Trusts and Estate Planning Archives

With the 2019 Budget speech behind us, Estate Duty has gone from 20% to 25% on the amount by which an estate exceeds R30m. That’s five new reasons for holding assets in a trust. But really? Is anyone who’s sharp enough to accumulate R30m not going to have woken up to the idea of a trust? The answer, amazingly, is yes. There are such people out there. I’m currently finalising a business plan for a client who wants to buy a very profitable 28 year old dealership for, guess, R30m and the seller owns the shares in his company in…

I’ve previously written about the new rules relating to interest free or low interest loans to trusts, but the final amendment changes the game yet again and you could be in for some bad news. Here are the salient points most likely to affect you. 1) The section now applies to trusts or companies in which the trust owns at least a 20% interest. 2) The difference between the interest calculated at the official rate (currently 7,75%) and the interest actually charged is now deemed to be a donation and subject to Donations Tax (currently at…

I get to read lots of trust deeds, occasionally one will be well written, but most are just the usual copy and paste stuff by someone who doesn’t apply his or her mind to the job. Here’s what you should be out looking for – 1) If the founder is your parent and not you, ask the person who drafted the deed why that is. If they tell you it is in case the trustees want to award you, as a beneficiary, a fixed property and because there is some doubt as to whether you are a relation of yourself…

Any natural person can donate a total of R100 000 each tax year free of Donations Tax, so, if you want to protect your household goods and motor vehicles from creditors, buy an old shelf trust. Your first donation would be dated in the first February in which the trust existed, the second a few days later in March and then every March thereafter. You and your spouse don’t have R200 000 floating around for each donation, so you simply record the donations and agree to owe the money to the trust. Then you take a very detailed inventory of…

Most people who come to see me about forming a trust want either just their children or perhaps themselves and their children as the beneficiaries. Is this a good idea? No, and here’s why you shouldn’t do it – If a trust has no beneficiaries, then the High Court has to decide what happens to the trust assets and it sometimes awards them to the State and that means that if you, your spouse and children all die in the same accident (which, unfortunately, is not beyond the bounds of possibility), then JZ and his cronies get another windfall. So…

Some trust advisors advocate having three (and, more recently, four) trusts. Great for them, dumb for you! They want you to buy these trusts from them (and it is amazing how many otherwise clever people fall for it) – 1) Your family trust. This one is to hold your family goodies, like toys-for-boys, jewellery etc. to protect them from creditors and to avoid the taxes on death. 2) Your property trust. To hold your investment properties. 3) Your share trust. To hold the shares in your business and any listed shares. 4) Your primary residence trust. This is their latest idea.

There are six different types of trust sometimes with sub-categories. Here they are – 1) Intervivos Discretionary Trust. A trust set up during the lifetime (intervivos) of the founder and in which he/she gives the trustees absolute discretion to handle the trust assets and income for the benefit of the beneficiaries. This kind of trust is used for asset protection and estate planning. There is a sub-category which is an intervivos non-discretionary trust. This is effective for estate planning, but not for asset protection. The trustees do not have absolute discretion. The Master has recently, with absolutely no authority to do…

The Taxation Laws Amendment Act of 2016 is now a reality. Loans to trusts below the offical interest rate come under the spotlight, but don’t panic! As I advised when reviewing the Bill, the provision applies to loans to a trust by any person or company connected to that person free of interest or at an interest rate below the official rate (which is the repo rate plus 1%). The essential point is that the provisions apply to loans made directly or indirectly to trusts but I took specialist advice and was informed that the word indirectly does not apply to…

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…

Trusts and Estate Planning

Five more reasons why the wealthy must have a trust

Low interest loans to trusts now have some bite

Seven things to look for in a trust deed

Why an old shelf trust can be so useful

Who should be beneficiaries of my trust and why?

Why you don’t need more than one trust

Six types of trusts

New laws relating to loans to trusts

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?