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WILLS

A LEGACY OR A LIABILITY

When should your Will be reviewed?

• At least every two years.• If you have children/grandchildren.• If you have offshore assets.• If you get re-married/divorced.• On the death of a spouse.• If there are amendments to the tax act.• If you have implemented any other form

of estate planning such as a trust.

Freedom of testation

• This is the freedom to execute a Will which is valid both in content and in compliance with all the prescribed formalities whereby a testator/trix can leave their assets to whomever they please.

• In South Africa this freedom is almost unfettered.• Freedom extends to the disinheritance of anyone

and includes his spouse and children.

Freedom of testation

• There are exceptions to freedom of testation, namely– Testator has an obligation to maintain and

educate his minor and needy children.– Surviving spouse has a claim for reasonable

maintenance.– If married ‘out community of property with

accrual’ then the surviving spouse has a claim for ½ of the accrual.

Requirements of a valid Will

• Must be signed in the presence of two witnesses (older than 14).

• Must be dated.• Each page must be signed by the testator/trix.• Must be signed in the presence of two witnesses

who do not benefit from the will and they, in turn, must sign in the presence of the testator/trix and each other.

Death duties in the estate• There are 3 major ‘death duties’ in every estate,

namely:• Executors fees: Normally levied at the official

rate of 3,5% + VAT. These are levied on the gross value of assets which the executor must administer.

• Capital gains tax. Calculated up to 13.3% depending on the nature of the asset.

• Estate duty tax: Calculated at 20% of the dutiable estate > R3,5m.

Why is a Will important?

• With no valid Will you will die intestate.

• Dying intestate will lead to unintended consequences with regards to:– Assets not benefiting the intended people.– Death duties.– CGT.– Appointment of Executor/s of choice.

Types of planning in a Will

• Simple will using the spousal relief:– Residue of estate is bequeathed to the

surviving spouse.– Estate duty tax and capital gains tax are

deferred until the death of the surviving spouse.

– Abatement is portable so surviving spouse will have a tax free estate of R7 million.

Types of planning in a Will

• Use of the primary abatement can also be used in a foreign Will.

• Benefits:– Make use of the tax free abatement.– Creates a tax shelter for these assets offshore.– Provides a vehicle to protect assets.

Separate Wills for foreign assets• A valid South African Will is recognised in most

foreign countries, but certain countries probate system do not accept our freedom of testation, for example Greece.

• A South African executor is prohibited from winding up assets outside S.A.

• Potential lengthy procedures if foreign assets must be dealt with in terms of a S.A. Will.

Separate Wills for foreign assets• Benefits of a foreign Will are:

– Separate administration of the estate carried out in parallel to the administration of the SA assets.

– An executor familiar with the procedures required in those territories can save time and therefore costs.

– An opportunity for early advice on any potential taxation and succession dangers.

Separate Wills for foreign assets

• It is vitally important that where more than one Will is in existence that both documents dovetail together and do not have the effect of revoking one another!

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.• 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.

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.

• Preservation of wealth– Example: a farm or holiday house passed

from one generation to the next – EDT and CGT.

Benefits of a Trust• Reduction of death duties which are made

up of :-– Deemed CGT.– Executor fees.– Estate duty tax.

• 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.

Inter Vivos v Testamentary

• 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.

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.

Getting assets into a trust

• Donate but will attract donations tax at 20%.

• Interest free loan.

• Bequest in terms of a will.

Taxation of Trusts

• Income tax and capital gains tax.

• Distribution to beneficiaries – Sect 25B & paragraph 80.

• Attribution – Sect 7 & para 68 – 72.• Taxation in the trust at 40% and 26.7%

CGT.

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 to the donor.

Inter Vivos TrustsTaxation of trusts cont …– Capital Gains Tax

• Gains are taxed in the hands of the trust at 26.7%. 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.

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.

• Leaving the primary abatement to an IV trust.• 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