Estate planning.

First, to my beloved husband, Dilip and my beloved daughters, Trisha, Karishma and Kineta for their patience while I researched and prepared this estate planning report. My sister, Bharti Padia and sister-in-law, Tanuja Garach for all their support and understanding.

CASE STUDY

CONCLUSION

CHAPTERl INTRODUCTION

DEFINITION

The planner must consider how his death will affect the rest of his family. The planner may, for example, be a sole trader and need to ensure the continuity of his business or may want to sell his business after his death.

OBJECTIVES OF EST ATE PLANNING

FLEXIBILITY
THE MINIMISATION OF ESTATE DUTY
THE MINIMISATION OF CAPITAL GAINS TAX
THE MINIMISATION OF OTHER TAXES
THE PROVISION FOR LIQUIDITY
THE PROVISION OF CAPITAL AND INCOME FOR DEPENDANTS
THE PROVISION OF RETIREMENT CAPITAL AND INCOME
CAPITAL APPRECIATION AND INCOME GENERATION
PROTECTION AGAINST INSOLVENCY AND INFLATION
FACILITATION OF THE ADMINISTRATION OF THE ESTATE
THE PROTECTION OF BUSINESS INTERESTS

It is important to ensure that upon the death of the planner there are no liquidity problems. It is important that the plan runs smoothly without the presence of the planner.

AN OVERVIEW OF THE LAWS GOVERNING ESTATE PLANNING

RELEVANT PROVISIONS OF THE INCOME TAX ACT 58 OF 1962

DONATIONS TAX PROVISIONS

Since the donor's motive is purely generosity, no quid pro quo from the donee can be involved. Failure to charge interest affected the dividends paid to the company's shareholders.

SECTION 7(6)

There must be a stipulation or condition to the effect that the beneficiary will not receive the proceeds until an event occurs; and. But for the determination, the proceeds shall be received or accrued to the said beneficiary.

SECTION 7(7)

But for donation, settlement or other disposition, any such rent, dividend, interest, royalty or income received by or accruing to or for the benefit of the other person (including any income which would have been exempt in his hands). Other than a donation, settlement or other disposition to a foreign entity, as defined in section 9D, of a public nature.

SECTION 7(10)

If the income included foreign dividends, the amount of the income to be included in the resident's income must be determined according to the provision in section 9E, as if the non-resident was a resident shareholder.

CAPITAL GAINS TAX PROVISIONS

THE STRUCTURE OF CGT
CGT GAINS TAX - DEATH
DISPOSALS OF THE EST ATE

Should the estate sell assets, there may be a gain or loss equal to the difference between the proceeds and the basic costs. Such alienation must be treated as if the deceased himself disposed of the property.

WILLS ACT 7 OF 1953

WILLS IN RESPECT OF WHICH THE TESTATOR HAS DIED BEFORE 1 OCTOBER 1992
WILLS IN RESPECT OF WHICH THE TESTATOR HAS DIED AFTER 1 OCTOBER 1992
REQUIREMENT OF MASTER'S REGISTRATION (S 4)
TRUSTEE'S SERVICE ADDRESS (S 5)
TRUSTEE'S RIGHT TO DEAL WITH THE ASSETS (S 6)
MASTER'S RIGHT TO APPOINT A TRUSTEE (S 7)
FOREIGN TRUSTEES (S 8)
DUTY OF CARE (S 9)
HANDLING OF TRUST MONIES (S 10)
SEPARATE POSITION OF TRUST PROPERTY (S 12)
COURT'S POWER TO VARY TRUST PROVISIONS (S 13)
VARIATIONS ON BEHALF OF A WARD (S 14)
MATERIAL IRREGULARITIES (S 15)
MASTER'S RIGHT TO CALL FOR ACCOUNT (S 16)
CUSTODY OF DOCUMENTS (S 17)
ACCESS TO TRUST DOCUMENTS FROM THE MASTER (S 18)
COMPLIANCE BY TRUSTEES THROUGH A COURT ORDER (S 19)
REMOVAL OF TRUSTEES (S 20)
RESIGNATION OF TRUSTEE (S 21)
REMUNERATION OF TRUSTEES (S 22)
MASTER'S ACTIONS REVIEWABLE BY THE COURTS (S 23)
THE TAXATION OF INCOME OF DECEASED ESTATES

Trust property is not part of the trustee's personal estate (unless the trustee, as the trustee's beneficiary, is entitled to ownership or vested rights in the trust property). Custodians must be responsible for their management in accordance with the written requirements of the master.

MATRIMONIAL PROPERTY ACT

DISPOSAL OF THE ASSETS OF THE DECEASED'S ENTERPRISE

ASSETS WHICH FORMED PART OF THE DECEASED'S ENTERPRISE
ASSETS WHICH WERE USED PARTIALLY IN THE DECEASED'S ENTERPRISE
DISPOSAL OF MOTOR CARS
TRANSFER OF ASSETS TO HEIRS OR LEGATEES
DISTRIBUTION OF ASSETS TO SURVIVING SPOUSE OF A MARRIAGE IN COMMUNITY OF PROPERTY

If a vendor dies, any business previously carried on by him is continued by the executor of his estate, the deceased's estate being deemed to be the vendor in relation to the business. Where the deceased's business is run via a company or close company, and the executor disposes of the company by selling the shares or the interests of the members, there are no VAT consequences.

