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.

Donation as an option to move assets into a trust

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People are often unsure about ways in which assets can be moved into trusts as part of their estate plans. Assets can be transferred into a trust by sale (via a loan granted to the trust), donation, or on death in terms of a will. Assets can also be purchased directly in the trust, with the trust using its own funds. Each of these options has to be carefully considered, and professional advise from a practitioner specialising in trusts should be sought, when considering moving assets into a trust. The considerations applicable to donations to trusts are discussed in this article. Assets can be donated to a trust in the form of money or goods, including property.

Provide in a trust for your children if you divorce or die

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A trust is a useful tool to utilise in a divorce settlement, whereby a divorce settlement can be transferred into a trust and be applied for the benefit of typically minor children and a spouse. Similarly, one can ring-fence a maintenance obligation post-death in a trust. When you are divorced, the Divorce Act – and not the Maintenance of the Surviving Spouses Act – applies, whereby maintenance does not extend beyond the death of the maintenance payer unless the divorce order states that it applies.

Trustees have made distributions to beneficiaries to save tax, now what?

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Many boards of trustees have made distributions (often on paper only) to beneficiaries for the trusts’ February 2022 financial year-end in order to pay less tax on trust income and capital gains. A number of trustees forget that it does not stop there – beneficiaries had to be informed so they could include the distributions in their respective tax returns, trustees have to manage distributions separately for the beneficiaries and they have to keep proper records.