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Trusts and Estate Planning

Why would you want to buy an old shelf trust with an equally old shelf company?

Well, every natural person is allowed to make donations totaling R100 000 per tax year free of Donations Tax. These donations should be to a company which is owned by a trust, because that’s the way the trust’s affairs should be structured.

Clearly, you could not have donated to a company that didn’t exist at the time, which is why you need an old company, and then, you don’t want the company to be worth anything when you sold it (or donated it) to the trust, because any value would attract CGT. So the trust must own the company before you start(ed) your donations.

You (and your spouse) can then each donate R100 000 every tax year starting in the year that the company was owned by the trust. The donation is in the form of a debt that you will owe to the company (unless you have a few hundred thousand Rands lying around looking for a home).

Each donations requires a deed of donation. Very simply “I, ……….., with the consent of my spouse, hereby donate R100 000 on loan account to …………….. (Pty) Ltd. Date and signed by you, your spouse and accepted by the company director on behalf of the company.

The only places where these donations are recorded are in the company accounts and the company’s tax returns. So the Tax returns will have to be re-submitted to reflect the tax free income and its appearance on the Balance Sheet as an asset loan and retained earnings.

Once the loan has accumulated to a sizeable few hundred thousand Rands, the company can buy your personal effects, motor cars etc. from you and that reduces the amount that you owe it. Alternatively, if you need to pay a deposit on property on behalf of the company, you can do so by repaying part of what you owe to the company. Either way, you don’t get stuck with the s7C compulsory interest charges on loans to trust structures by connected persons.



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