Trusts and Estate Planning Archives

There’s a firewall between your creditors and the trust assets, but how strong is it? This gets tested in the courts relatively often and two cases were reported in De Rebus, the Law Society magazine recently. In both cases the firewall held and quite rightly because these trusts were properly constructed and properly administered. The first case was the classic – a divorce. Both the husband and wife were trustees and beneficiaries and her attorney sought to get the trust assets included in the accrual calculations. He claimed that the husband had treated the trust as his alter ego (other…

Who should be the beneficiaries of your family trust? Lot’s of clients say that the trust is for their children as beneficiaries, but that is fundamentally unsound. There’s no question in my mind that the beneficiaries must include the client and their spouse as well as their children. The reason is that you simply do not know what the future holds, so be ready to deal with the unexpected. You might be quadraplegic this time next year! You can’t possibly predict that, but it happens to some, maybe you. OK so now we’ve got the immediate family on board –…

I get lots of people (always men, oddly enough) who are very concerned about what will happen to all their hard earned wealth once they are dead and no longer able to act as trustee for their trust. Well, the first thing to understand is that when you’re dead, you’re dead. The second thing is that you don’t know in what way circumstances may change after your death. The worst thing you can do is to tie everybody’s hands so that when a real need arises they are not able to fulfil it simply because you wanted to rule from the…

SARS have brought out a new tax return for trusts (the ITR12T). There’s bound to be more pub talk about SARS clamping down on trusts, but the pub experts simply pass on hearsay and never actually take the trouble to find out the facts. The reality is that there’s nothing to be concerned about here. All SARS want is the following – 1) The trust will have to give proper details of all transactions during the year – no big deal unless you’re Julius Malema maybe. 2) Details of all parties contributing to the trust. Again no big deal except…

We’ve figured out how a trust should hold investment property, but what happens when you retire? Is that still the best structure? Remember that we had the trust owning a company which in turn owned the property portfolio? That was great, because the company paid tax at 28% and then re-invested the net income back into the portfolio to build its wealth. But when you retire, you want the income to flow out to you (that’s why we set it all up in the first place). The obvious way is that the company pays a dividend to…

Firstly, how does a trust get to own assets (apart from the miserable R100s worth that you donated to it)? It starts off with nothing, so in order to buy investments it must borrow the money. There are two sources – you or the banks. Generally, the banks tend to be reluctant to lend to trusts, so although you may get lucky, the normal source is you. You could perhaps borrow from a bank and then on-lend to the trust. Or you could stand surety for the trust’s borrowings from the bank. Either way, if things go wrong with the trust’s…

Of course none of us want to sign surety for someone or something else’s debt, but there are times when it is unavoidable. Typically, you would have to sign surety for – Your company’s overdraft facility Your company’s leases and instalment sale agreements Your trust’s property company’s mortgage bond agreements All of the above are unavoidable and are not too onorous. After all, you’ve protected your growth assets against your possible bankruptcy by holding them in a trust so if the surety is called and you go bankrupt as a result, well, at least the trust assets are safe (except,…

Some advisors will tell you that you can use trusts to save loads of tax by “income splitting”. Here’s how it works – Instead of leaving the income in the trust and paying 40% (now 45%) income tax, the income is awarded to beneficiaries (before the end of February) and will be taxed in their hands at their marginal tax rate. If their rate is low, then the tax saving is significant. Yes, this is sometimes the right way to go, but normally we would want to keep the income in the trust and use it to build its…

I recently wrote a post called By all means copy me Now I’m going to get quite specific. We are talking about so called professionals here. “Professional” attorneys and accountants who have no principals and no pride and bring their peers into disrepute. I have in front of me two trust deeds. One prepared and sold to their client by a banking institution (let’s call it the “mother”) and another by an accountant (let’s call it the “child”). I received the child for review first and after a read through, decided that it was such rubbish that…

There are two principle reasons for forming a family trust (known as an inter vivos trust because it is formed during your lifetime). Firstly, the trust is a valuable estate planning tool as when you die, the trust does not die, so there is no Estate Duty payable on the trust assets and no CGT event. Secondly, the assets of a well formed and administered trust cannot be attacked by your creditors in the event of your bankruptcy. This diagram demonstrates both uses of the discretionary trust. Note that since this article was published, CGT for individuals has increased…

Trusts and Estate Planning

How strong is the trust firewall against creditors?

The other beneficiaries

Ruling from the grave

Taxes on trusts

What happens when you retire?

How a trust buys and holds property

Signing surety

Income Splitting

Copy, paste and contaminate

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