This document discusses the importance of financial planning for businesses and estates. It provides several case studies, or "war stories", to illustrate common issues that can arise without proper planning, such as insolvency, incorrectly structured buy-and-sell agreements, and complications when business interests are part of an estate. The document emphasizes that understanding a client's full situation and wishes is key to developing a plan that ensures their assets are distributed as they intended. It also stresses the role of life insurance, wills, and trusts in addressing liquidity issues and unlocking opportunities for beneficiaries.

1. 1
Momentum Trust
Business interests & Estate Administration
A selection of “war stories” to illustrate the importance of financial planning for
businesses
Jeffrey Wiseman
5 November 2015

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Contents
Momentum Trust
1. Introduction to Momentum Trust
2. The Golden Key to unlocking opportunity
3. “War Stories”:
a. Case Study: Will vs no Will
b. Sole proprietorship – Intestate Insolvency
c. Incorrectly structured buy-and-sell
d. Dealing with share buy-backs
e. Business interests may be in trust …
4. Dealing with business interests in an estate
5. Concluding remarks

3. 3 Momentum Trust
Momentum Trust service offering

4. 4 Momentum Trust
Momentum Trust service offering
Specialist Advisory Services
Wills drafting Trust formation
Administration
of deceased
estates
Trusteeships /
trust
administration
Offshore
Fiduciary
Offering
Momentum Trust Limited
Local Services
Offshore Trust &
Fiduciary Services

5. 5 Momentum Trust
The Golden Key to unlocking Opportunity

6. 6 Momentum Trust
Retirement
Management
Life Phases & Financial Planning
Young
Start-up
Preparation for
Career and
Family
Asset
Gathering
Consolidation and lifestyle
review Retirement
20 - 30 40 - 5530 - 4525 - 35 50 - 65Indicative
age bands
Human Capital is the single largest asset of most
young people – it is finite and generally the main
source of working capital for later phases in life
65 +
Human Capital
Production assets are those assets that provide for
future needs and wants – and are ultimately
available for transfer to future generations.
Financial Planning focuses
on replacing lost income
Financial Planning focuses on
managing retirement assets
and leaving a legacy

7. 7 Momentum Trust
Understanding your client’s wishes most important

8. 8 Momentum Trust
The intervention
• Obtain Clients Personal Information
• How Married
• Children (and age of children)
• Parents / other Family they rely on / rely on them
• Obtain Asset and Liability Information
• Does the client own the asset and can he bequeath it?
• Understand what client want to do with his/ her Assets /
Liabilities
• You are not drafting their Will, just obtaining what the client wants

9. 9 Momentum Trust
The Personal
Estate
- House
- Business interests
- Vehicles etc.
- Bank accounts
- Investments
(local and offshore)
Disposed of under Will
CARE: Marital & Maintenance
Claims
The Deemed
Estate
Insurance policies to
nominated beneficiaries
Contractual agreement between
insurer, Life assured and
nominated beneficiary
(Care: Estate Duty implications)
Beneficiary liable for Estate Duty
Note: Executor is liable for obtaining
this but can sue the beneficiary
Pension Type/
RA Assets
Section 37C of Pension
Fund Act
Trustees of Pension
Fund make the decision
and can take up to 12
months to do so
The Trust Estate
Managed
(in terms of Trust Deed / Will
Trust Provision)
(Care: 1. Income due / Loan
Account
2. Estate duty implications
CARE: Cr & Dr Loan
Account back to
personal estate
Cr Loan Account (Asset)
Ceasing Interest
Dr Loan Account (Liability)
Benefits pay as per the
various Buckets, but ALL
Liabilities are liabilities
of the Personal Estate.
So don’t assume you can
cover Personal liabilities
from different Asset
Buckets…
Will critical – but what does it cover?

10. 10 Momentum Trust
MFC Car Loan R 82 135
Nedbank Bond R 385 287
SBSA Credit Card R 11 052
SBSA Credit Card R 26 983
RCS Credit R 3 255
ABSA COB fee R 180
Truworths R 2 212
CA Young Valuation fee R 6 528
Brandhouse Beverage R 69 134
Sam XXXX – Claim R 12 000
SARS Final Tax R 53 154
Masters Fees R 600
Adverts and GG R 1 500
Exec /Admin Fees R 120 000
VAT R 16 000
Conveyancing Costs R 25 700
Total R 815 720
• NNB
PTY Loan account R 62 500
Conveyancing costs R 27 500
ABSA Home Loan R 179 453
ABSA Revolving Loan R 30 226
C Butler Accounts fee R 17 500
Stannic Finance R 69 139
Eden Support R 22 350
SBSA Personal Loan R 37 729
CA Young Valuation fee R 5 500
SARS Final Tax R 16 378
Exec Fees R 29 750
Total R 498 025
Remember the survivor needs to apply to take over the Bond – not
automatic – full credit application

11. 11 Momentum Trust
The cash shortfall
• Single most frustrating element of an Executors work.
• Often policies are paid outside the estate but the people receiving the benefits
simply won’t pay into the estate (for a number of reasons).
• Cash Shortfalls probably account for 70% of delays in estate administration.
Comments:
General costs to be settled;
- Final medical accounts;
- Bank overdrafts / credit card without credit life insurance;
- Bonds on houses the spouse can’t afford to take-over (if not settled by life cover);
- Property transfer costs;
- Costs to obtain rates clearance certificate (4 months paid in advance);
- Masters Fees and 2 x newspaper and Government gazette adverts;
- Executors remuneration (see notes and slide on Executors Fees).