IMPLEMENTATION OF AN ESTATE PLAN

Where the joint estate of such spouses has operated a business, any distribution of assets of the business to the surviving spouse from the joint estate constitutes a taxable supply for VAT purposes. The executor is obliged to account for VAT on any distribution of an asset to the survivor, even if the survivor has an undivided share in such asset.

TRANSFER DUTY

Transfer obligation arises when there is an acquisition 'through a transaction or in any other way'. A trust falls within the definition of "person" in the Act and accordingly property acquired by a trust is subject to a transfer tax of 10%. The transfer tax must be paid within six months of the date of acquisition by the person acquiring the property or by the person in whose favor an interest in the property or the restriction of its use or disposition is relinquished ( Article 3(1).

AN OVERVIEW OF ESTATE DUTY

PROPERTY FOR EST ATE DUTY PURPOSES

USUFRUCTARY AND OTHER LIMITED INTERESTS
FIDUCIARY, USUFRUCTARY AND OTHER INTEREST IN PROPERTY
DEEMED PROPERTY IS DEFINED IN SECTION 3(3) OF THE ACT

Entitlement to an annuity (not charged to the estate) from another person upon the death of the deceased. In the case of joint property, it is deducted from the deceased's share of the joint property. The amount of the surviving spouse's compensation claim obtained against the deceased's estate.

ASSURANCE POLICIES EFFECTED BY SPOUSE MARRIED IN COMMUNITY OF PROPERTY

DEDUCTIONS FROM ESTATE DUTY PAYABLE (FIRST SCHEDULE, SECTION 16(a»

PERSONS LIABLE FOR PAYMENT OF ESTATE DUTY

The proceeds of any policy on the life of the deceased payable to a person other than the deceased from a person entitled to receive the proceeds.

ESTATE PLAN

PEGGING THE VALUE OF AN ESTATE

SALE OF LOAN ACCOUNT
USE OF OPTIONS
SALE IN EXCHANGE FOR PREFERENCE SHARES

USE OF LIMITED INTERESTS

DONATION OF USUFRUCT BY AGED USUFRUCTARY
RETENTION OF USUFRUCT AND SALE OF DOMINIUM

USE OF TRUSTS

OFFSHORE TRUSTS
TRUSTS
POLICIES EFFECTED OR CEDED UNDER AN ANTE-NUPTIAL CONTRACT

If a farmer donates livestock, the current market value of the livestock is included in his income. A limited interest in some property ensures that the value of the property is reduced in his estate. A longer period will increase the value of pleasure, while a shorter period will decrease the value.

CHAPTERS

INTERNATIONAL ESTATE PLANNING AND OFFSHORE TRUSTS

LIABILITY OF TRUSTEES

In the United Kingdom, in Nestel v National Westminster Bank Plc, the plaintiff was the residuary beneficiary of a settlement created by her grandfather's will. The plaintiff alleged that the bank had committed various breaches of trust, resulting in her receiving far less capital value than she otherwise would have. However, the court went on to state that there is no absolute duty on the trustee to preserve the real capital value of the trust or to achieve specific financial results in the management of the trust, nor would it find a breach of trust showing that the trustee had to invest in the trust and thus matching the growth of the market.

TAXATION OF OFFSHORE TRUSTS

This would apply to capital distributions arising from income earned by the trust, which would be subject to income tax. Where capital distributions are made to South African beneficiaries and such distributions arose out of capital received by or accruing to the trust, that distribution will be subject to capital gains tax under the relevant paragraphs of the Eighth Schedule to the Income Tax Act. Protecting the weak: providing financial protection to minors or the disabled who may need financial support long after you are able to provide it.

TRUSTS AS A MECHANISM FOR ESTATE PLANNING

TESTAMENTARY TRUSTS
THE REWIND TRUST
MAKE SURE THE TRUST IS VALID
TAX RATES OF TRUSTS

The right to trust property belongs to the beneficiary when the founder assigns trust property to the beneficiary in terms of the trust instrument. Control over such a trust is not in the hands of the beneficiary, but in the hands of the trustee who manages the trust property for the benefit of the beneficiary. If the trustees distribute the asset to the beneficiary, the disposal creates a CGT event in the hands of the trust.

WILLS AND ESTATE PLANNING

THE SIGNING OF WILLS

The amendment to the Act came into force on 1 October 1992 and applies to all wills in respect of which the Testator died after that date.

WILLS IN RESPECT OF WHICH THE TESTATOR HAS DIED BEFORE 1 OCTOBER 1992

One is usually drawn up where minor changes to a will are required which do not warrant a complete re-drafting of the will. Any deletion, addition, amendment or interline made to a will or codicil must be carefully and clearly marked or written and authenticated by the full signatures of the Testator(s) and the witnesses in the margin next to this. If a section of the will is deleted, the Testators and the witnesses must sign against the deletion and, if any replacement wording has been inserted.

