Title: Estate Planning
1Estate Planning
Estate Planning for Financial Planners 15
things that changed the last 5 years
1
2Definition of Estate Planning Meyerowitz
The arrangement, management and securement and
disposition of a persons estate so that he,
his family and other beneficiaries may enjoy
and continue to enjoy the maximum from his
estate and his assets during his lifetime and
after his death, no matter when death may occur.
2
3Topics Selected
- Estate Duty Abatement
- Estate Duty Retirement annuities
- Capital Gains Tax Loan accounts
- Variation of Trusts
- Trust compliance SARS Compliance programme
- Tax Compliance Section 74A of the Income Tax
Act to obtain information. - Wills
- Transfer Duty
- Maintenance
- Donations
- Policies and marital regimes
- Universal Partnerships and spouse
- Business Financial Planning Income tax Key
person and other applications - Business Financial Planning Estate Duty
3
4Estate Duty Abatement
- Pre January 2010 position
- Benefit of abatement often lost
- Post January 2010 position
- Deduction of R7 000 000
4
5Estate Duty Deduction
- Post-31 December 2009 position
- As a result of the 2009 amendment, section
4A(2) provides that when a person was the
spouse at the time of death of one or more
previously deceased persons, the dutiable
amount of the estate of that person must be
determined by the deduction from the net value of
his or her estate of an amount equal to
R3,5 million - multiplied by two and
- reduced by the amount deducted under section 4A
from the net value of the estate of any one
of the previously deceased persons.
5
6Estate Duty Deduction
- Where a person and his or her spouse die
simultaneously, the person of whom the net value
of the estate, determined in accordance
with s 4, is the smallest must be deemed for
the above purposes to have died immediately
prior to his or her spouse. - To take advantage of this transferable
abatement the executor of the estate of
the surviving spouse must submit a copy of
a return submitted to the Commissioner for
the estate of the previously deceased.
6
7Example
- Princess passed away two years after Prince.
Prince, on his death bequeathed R500 000 to
his son and the residue to his spouse,
Princess. The gross value of Princes
estate was R5 000 000. Princesss assets
when she passed away was R7 500 000.
Calculate the estate duty of both the respective
estates. Ignore executors fees.
7
8Example
Estate of Prince
Property
Deemed Property
Assets not part of the liquidation and distribution account
Gross value of the estate 5 000 000
Allowable deductions 4 500 000
Bequest to spouse 4 500 000
Net estate 500 000
Section 4A abatement 500 000
Dutiable estate
Estate duty payable
8
9Example
Estate of Princess
Property 7 500 000
Inheritance from Prince 4 500 000
Own assets 3 000 000
Deemed Property
Assets not part of the liquidation and distribution account
Gross value of the estate 7 500 000
Allowable deductions
Net estate 7 500 000
Section 4A abatement 6 500 000
Dutiable estate 1 000 000
Estate duty payable 200 000
9
10Note the following
- The estate of Princess is 2 x R3 500 000 less
the net estate of R500 000 of Prince. - Stated differently 2 x R3 500 000 less the
unused portion of the abatement
R6 500 000. - It is thus not relevant that the abatement in
terms of previous legislation was
R1 500 000 or R1 000 000. - Definition of spouse
10
11Comments
- Trust structures
- Rationale of legislation
- Reason may exist to still use a trust
- 10,5 million
- Burden of proof s 23 bis
11
12Estate Duty Retirement Annuities
- Pre January 2009 position death
- Post January 2009 position death
12
13Comments
- Consistent assumptions for planning
- Tax benefits
- Estate duty lump sums and annuities
- Capital gains tax
- Income Tax
- Taxation of retirement fund lump sums
- Tax free build up in approved funds
- Income source for dependants as opposed to
usufruct. (Further reading Tiny Caroll
Tax Talk April 2012)
13
14Example of taxes and cost savings
Fund Money Market Fund Retirement Annuity
Invested 3 000 000 3 000 000
Growth (10) 300 000 300 000
Income Tax 120 000 nil
Total value 3 180 000 3 300 000
Estate duty 636 000
Executor's fees 126 882
Tax on retirement fund nil
After taxes and fees 2 417 118 3 300 000
15Capital Gains Tax Loan Accounts
- Waiver of Debt
- Donations to trust
- Bequest to trusts
- Collatio
15
16- Case law
- ITC 1793
- ITC 1835
- Comments by academics
16
17Comments
- Solutions
- Bequeath to spouse or other trust
- Bequeath residue
- Drafting of Will
- Create liquidity in the Trust
17
18Variation of Trusts
- Risk profiling of trust may have changed
- Potgieter v Potgieter (629/2010) 2011 ZASCA
181 - Facts of the case
- Argument of children of deceased founder
- Arguments of newly appointed capital
beneficiaries - Decision of the SCA
18
19Importance of SCA Case for Financial Planning
- Must my children be part of the trust meeting
to educate them? - Always leave a door open to amend the deed
19
20Trust Substance over form?