12. 12 Momentum Trust
Liquidity issues to address …
The Cash Shortfall:
• Review all Polices to see that they do what they are meant to do!
o Funeral Cover
o Credit Life
o Policies payable to the estate
o Deemed Policies
 To Spouse – Care: Insolvency and in community of property
 Buy and Sell – Care
 Key Man – Care
 Share Buy Back – Care
 Contingent Liability - Care
 Policy paid to Non Resident Family member – Care
 Additional Estate duty derived from above
• Short term Insurance & Medical Aid
• Investment performance of Assets to Financial Plan
• Wider Family links

13. 13 Momentum Trust
“9 to 12 months in a perfect world”
NOTE:
1. The process is sequential – each step needs to be concluded before the next step can start (of course we do prepare and process
simultaneously what we can)
2. Applies to all Estates
3. Like the 6 step financial planning process
Cancel bond of security.
The Estate Administration Process

14. 14 Momentum Trust
Leverage the Cycle of Wealth
Will
Various
heirs
inherit
Will
Estate
Will Trust
for minor
granchildren
Granchildren
attain
majority
Wealthy
son of the
deceased

15. 15 Momentum Trust
Case Study: Will vs No Will

16. 16 Momentum Trust
Freedom of Testation: fact or fiction
• BUT:
- Married ICOP (only your half-share);
- Married OCOP ANC with accrual – accrual claim;
- You are married ANC and leave nothing to spouse - maintenance claim in terms of Maintenance of
surviving Spouses Act;
- Care: Competing Maintenance claims from spouse/ minor children;
- Section 37 C of the Pension Fund Act – Board of Trustees make decision;
- There is a Buy and Sell Agreement in place over the business;
- You only have a limited interest in the property / investments;
- Section 38 take-over;
- Redistribution agreement between Heirs : may result in specific assets accruing differently to the
Will, in lieu of cash or assets.
“You can bequeath whatever you want to whomever you wish” ...
as long as not “Contra Bonos Mores”

17. 17 Momentum Trust
Will vs no Will
• Husband and Current Wife married In community of property
• 1 minor child from current marriage
• 1 minor child from Prior marriage
• House
• Car and Firearm
• Business – 100% shareholding worth R 1 Million
• R 300k Bank account
• Policy R 1 Million pays outside Estate to current spouse
Case Study
Husband dies
2015
Will – Residue to
spouse

18. 18 Momentum Trust
Will – Residue to spouse
• House – spouse inherits
• Car and Firearm – spouse inherits
• Business – Spouse inherits
• R 300k (Less costs) – spouse inherits
• Policy to nominated Beneficiary – spouse Inherits
No concerns other than probable Maintenance Claim in
respect of the minor child

19. 19 Momentum Trust
No Will: Intestate Succession
• Minor heirs so Assets have to be sworn appraised
• Need to appoint Executor –spouse? - and Agent required under Regulation
910
• Intestate succession applies as no Will
• 50% share to current spouse due to Marriage in community of property
• R 250 000 or a child's share to spouse whichever is the greater
16.667%
inherited by
surviving
spouse
50% claimed
by surviving
spouse
16.667%
inherited by
minor child of
Ex spouse
16.667%
inherited by
minor child of
surviving
spouse
Ex spouse will be involved in running the business and minor child from first
marriage, will own a share in all community assets of surviving spouse

20. 20 Momentum Trust
“War Story”: Intestate Insolvency

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Intestate Insolvency
Statement of Financial Position:
Assets R 6 259 290
Liabilities R 4 511 277
Trade / other Liabilities R 393 499
Owners Equity R 1 354 514
1. Murdered by family member in front of spouse
2. Intestate – so spouse and minor child inherit
3. Sole Proprietorship – can continue without spousal consent
4. Insolvent
5. Life Policy Paid to spouse R4 000 000 (legal action to determine if policy protected from insolvency & marriage in community of
property)
Actual Financial Position
Assets Liabilities
House R1 200 000 Bond R1 200 000
Vehicle R2 600 000 Financed R4 300 000
Cash & Investments R41 000 Debt & Costs R 284 000_
Insolvent –R1 943 000 __________

