundamentals of a trust before we get into the detail. So here goes in the form of FAQs What are the benefits of having a trust? You’ll save as much as 38% of your wealth on death that would otherwise be paid in taxes. The trust assets are protected from your creditors. What taxes does the trust pay as a result of my death? None. What taxes would my estate pay on my death if I didn’t hold my assets in a trust? Estate Duty on the value of those assets at…

The Master’s office is really going over the top now. They are suddenly invoking the findings of the Crookes case which was heard in 1956! I think somebody there is studying trust law and trying to make a name for themselves (and I think I know who it is) The matter that had to be decided in the case was whether under those particular circumstances, the trustees and donor could change the Trust Deed without the agreement of any other party. Because of the unusual circumstances is was found that the beneficiaries had to agree as well. This was essentially…

In his 2016 budget Pravin Gordhan advised that there would be changes to the way loans to trusts are dealt with. These proposed changes are now published in the Taxation Laws Amendment Bill 2016. In a nutshell, from 1 March 2017, you should not make interest free or low interest loans to trusts (they don’t mention companies owned by trusts, but I guess they’ll wake up before the Bill becomes an Act). Instead you should charge the official interest rate which is currently 8%. This is a journal entry in the company Dr Interest Paid, Cr Loan account. The interest…

There are three ways of moving assets into a trust and they all have different tax consequences Donation Many people think that this is what they need to do. Problem is you’re only allowed to donate R100 000 total per annum. After that you have to pay 20% Donations Tax so this is not the way to go. Sale This is the normal way. You sell the asset to the trust, or usually a company owned by the trust (the sale price is deemed to be at market value for tax purposes) and take the tax consequences which are usually…

Only if it is badly drafted (or in very exceptional circumstances) The first problem is that most drafters of trust deeds (in fact every one that I have ever come across except those who copy from my trust deeds) will declare the intial donation of R100 or rarely, some other cash amount. The Trust Properties Control Act requires that as soon as a trust receives cash, it must open a bank account, so those trusts have to open a bank…

Estate Duty Estate Duty is charged at the rate of 20% (same as Donations Tax) on the net assets of the deceased estate (including deemed assets). Each person is exempt from Estate Duty on the first R3,5m of their estate. Any unutilised portion of this R3,5m carries over to the deceased’s surviving spouse and is added to that spouse’s R3,5m exemption. Bequests between spouses are free of Estate…

We take a lot of trouble to ensure that we get married under ANC so that there are two separate estates and if one is bankrupt the other isn’t. Likewise we set up discretionary trusts to protect assets from creditors if one of us should be bankrupt. Signing surety destroys these protections. The trust’s company is unlikely to be able to raise a bond unless you sign surety, so that one is pretty much unavoidable. What should be avoided is both of you signing surety, because that means that the marriage under ANC is also no protection. It is the…

What? You don’t even have one? Shame on you. You battle all through your life trying to build up a bit of wealth and then you don’t even exercise your right to say what will happen to it when you die. That’s a bit like not bothering to vote in our new democracy So what happens if you die without a will (known as dying intestate). Then your assets will be distributed according to a rather complicated formula which we all learned at university then promptly forgot. It’s called “per stirpes”. From what (little) I remember it works like this…

We form a lot of trusts and never cease to be amazed at how the founders let them fall asleep. It is a common misperception that once you’ve paid for something you can forget about it. We find this with trusts, wills, bookkeeping, tax returns and a whole bunch of the services that we offer. You need to understand that when you form a trust or buy a shelf company, that’s only the beginning. But we even have great difficulty just getting our clients to the point where we can actually form their trust or change the directors of their…

Here we go again! If it’s not SARS, or the IDC then it’s the Master of the High Court. They all constantly change the game apparently on the whim of someone in authority. The Master’s office in Johannesburg has a new Assistant Master and she’s a stickler for the rules (that’s probably why she got the job, because her predecessor was great at cutting corners, which suited us well). It seems that several years ago, somebody issued a set of rules that (contrary to Contract Law which governs Trust Deeds), we cannot replace one trust deed (which is a contract…

It often happens that a trust owns investment property that would be better held by a company which is, in turn, owned by the trust. This is because companies pay 28% Income Tax whilst trusts pay 45%. So, how do we give effect to this without incurring a lot of tax? Fortunately, s42(2) of the Income Tax Act comes to our rescue as far as CGT is concerned. Provided the property was held for investment and not trade (that is, not with the intention of selling it at a profit) and provided it is transferred to the company in exchange…

