Brenthurst wealth management 2013


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Brenthurst wealth management 2013

  1. 1. Welcome
  2. 2. TRUSTS
  3. 3. Legal nature of a trust • A Trust is NOT like a company or cc. • A Trust does not posses a legal personality. • A trustee, in his legal capacity, is regarded as a separate entity. Trustee is the owner of the bare dominium. • Section 1 of the Income Tax Act defines a trust as a “person”. • Trust has the structure of a stipulatio Alterii. • Inter vivos trust is an agreement and all the rules of the law of contract apply.
  4. 4. Inter Vivos v Testamentary Trusts • Pro-active planning v Re-active planning. • Testamentary trust is more ridged and it cannot be altered. • Inter Vivos Trust is normally open ended with regards to vesting date whereas a Testamentary Trust usually has a fixed vesting date.
  5. 5. Getting assets into a trust • Donate but will attract donations tax at 20%. • Interest free loan. • Bequest in terms of a will.
  6. 6. Benefits of a Trust • Ensures the smooth handover of assets from one generation to the next. • Cares for assets for those who are unable to look after the assets themselves i.e. minors and elderly battling with dementia. Alternative to the Guardians Fund. • Donations tax.  If a natural person makes a donation greater than R100k then donations tax at 20%. A distribution from a trust attracts no donations tax.
  7. 7. Benefits of a Trust • Reduction of death duties which are made up of :– Deemed Capital Gains Tax – max 13.3%. – Executor fees – max 3.99%. – Estate duty tax – 20% . • Ability to split income and capital gains to multiple beneficiaries. • Protection of assets from creditors.
  8. 8. Disadvantages of a trust • In order for a valid trust to come into existence the donor must hand over ownership and control to the trustees. • The trustees become owners of the asset. • Decision making is now made in terms of the deed and not by 1 trustee ie the original donor. • Costs: Banks normally charge between 1 – 2% of capital to act as trustees plus 6% on income collected.
  10. 10. Trust Deed 1. The Deed of Trust is the trustees’ constitution and if a responsibility, duty or power is not expressly stated then it cannot be implied by the trustees. The trustees have no authority to ‘assume’ that they may carry out a particular duty or power and if they do so then they are acting ultra vires. 2. It is a dynamic document that must be reviewed regularly. Tax and trust laws change. 3. Experience has shown that at least 9 out of 10 trusts either have wrong clauses or are missing clauses.
  11. 11. THE TRUSTEES
  12. 12. Roles and duties of a trustee • Ensure that the trust property is adequately insured. • Funds are properly invested by measuring fund managers performance to approved benchmarks. • Determine the short, medium and long term income and capital needs of the beneficiaries. • Ensure that the provisions of the trust deed are complied with and upheld at all times. • Ensure that all the trusts’ statutory requirements are complied with.
  13. 13. Roles and duties of a trustee • Prepare and maintain a trust asset register (investments and fixed assets). • Conduct trustee meetings annually, biannually or quarterly. • Record minutes of the trustee meetings and investment decisions. • Maintain and safe keep the minute book. • Ensure loan agreements are kept.
  14. 14. Role of independent trustee • Now required after decision of Land & Agricultural Bank v Parker. • Shouldn’t just appear in name. • Must be party to all decisions and should attend all trustee meetings. • His/her conduct could show if the trust is a bona fide trust or a sham.
  16. 16. Beneficiaries of a Trust • Types of beneficiaries: – Contingent. – Vested. • Beneficiaries right to information from the trustees. • Beneficiaries right to be part of changes to the trust deed.
  18. 18. Inter Vivos Trusts Taxation of trusts. – Income tax • Income is taxed in the hands of the trust at 40%. No rebates are granted. • Income is distributed to the beneficiaries and taxed in their hands at their tax rates. Income retains it’s identity. • Opportunities through distribution i.e. university fees for children and school fees for grandchildren. • Attribution of income and capital gains to the donor.
  19. 19. Inter Vivos Trusts Taxation of trusts cont … – Capital Gains Tax • Gains are taxed in the hands of the trust at 26.6%. No rebates are granted. • Gains are distributed to the beneficiaries and taxed in their hands at their tax rates. Maximum rate would then be 13.3%. • Attribution of gains to the donor. Maximum rate would then be 13.3%.
  20. 20. Trusts and your will • Don’t take it for granted that you can automatically bequeath assets to your IV trust. If the definition of beneficiaries are too wide the bequest could fail Braun v Blann & Botha. • Nominating a replacement trustee. • Great opportunity to transfer fixed property as there are no transfer duties. • Section 9(4) of the transfer duty act.
  21. 21. Inter Vivos Trusts Conclusion – Ensure that one of the trustees is independent. – Ensure that your trust deed is “compliant” with current legislation and case law. – Ensure that all the statutory requirements are complied with i.e. trustee meetings, minutes of all decisions etc. – Ensure your will “compliments” your trust. – Remember, both are dynamic documents and should be reviewed on a regular basis!
  22. 22. QUESTIONS?