22. 22 Momentum Trust
“War Stories”: Incorrectly structured buy-and-sell

23. 23 Momentum Trust
Buy & Sell … with spouse as policy beneficiary?
Mr and Mrs X Married in Community of Property
House R 500 000
Business CC 50% R1 500 000
Cash R 0 (care: cash shortfall)
R2 000 000
Buy & Sell (understanding?) but issued as buy & sell policies
Position:
Will – Surviving Spouse
Assets – Spouse gets policy proceeds 75%, Business gets policy proceeds 25%, Spouse gets Business
Additional Agreement – Different Business Type, Different Business Name, Changes Beneficiary to spouse 100% and awards Business
interest to Surviving partner.
Policy B
Owner = surviving partner
On life = deceased
Beneficiary = deceased’s spouse 75%
business 25%
Premium payer = business
Policy A
Owner = surviving partner + business
On life = surviving partner
Beneficiary = surviving partner’s spouse 75%
business 25%
Premium payer = business

24. 24 Momentum Trust
Issues to address …
• Possible “Pactum Successorium”
• Policy changes in later agreement not given made
• Spouse inherits the policy proceeds and the Business – not as per a normal
Buy and Sell, and also not what the “purported agreement” envisaged
• Surviving partner must find R1 500 000 to acquire the member’s interest
• Estate duty may be become a problem if business more valuable
• If the nature of the Agreement was to make sure the Policy proceeds went to
the spouse – then the Will could have dealt with the award of the Business
(care: Will can be changed)
• Requiring Legal interaction + SARS discussions on Donations Tax to resolve

25. 25 Momentum Trust
“War Stories”: Dealing with share buy-backs

26. 26 Momentum Trust
Share buy-backs and estate duty
Mr X died
Spouse inherits estate, married ANC with Accrual
Major Asset: R37 000 000 life policy owned by Business to settle cost of acquiring shares
Issues:
• What is the actual value of the Business interest?
• Who pays estate duty on the policy proceeds?
• Assume Business valuation = R42 000 000
• Business needs to pay difference between R37 000 000 and R42 000 000 in monthly instalments as per
agreement
• Business pays estate duty on R37 000 000 – say approx. R 7 400 000
Resolution:
Adjust value to include additional Estate duty and keep business value up to date each year.
What problems with the traditional structure were the parties really trying to solve?
Unequal premiums … Certainty? Is this really the best solution in practice?

27. 27 Momentum Trust
“War Stories”: Make sure you know your client!

28. 28 Momentum Trust
Buy and Sell
policy incorrectly
paid to Spouse
R1,2m
Refund
Motor Vehicles being
repossessed
One stolen
Borrowed
R50,000 Personally
R200,000 for Business (1)
Business (2) Pty Ltd
- Technically insolvent RNIL
Office of State Attorney
- Case for Fraud R60,000
Borrowed Money from business
partners + R150,000
Life Policy lapsed due to
non-disclosure on App
forms
Mr X “Died in
Zambia”
Business (1) CC
marginally solvent
RNIL
NB: In a redistribution agreement Creditors can’t be a party to Agreement – see notes
Residential property
shared with both
business
When it all goes wrong …

29. 29 Momentum Trust
“War Story”: Business interests may be in Trust …

30. 30 Momentum Trust
The xxxx Family Trust
Engineering
Business
R28m Div
50% Share
Funded Spouses Assets
- 5 houses
+ R10m
“School Teacher”
Personal SA Estate
- 2 x Bank A/C
- 2 x Trailers
(R9,8M Loan) Declare post death dividend R10,25m
Offshore Assets
13 Properties
+ R25m
(including Hotel)
Estate
+ R4m Pension
+ R2m Life
Pension/Deemed
HSBC & Isle of Man
SBSA R4m
- 2 x Bank accounts
- 2 x Trailers = + R200k
The simple may become complicated …

31. 31 Momentum Trust
Dealing with business interests in an estate

32. 32 Momentum Trust
Dealing with business interests in an estate
• Financial planning the key to success:
• Often the difference between an estate that is easily administered and one that
is not
• The value of the business without the key individual
• The effect of suretyships on the estate
• Understand the reality of third parties becoming involved
• Know your client and about his affairs!
• An executor steps into the shoes of the deceased:
• Vehicle rental business
• Tenderpreneur in the construction industry
• Farmer with rare game
• Licences – Pharmacy, medical practice, etc.

33. 33 Momentum Trust
Dealing with business interests in an estate
• Management agreements
• Banking relationships (insurance, risk of loss, etc.)
• Dealing with contractors
• Family often values the money generated by the business than the
business itself
• Trustees don’t want to run businesses!
• Suretyships often misunderstood and can be devastating to an estate:
• Residue
• Time delays

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Concluding remarks

35. 35 Momentum Trust
Concluding remarks
1. Never underestimate the importance of proper financial planning in
making sure that your client’s will is executable and easy to
administer
2. Encourage clients to consider their business running without them
and to make sure that appropriate arrangements are in place
3. The choice of executor, particularly where clients have business
interests is critical – decisions often have to be made at the level that
the deceased would have made them and a failure in this regard can
be very expensive

36. 36 Momentum Trust
Thank you
Questions?

37. 37 Momentum Trust
Disclaimer
Please note that the content of this presentation and the presentation itself does not constitute advice of any nature whatsoever and
should not be construed as such. It is always recommended that proper professional consultation should be sought, taking into
account your unique personal situation, to enable you to optimally use your trust. Please contact Momentum Fiduciary Services and
professional advice in this regard can be provided to you by us.