brenthurst wealth management 2013

Welcome

TRUSTS

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.

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.

Getting assets into a trust

• Donate but will attract donations tax at 20%.

• Interest free loan.

• Bequest in terms of a will.

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.

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.

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.

THE TRUST DOCUMENT

Trust Deed1. 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.

THE TRUSTEES

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.

Roles and duties of a trustee• Prepare and maintain a trust asset register

(investments and fixed assets).• Conduct trustee meetings annually, bi-

annually or quarterly.• Record minutes of the trustee meetings and

investment decisions.• Maintain and safe keep the minute book.• Ensure loan agreements are kept.

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.

THE BENEFICIARIES

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.

TAXATION OF TRUSTS

Inter Vivos TrustsTaxation 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.

Inter Vivos TrustsTaxation 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%.

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.

Inter Vivos TrustsConclusion– 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!

QUESTIONS?