OCTOBER 1992

PRACTICAL ASPECTS TO BE CONSIDERED WHEN DRAFTING A WILL
CHARITABLE BEQUESTS
EXCLUSION FROM COLLATION
LIVING WILL
INTESTATE SUCCESSION

NO SPOUSE, NO DESCENDANTS AND NO PARENTS OR PARENTS'DESCENDANTS
NO SPOUSE OR BLOOD RELATION
ILLEGITIMATE CHILDREN
ADOPTED CHILDREN

MASSING
EXAMPLE OF MOST STANDARD WILLS AND TESTAMENTS IN OPERATION
NOTES TO BE OBSERVED WHEN FINALISING A WILL

The testator's signature must be done in the presence of two competent witnesses, who must also sign in addition. Adoptive parents are considered to be his natural parents, except for his real parents. Massing provides income for the survivor or survivors after the death of the first dying person.

CAPITAL GAINS TAX

ISSUES TO BE TAKEN INTO ACCOUNT WHEN PLANNING YOUR ESTATE

DIFFERENCE BETWEEN CGT AND ESTATE DUTY
EXCLUSIONS
THE CAPITAL GAIN OR LOSS IN YOUR ESTATE

This means the capital gain or loss will be calculated by deducting the base cost or value from the market value. Once your assets have been taken over by the executor of your estate, any capital gain or loss made on them while they are held in the estate is subject to CGT. So, 25 percent of the capital gain is subject to CGT at the marginal rate of the estate.

WHEN TAX IS PAYABLE BY AN HEIR OF A DECEASED ESTATE

If the executor disposes of an asset to an heir, this is done at market value (the value at which your estate received the asset) so that there is no gain or loss in the estate. The condition is that he undertakes to pay the amount of COT that exceeds 50% of the estate's net value within three years of the date on which the executor obtained permission to distribute the estate's assets. This is to prevent unnecessary forced sales of assets or perhaps insolvency of the estate.

DISPOSAL OF SMALL BUSINESS ASSETS

He/she must have been substantially involved in the operations of the business during that period, and. All assets must be disposed of within 24 months of the date of first issuance. The rule may apply to more than one business, but not if the combined assets of the businesses exceed R5 million.

EXAMPLE

He/she had owned the business interest for a continuous period of at least 5 years prior to the death, and.

BEQUESTS TO A SPOUSE

Although no CGT or inheritance tax was due on Minal's death, these expenses were deferred until Meera's death. With proper planning, these costs could have been reduced if MinaI's will was amended to leave some of his assets to their children, effectively reducing the inheritance tax and CGT liability in Meera's estate. People should review their estate plans, especially the liquidity position of their estates, with a long-term view, while the proceeds of life insurance policies, subject to certain limited exemptions, are treated as taxable assets for estate tax purposes; these proceeds will not attract CGT.

INSOLVENT ESTATES OF PERSONS

A bequest of two million rand of a loan account to a trust that owes money to the testator will pay capital gains tax based on the interpretation given by para. A bequest of two million rand of a loan account to a trust that owes money to the testator will not be subject to capital gains tax, based on the interpretation given by s. A legacy of a loan account to any person, entity or trust other than the entity or person who is the debtor on the loan account.

USUFRUCT, CAPITAL GAINS TAX AND PRIMARY RESIDENCE

Compared to individuals, the introduction of capital gains tax did not increase the tax payable by a trust used in combination with a right of use, except if the capital gain is below RI million. in a private residence. On the other hand, the saving in capital gains tax when a person dies is really significant if a trust is used. The conclusion can therefore only be that the introduction of capital gains taxation makes the use of trusts even more attractive than before, especially if you combine it with a right of use.

BACKGROUND INFORMATION

INFORMATION ON MRS BROWN

Should Mr Brown die today, the amount of the death claim in terms of the pension fund will be RI 800,000. Neither Mr. Brown nor his wife, Mrs. Brown, are currently affiliated with any medical assistance program.

MR BROWN'S LIABILITIES

HIS WILL (TESTAMENTARY DISPOSITION)

MRS BROWN'S ASSETS

MONTHLY CASH FLOW POSITION

HIS POSITION AT RETIREMENT

However, the capital gain of R30 000 on his death will not attract capital gains tax due to the exclusion of R50 000 on death. Mrs Brown will only inherit the above assets (unrealised) if she pays the cash shortfall of R139 505,00 which will exist in Mr Brown's Estate.

THE IMPORTANCE OF ESTATE PLANNING

The property owner may fear or be concerned about the following, meaning he understands the importance of getting his affairs in order. All relevant statutory enactments and common law provisions may have an effect on the wealth of the specific property owner. The economic and financial environment also includes the analysis of the financial situation of the property owner and his family.

BIBLIOGRAPHY