- FNB v Britz 20 July 2011
- The legal question
- Could the court pierce the veneer of the trust
and order that the assets of the trust can be
attached by creditors? - What legal and factual circumstances will
warrant such a conclusion?
20
21Arguments by Married Couple
- As a businessman and being married in community
of property, he was advised to re-arrange
his business affairs and personal portfolio
of assets. - He established a trading trust, which was run
as a business, and two trusts to house
personal assets. - He contended that all times he differentiated
between the assets of the trust and his
personal assets. - Rental paid to the trust to occupy the
residence were market related and covered
the bond payments.
21
22Arguments by Creditor
- The married couple are effectively in full
control of the trust assets. - If not for the trust, the couple would have
acquired the assets in their own name. - The married couple are the sole trustees in terms
of the trust deeds. - They have an unfettered discretion to deal with
trust assets. - They are the ultimate beneficiaries of the trust
assets. - They had the power to remove and appoint
trustees. - The couple could at any time, in their absolute
discretion, transfer the assets to themselves
because they were included as capital
beneficiaries in terms of the trust deed. - The transactions entered into with the trust were
simulated.
22
23Decision of Court
- The trusts were not treated as separate
existing entities. - The trusts are the alter ego of the couple.
- There was a deliberate attempt to rearrange
their financial affairs to evade creditors. - The court referred to the Badenhorst and
Jordaan cases that held - One must have regard to the terms of the trust
deed, and - consider evidence how the affairs of the trust
was conducted. - The clause that allows successive trustees to
be appointed is indicative of placing the
control of the affairs of the trust in the hands
of the married couple. - In terms of the trust deed, the beneficiaries
could not challenge the administrative
affairs of the trust. It therefore created rights
for the beneficiaries, but then does not
allow protecting those rights and thus not in
accordance with the principle that the trust
assets should be administered for the benefit of
the beneficiaries.
23
24Decision of Court continued
- There was no proof of a lease agreement
between the married couple and the trust
that houses the property, thus ostensibly use the
property as their own. By doing so they
also not fulfilling their fiduciary duty towards
the beneficiaries of the trust. - The court found authority for their decision
in corporate law with respect to the
abuse of a legal entity which leads to the
piercing of the corporate veil. It was
held that fraud is not a pre-condition and that a
court applies a look through approach. Of
importance for the court is that the personality
of the trust was abused or misused. - On the evidence there was no proper paper
trial to determine who really paid the
bond. It was unclear whether loan accounts were
created or whether donations were made to
the trust. - There was no evidence that the transfer of
movable assets actually took place,
because proof for the payment of goods and
delivery was absent. - On the evidence it was clear that the married
couple could not convince the court that
the de facto control was relinquished.
24
25Comments on the Case
- An interesting aspect is that the court
regarded the interest free loan with no
specific terms as indicative of control in
the specific circumstances. - Our law will always pay due regard to the
substance of the transaction over the form
that a transaction is couched in. To arrive
at such a conclusion the court will look at
the terms of the trust deed as well as the
factual circumstances. - Investments in Trust Risk profiling.