So you set up your trust for asset protection and estate planning. Are there any other benefits? Two that I can think of. One I love the other I dislike intensely. The one I love is that it can be the means whereby one of your companies can qualify as a Small Business Corporation for tax purposes (potential tax saving of R95 000 per annum). In order to qualify, one of the requirements is that the shareholder/member is only a shareholder/member of that particular company. This is a problem if you have other business interests, so what we do is…

Let’s take a look at the money market (savings accounts, call accounts and the like) and see what terrible investments they are. There’s a very touching advertisement running on the radio right now. It’s an elderly couple saying “I wish my bank wouldn’t ignore me just because I’m getting older. I want a bank that really cares for me, a bank like …bank. They are offering me a great 7 1/4% interest on our money and our capital is guaranteed against inflation. Now we can take that world cruise that we dreamed of for so long.” It’s so soppy it…

There are plenty more, but here are the most obvious top ten – First, the Do’s 1. Engage an independent professional (accountant or attorney) as one of the trustees. Otherwise you risk breaking down the firewall between your creditors and the trust assets. 2. Ensure that you are one of…

If you have investment properties, then when the second of you and your spouse dies, up to 38% of their value will go in tax and that is payable in cash. The answer is to hold them in a trust. The tax is made up of Estate Duty (20%) and CGT (18%). But when you die, the trust does not die and those dreaded taxes do not kick in. Should you wish to make an appointment, please feel free to visit Derek’s diary and book a time that suits you.

Your trust does not protect you, but it can protect your assets. Let’s take a look at what you own. Probably a house, two motor cars, household goods and furniture and then, if you are building your wealth for eventual retirement, you will have, or plan to have, some investments like listed shares or property. You will also own shares in your business.

If you bequeath money to a minor (under 18 years of age) in your will, you would, if you were still alive, be horrified to find that your bequest cannot be fulfilled. The cash must be deposited into the Guardian’s Fund which is administered by the Master of the High Court. Interest is earned on the money and school fees etc may be paid out of the fund. However, the process, like everything else administered by the Master’s office, is cumbersome and burdensome so is best avoided. Avoidance is a simple matter. All you need to…

It’s not just a question of trusting your trust. It is really how much you can trust your independent professional trustee to get things right and keep them right. Ever since the Badenhorst vs. Badenhorst case it has been considered essential to have an independent professional (accountant or attorney) on board as a trustee of a discretionary trust whose object (or at least one of them) is to protect the trust assets against external creditors. But this professional trustee should not be selected just for window dressing (i.e. to give the appearance that the trustees are truly independent of the…

One good reason to hold your investments in a trust is to protect them from creditors in the event of bankruptcy. Oh, of course, you’ll never be bankrupt will you? Let me ask you something. What is the difference between the type of person who will become a multi millionaire and one who will be a bankrupt. Answer – none! Or quite simply, if you don’t want to risk bankruptcy, go get a 40 hour a week job! So yes, you are at risk. If you’re not, then you’re probably not going to become the sterling millionaire that you need…

I meet so many people who have a family trust (often three depending on who they bought from) gathering dust in a file somewhere. Often the trusts were bought after attending a seminar on the subject, but because there was no follow through they never got to put the trust(s) to the use for which it was intended. So let’s explore one good reason for forming a trust during your lifetime (it’s called an inter vivos trust meaning “during life”). When you die, you’ll probably leave everything to your spouse and there will be no estate duty and no capital…

Trusts and Estate Planning

Trust basics

The Master is at it again on Trusts

Changes to the Tax laws relating to loans to trusts

How to move assets into a trust

Does a Trust need a bank account?

Deceased estates, how they are taxed if there’s no trust

Signing surety can destroy the advantages of ANC marriages and trusts

When did you last re-visit your Will?

Don’t let your trust or shelf company go to sleep

Changes to trust amendments at the Master’s office

Transfer of fixed property from a trust to a new company to be owned by the trust

What else can my trust do for me?

Don’t invest Trust or personal capital in the money market

4 do’s and 6 don’ts with your family trust

Why it is essential for an investor to form a trust

How can a trust protect me from bankruptcy?

When do you need a testamentary trust?

How much can you trust your trust?

Trusts for Asset Protection

Trusts for Estate Planning