The trust founder’s, trustee's and beneficiary’s will

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In South Africa, freedom of testation exists where an individual has the right to determine the heir(s) to their property upon their death as they wish. This is done through a will. If one dies without a will (including an invalid will), one dies ‘intestate’. Although, generally speaking, one can decide who inherits and who does not, dying intestate will result in the deceased’s assets automatically being split between blood relatives in a particular order. The assets will, therefore, be divided in terms of the Intestate Succession Act, and this may not be how you wanted your assets to be split. Most people delay addressing their wills because it is an emotional document to prepare. However, proper estate planning includes the drafting of a will, which complements your estate plan. Your will should always be up to date and reflect your current wishes in terms of how you would like your assets to be distributed upon your death.

The youth play important roles in trusts

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Every family’s circumstances are different. And so is their estate planning; or should it be. Some parents create trusts only to provide for minor children in the event of their death; others create trusts to protect the families’ wealth against spendthrift children; others attempt to leave nest eggs for their children; others may accumulate substantial wealth in trusts for generations to come; and so on. A trust can also be created in terms of a court order (court order trust) – such as a divorce order where a trust is registered for the maintenance of children. The youth play important roles in trusts, which are often overlooked during the (supposedly ongoing) estate planning process. Few people know that the estate planner can (and should) craft the trust deed in such a way to make specific provision for the purpose of the trust, including specific instructions and guidance to the trustees relating to who is to benefit, when beneficiaries could benefit, how they could benefit, what say they may have in the trust, whether they should become trustees at some point, etc.

Are trusts still safe to use for BEE purposes - cont.

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In the previous article it was confirmed that our law allows and encourages the use of trusts in B-BBEE ownership structures. The practice note published on 18 May 2021 by the Minister of Trade, Industry and Competition was much needed to preserve a trust as an allowed mechanism to meaningfully transfer business ownership into black hands. It was confirmed that discretionary collective enterprises, which includes trusts, have benefited many black beneficiaries to access the economy and/or to enjoy economic empowerment. In this article, the practice note is discussed in more detail.

Are trusts still safe to use for BEE purposes?

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BEE has been a feature of the South African business environment for a while. A number of businesses have been battling with the B-BBEE ownership requirement. Without black ownership, it is almost impossible to achieve a Level 4 B-BBEE status or better, which may negatively impact businesses in South Africa. It is true that some businesses do abuse trusts as an allowed vehicle to circumvent the Broad-based Black Economic Empowerment Act (B-BBEE Act). In some of these schemes no real black beneficiaries are identifiable and are often referred to as ‘faceless’ beneficiaries. This is clearly abusing the law. The government will continue to attack such structures with the result that businesses may suffer.

Is a trust that provides personal services subject to employees‘ tax?

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Sometimes people still regard trusts as mechanisms to save tax. For example, people structure trusts as ‘independent contractors’ in an attempt to avoid being subject to employees tax on the provision of personal services and claim deductions for other expenses through the trust that they would otherwise not be able to claim if they were directly employed. People attempt to generate income in the trust through structures in order to utilise the conduit principle to distribute the income generated in the trust amongst beneficiaries (typically minor children) to reduce or avoid tax payable on such income generated in the trust. People even attempt to extract profit from their own companies into trusts by providing a ‘service’ to their companies. Government has, since 2009, introduced stronger anti-avoidance measures for employees’ tax purposes. This may even have unintended consequences for some structures. A ‘personal service trust’ is one which provides services such as consulting, bookkeeping, designing, etc. which are actually services provided by a person compared to, for example, income generated from assets, such as rental property. As a result, ‘personal service providers’, as defined, are deemed ‘employees’, which require of ‘employers’ to deduct PAYE before amounts are paid to ‘employees’.

Can trustees do what they want with assets held in a company?

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Trustees are also often of the view that they can do as they wish with assets held in a company and that beneficiaries have no rights to or say regarding such assets. Such a view is wrong.

Do you want to protect membership in a CC during your lifetime and thereafter?

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Since 11 January 2006, a natural or juristic person in the capacity of a trustee of an inter vivos trust may be a member of a close corporation (CC). Estate planners therefore have the option to either bequeath their membership in a CC to another person or to a trust, but only if certain requirements are met. These requirements were discussed in the previous article.

What important points to look at if a trust holds a CC membership

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Few people know that although historically only natural persons may have been members of a close corporation (CC) and not any juristic person or trustee of an inter vivos trust in that capacity, since 11 January 2006, a natural or juristic person in the capacity of a trustee of an inter vivos trust may be a member of a CC; but only if certain requirements are met. Some estate planners and trustees are, however, unaware of the ongoing requirements, consequences and possible risks as a result of this allowance, which are discussed in this article.