25
26Comments on the Case
- To conclude that the trust deed has the power
to appoint further trustees, or that an
interest-free loan is made to the trust, is not
sufficient on its own to regard trust assets
as that of an estate planner. All the
surrounding circumstances must be taken into
consideration to avoid the result of the case
discussed. It is strongly suggested - To appoint an independent trustee, although the
court did not make much of the fact that
the parties were married in community of
property and acting as trustees. - Be meticulous in the documentation of
transactions with and by the trust, always
keeping in mind that the object of the trust
is for the benefit of the beneficiaries.
26
27Trust Compliance SARS Compliance Programme
27
28Trust SARS Compliance Programme
- Our preliminary sampling exercise has shown
that under-declaration of income is an area
of concern, where an individuals declared
income is not consistent with their asset
base. To date, 467 potential wealthy individuals
have been identified where there are
discrepancies between their asset base and
declared income, and they can expect much
closer scrutiny from SARS.
28
29Trust SARS Compliance Programme
- Wealthy individuals are also generally linked
to a number of trusts and companies, some of
which are used as vehicles to channel and
hide their assets and income. Most of the
wealthy South Africans we have reviewed are
linked to more than 10 associated companies on
average and 87 of these associated
companies and 59 of trusts have
outstanding returns. A total of 67 of audits
conducted into trusts show serious
under-reporting.
29
30Trust SARS Compliance Programme
30
31Tax Compliance
The Tax Administration Bill (TAB) that will soon
become law substantially expands SARSs
information gathering powers. Section74 A In
its Strategic Plan 2012/13 - 2016/17 (at p 25)
SARS talks of 'becoming data and information
rich' and then states "By increasing and
integrating data from multiple sources, SARS
will increasingly be able to gain a complete
economic understanding of the taxpayer and trader
across all tax types and all areas of economic
activity. By moving from a transactional to an
economic view of the taxpayer and trader, SARS
will be able to detect inaccuracies in
declarations as well as to identify those who
have attempted to stay outside the tax net
31
32Wills Interpretation
- Pienaar v Master of the Free State High Court
2011 ZASCA112 (01 June 2011) - The testator (Du Toit) executed a Will in
November 2006 (2006 Will) and then later
another Will in May 2007 (2007 Will). The
deceased was married to Cynthia du Toit but
were divorced from her prior to executing both
wills mentioned above. - The deceased had two daughters born from a
previous marriage and a son, Derick born
from the marriage between him and Cynthia.
32
33Summary of the provisions of the 2006 and 2007
Wills
2006 Will Inheritance 2007 Will Inheritance
Cynthia Sanlam Investment Cynthia Lifelong use of property
Derick Property Car Derick and daughters Property
Residue Daughters One daughter and Derick Cash
Car Son-in-law
Residue Daughters
33
34The Supreme Court of Appeal of South Africa held
as follows
- Referring to case law, as a general rule Wills
(in the absence of a revocation clause) of
a testator must be read together and the
earlier will are deemed to be revoked as
far as they are inconsistent with the later one. - Both Wills dealt with the entire estate.
- There was no revocation clause in the 2007
Will. - The 2007 Will was in effect a new scheme
- Relying on Price v The Master 1982 (3) SA 301
(N) it held that if there are two Wills with
similar provisions but different in effect,
and each Will deal with the entire estate,
then they cannot stand together and the later
will must be construed as impliedly
revoking the earlier.
34
35- The golden rule of interpretation is to ascertain
the wishes of the testator from the language used
in the will. The Appeal Court assumed that the
testator knew what the term residue meant.
Therefore the Appeal Court concluded that it was
the intention of the testator to include the
Sanlam Investment policy in the residue of the
estate. - The order of the High Court (Bloemfontein) was
set aside and the Appeal Court concluded that the
2007 Will impliedly revoked the 2006 Will in so
far as it was inconsistent with the 2007 will.
