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A Trust can administered so as to mitigate taxes such as Income Tax, Capital Gains Tax, Donations Tax and Transfer Duty for both the Settlor and the Beneficiaries. Furthermore, the assets owned by the Trust will not be subject to Estate Duty, Capital Gains and Executor’s Fees on the death of the Settlor.

By Trustees exercising their discretion, income can be distributed to the Beneficiaries. Income distributed in a Trust retains its character on the “conduit principle” and tax is then only paid once in the hands of the Beneficiaries, as natural persons, at their Marginal Tax Rate thereby taking advantage of the lower taxation rates of Beneficiaries. For example children can receive up to R57000 per year. This can be used toward their education or living needs.

Capital Gains Tax  at an effective rate of 20% is payable on capital gain at time of disposal of a Trust Asset. However, once again in terms if the conduit principle and taking into consideration Paragraph 80(2) of the Eighth Schedule to the Income Tax Act 58 of 1962, such gain can be distributed to a Beneficiary and taxable in their hands at the lesser tax rate.

By way of the points above the objective should be to own very little or nothing in one’s own capacity.  This position is attained by establishing the correct Trust structures that will own all the assets, investments, properties, commercial properties and businesses that an individual would have owned in her / his personal capacity.

In this manner an individual will eliminate all taxes, costs and duties which would ordinarily be triggered upon death. These taxes and costs are; Capital Gains Taxes, at an effective rate of 13.3%, Estate Duties at 26.6% of the net value of the estate and Executors Fees of 3.5% of the GROSS value of the estate together with administration costs of 6% of any income administered by the Executor.

Therefore in forming a Trust the taxes, duties and costs are eliminated and approximately 30% of the value of the estate will be saved on the event of the death of an individual. 

Other Benefits of a trust  are the:

-         Protection of family assets and personal properties from business from creditors.

-         Enhancing uninterrupted Business continuity.

-         Safeguarding  Business Interests in terms of a trust owning business interests (Members interests in CCs or shares in private companies), Separate Trust for operating assets, Separate Trust for Commercial Property.

These trusts should be strategically aligned to all Business owners:

- Family Trust, Trust for rental property and Trust for personal use property where applicable.

- Overall Estate Planning Strategy and Will.

Thus, if your business is not owned by a trust then the following will take place upon death:

- The bank freezes the business bank account.

- The state values the business on the day of your death.

- The business doesn't operate for a while.

- Your executor gets appointed, 6 weeks is the norm, however if can take much longer depending on     the Master's office concerned.

- SARS launches a full tax investigation into your firm looking for any taxes outstanding.

- All the assets are added up, and the liabilities are deducted (as at the day of your death).

- Your estate pays Capital Gains Tax (CGT) on the value of your business at the date of your death. This will be about 10% of the value, which must be paid in cash. If there isn't enough cash, your business and personal assets are sold until there is. This value will also include 'goodwill', and even a small business can be valued at more than R5 million for CGT & Estate purposes.

- Your estate pays Estate Duties (20% of everything above R3.5 million of assets) (including the value of your business on the day you died).

- Executors fees are paid at 3.5% of the gross value of all the assets as calculated above.

- All company taxes outstanding (VAT, PAYE, SDL, UIF, RSC, Income, STC) must be paid, plus penalties.

- All personal taxes outstanding must be paid, plus penalties.

- All bequests are paid.

- And all claims are paid including sureties which need to be paid or your estate needs to be released from the sureties.

- What's left is given to your beneficiaries or transferred to your Testamentary Trust.

The two most common trusts are the testamentary trust and the inter vivos trust.

A testamentary
trust is a trust, the terms and conditions of which are set out in a will. It is established upon the death of the estate planner. The benefits of such a trust include: The protection of assets. The minimisation of future estate duty for beneficiaries. The welfare of minor heirs, spouse and any other beneficiaries

An inter vivos trust
is a trust set up through a contract drawn up and put into operation during a person's lifetime. It will continue to operate without interruption upon the death of the estate planner. It has the same benefits as a testamentary trust, but, in addition- There is no delay in the implementation of the trust after death, as the trust is already established and operative. The planner can be a trustee and/or a beneficiary during his lifetime, provided that he is not the only trustee and beneficiary. The pegging of the value of assets held by the trust these are the vehicles through which an estate can be planned.
To set up a trust is not difficult nor expensive( just remember the early fees),  but you must have some expert to help you add your assets to it. Contact us and we will let a expert contact you to set up one or give you advice.
Estate Planning FAQ
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