Do you want to bequeath your assets to an existing trust upon your death?
January 7th, 2022
In many instances, it may make sense to utilise existing trust(s) as part of your legacy plan. Your assets can be bequeathed to an existing trust – if the trust instrument allows for it. If this is the case, the trustees of that trust have to be specifically empowered in terms of the trust instrument to accept such a bequest. Review the trustee power clause to ensure that the trustees can, in fact, accept further donations or bequests.
An obvious asset to bequeath to a trust is a loan owed by the trust to the testator or testatrix. Such loans typically originate from the sale of assets to a trust. The testator or testatrix can also bequeath other assets to one or more existing trusts.
While it appears that one can bequeath assets to both vesting and discretionary trusts (both ownership trusts, where the assets are held by the trustees for the benefit of beneficiaries), it is important to be mindful of certain principles.
Is the time right to consider forming a trust?
December 17th, 2021
2021 turned out to be a challenging year for many people and very few of us had the time to reflect and consider our personal financial and estate planning. Many jobs have been lost and it proved to be particularly challenging for business owners. A number of people can attest to the devastating consequences of not having one’s financial affairs in order by the time one is faced with a financial challenge and upon someone’s death. Now that many people are taking a holiday break, it may be wise to reflect and to consider one’s personal financial situation and estate plan.
No trustee can turn a blind eye to the wrongdoing of another
December 10th, 2021
Trusts are often trusts in name only, with an essential principle of trust law, namely the independence of trustees, neglected (Tijmstra v Blunt-Mackenzie case of 2002). It is, therefore, important to note that all trustees are acting in a fiduciary capacity, and no one trustee can hide behind another. A fiduciary duty is an onerous, legal obligation (a duty of loyalty and care) of a person managing property or money belonging to another person to act in the best interests of such a person. All trustees, without exception, are to act with the care, diligence and skill, which can reasonably be expected of a person who manages the affairs of others (Section 9(1) of the Trust Property Control Act).
Is your independent trustee a ’super’ trustee?
December 3rd, 2021
It has become a requirement to appoint an independent trustee in certain circumstances. Developments in legal precedent, the Master of the High Court’s views and practice, as well as the impact of professional bodies on persons considering to act as trustees, are important considerations when it comes to the consideration of the relevance and importance of an independent trustee.
Be careful if you distinguish between trust beneficiaries
November 26th, 2021
Trustees should act in the best interests of all the beneficiaries, in line with the terms of the trust instrument. In the Griessel v de Kock case of 2019 the Court held that the “role of a trustee in administering a trust calls for the exercise of a fiduciary duty owed to all the beneficiaries of a trust, irrespective of whether they have vested rights or are contingent beneficiaries whose rights to the trust income or capital will only vest on the happening of some uncertain future event”. If income and capital beneficiaries are not the same people, it may present a potential conflict which the trustees would have to manage.
Can you still reduce your loans to trusts with tax-free donations?
October 14th, 2021
You can donate R 100 000 (the annual Donations Tax exemption applicable to each South African resident individual) a year without paying Donations Tax (Section 56(2)(b) of the Income Tax Act). In effect, the exemption allows a couple to donate R 200 000 a year to a trust or other beneficiaries without incurring any taxes. However, you cannot accumulate this exemption. If the exemption is not used in one tax year, it cannot be carried through to the next tax year. It is, therefore, important to make use of the exemption every year. You can also use the R 100 000 annual Donations Tax exemption applicable to each South African resident individual to reduce your loan to a trust, which is an asset in your estate, until the loan is fully repaid. For as long as the loan has a balance outstanding, trust assets are at risk, as a liquidator or executor may have the trust assets liquidated for the trust to settle the outstanding loan. However, be mindful that SARS may now apply Capital Gains Tax as a result of such ‘waiver’.
Preference share and trust structure loophole closed by SARS
September 23rd, 2021
Traditionally, people moved their assets into trusts (typically on interest-free loan accounts) to stop or freeze the growth on those assets in their personal estates for Estate Duty purposes. Consequently all the growth on those assets took place in the trusts, rather than in the hands of the estate planners. SARS has been unhappy about Estate Duty capping for years and has considered measures whereby South African resident individuals would be taxed on the growth in their estates based on the growth that is taking place within ‘their’ trusts (both South African or foreign resident trusts). The tax that SARS introduced to compensate for their loss of Estate Duty (in terms of Section 7C of the Income Tax Act) falls within the ambit of Donations Tax, which is charged at the same rate as Estate Duty. Estate planners and their advisors moved quickly and converted their loans to preference shares as part of a scheme in an attempt to circumvent these provisions. After spending material amounts on these structures, the benefits were short-lived, as SARS recently closed this loophole.
Why should trust beneficiaries (and trustees) have valid wills?
September 17th, 2021
It is estimated that the average person spends 76 800 hours on building their estate, yet very few people spend any time ensuring that their estates are not diluted by more than 30% upon death through death taxes.
The Court in the Raubenheimer v Raubenheimer case of 2012 concluded that estate planning, wills, succession, and the administration of deceased estates are inevitably linked to the proper drafting of a will, and the following was said:
“It is a never-ending source of amazement that so many people rely on untrained advisors when preparing their wills, one of the most important documents they are ever likely to sign. This is by no means a recent phenomenon".