35
36Comments on Case
- Testators must be certain about their
understanding of the meaning of the term
residue. Remember that the residue is paid
after estate duty is accounted for. Where a
direct investment bequest is made which is
dutiable, the estate duty will be paid out of the
residue of the estate, leaving the
residuary heirs less. If the investment is
classified as a policy, in other words have
a life insured in terms of the investment
contract, the proportionate estate duty payable
will be collected from the beneficiary. It
is therefore crucially important to determine the
nature of the investment and whether the
estate duty payable on the investment will
be collected from the legatee or the residuary
heir! - A poorly drafted Last Will and Testament can
lead to tremendous hardship and may not
reflect the true intention of the testator. To
avoid litigation and uncertainty, as in this
case, it is recommended to have a
revocation clause and prepare a new Will that
clearly demonstrates the intention of the
testator.
36
37Wills and Estate Duty Planning
- Assume that you have a scenario where an estate
planner wishes to bequeath an amount of R10
000 000 to his spouse and R10 000 000 to his
son. - The way you choose to describe these bequests
in the last will and testament may have an
impact on the final estate duty payable and
whether the wishes of the testator can be
fulfilled.
37
38Assume that the estate planner presents you with
the following assets and liabilities of his
estate.
Fixed property 10 000 000
Cash 10 000 000
Life policy payable to the estate 3 500 000
Total liabilities of the estate 1 000 000
Total estate liabilities such as executors fees, etc 1 000 000
38
39- The estate planner may choose to bequeath an
amount of R10 000 000 to his spouse and the
residue to his son. It is his intention
that the son must also receive an amount of
R10 000 000. Alternatively, the estate planner
may choose to bequeath an amount of R10
000 000 to his son and the residue to his
spouse. - In the first scenario, the son will not receive
R10 000 000 as planned by the estate
planner. In the latter instance you will
note that an estate duty saving of R300 000 can
be achieved with the result that both heirs
will receive more.
39
40Scenario 1 Bequeath R10 000 000 to his Spouse
and residue to Son
Property
Fixed property 10 000 000
Cash 10 000 000
Deemed property
Policies payable to estate 3 500 000
Total 23 500 000
Liabilities of estate 1 000 000
Estate liabilities 1 000 000
Direct bequest to spouse 10 000 000
Net estate 11 500 000
Abatement 3 500 000
Dutiable estate 8 000 000
Estate duty payable 1 600 000
40
41Calculate residue of Son
Total assets 23 500 000
Less
Liabilities of estate 1 000 000
Estate liabilities 1 000 000
Bequest to spouse 10 000 000
Residue 11 500 000
After estate duty 9 900 000
41
42Scenario 2 Bequeath R10 000 000 to the Son and
the residue to his Spouse
Property
Fixed property 10 000 000
Cash 10 000 000
Deemed property
Policies payable to estate 3 500 000
Total 23 500 000
Liabilities of estate 1 000 000
Estate liabilities 1 000 000
Bequeath residue to spouse 11 500 000
Net estate 10 000 000
Abatement 3 500 000
Dutiable estate 6 500 000
Estate duty payable 1 300 000
42
43Calculate the Residue that the Spouse receives
Calculate residue
Total assets 23 500 000
Less
Liabilities of estate 1 000 000
Estate liabilities 1 000 000
Bequest to son 10 000 000
Residue 11 500 000
After estate duty 10 200 000
43
44Comment
- From the above calculation we can now conclude
that the son will indeed receive R10 000
000. The total estate duty payable is also
reduced to R1 300 000. - Therefore, bequeathing the residue of the
estate to the spouse will ensure that an
additional R300 000 as a result of the
estate duty savings is available for
distribution. Also, the son receives
R10 000 000 and not only R9 900 000.
44
45Transfer DutySARS Transfer Duty Handbook
45
46Maintenance of Surviving Spouses Act
- The Maintenance of Surviving Spouses Act
determines that in certain circumstances,
the surviving spouse holds a claim for
maintenance against the estate of the deceased
spouse. - Section 2(1) of the Act determines that if the
marriage is dissolved by death after the
commencement of the Act, the surviving spouse has
a claim against the estate of the deceased
spouse for the provision of his reasonable
maintenance needs until his death or remarriage
in so far as he is unable to provide
therefore from his own means or earnings. - The claim arises regardless of the matrimonial
property system which operated in the
marriage. - However, the claim arises only in so far as the
surviving spouse is unable to provide for her
reasonable maintenance needs from his own
means and earnings. - The surviving spouse shall not, however, have a
right of recourse against any person to whom
money or property has already been paid.
46
47Maintenance of Surviving Spouses Act
- The following factors must be taken into
account in considering the surviving
spouses reasonable maintenance needs - The amount in the deceased estate available for
distribution amongst heirs and legatees. - The existing and expected means, earning
capacity, financial needs and obligations of
the surviving spouse and the subsistence of the
marriage. - The standard of living of the surviving spouse
during the subsistence of the marriage and
his age on the death of the deceased spouse. - The duration of the marriage
- The surviving spouses age at the time of the
deceaseds death - Any other relevant factor.
47
48Maintenance Claims against Deceased
EstatesSituation where the Spouses are not
Divorced
Maintenance of Surviving Spouses Act 27 of
1990. Section 2(1) If a marriage is dissolved by
death the survivor shall have a claim against the
estate of the deceased person for reasonable
maintenance until his death or remarriage in so
far as the surviving spouse cannot provide from
his/her own means and earnings. Section
2(3)(b) The spouse shall have the same order of
preference as a claim for maintenance of a
dependent child of the deceased spouse, and if
these claims compete the claims shall be reduced
proportionately. Section 2(3)(d) The executor of
the deceased estate may enter into an agreement
with the survivor and the heirs, which includes
the creation of the trust in settlement of the
claim of the survivor.
48
49Oshry NO and another v Feldman 2011 1 All SA
124 (SCA)
- F O married late in life, both second
marriages. O died leaving F with
insufficient means in his will. - F claimed under MSSA. The High Court found that
payment had to be regular payments and
cannot be lump sum. - On appeal SCA found that court a quo erred and
that maintenance can be lump sum in terms
of the 1998 Maintenance Act. - A claim against the deceased estate for
maintenance is deductible for estate duty
purposes, provided that it is reasonable.
49
50Situation where a Person dies after a Divorce
- The Divorce Act is relevant and not the
Maintenance of Surviving Spouses Act. - Kruger NO v Goss and another 2010 1 All SA 422
(SCA) - This case dealt with rehabilitative maintenance,
which is usually for a limited period of the date
of divorce. - Maintenance does not extend beyond death of
maintenance payer unless divorce order states
that. - Of course a spouse is free to agree to bind
his/her estate to pay maintenance after death.
That is not what occurred in the present case. To
allow maintenance claims of the kind encountered
here against deceased estates might have all
sorts of undesirable consequences.
50
51DonationsWelch Case Discussion
- The facts of the case were briefly (simplified)
the following - The husband divorced his spouse in 1996. In
order to provide for rehabilitative
maintenance for the divorced spouse and
maintenance for the children he agreed to make
approximately R3 000 000 available to the
trust. - This was made an order of court. The capital
and income beneficiaries were the spouse
and the children. Only the children were the
capital beneficiaries. SARS argued that the
settlement of assets to a trust was a
gratuitous disposal of property in terms of
section 55 of the Income Tax Act, that is the
section that deals with donations tax.
51
52Ratio
- The Supreme Court thus held that section 55 of
the Income Tax Act is not applicable if a
quid pro quo (mutual consideration,
something for something. Afrikaans
teenprestasie) was given. - The Supreme Court held that section 55 of the
Income Tax Act requires that the
disposition of the asset must be out of pure
liberality or disinterested benevolence. - Also, section 55 did not alter the common law,
which requires that a disposition must be
out of pure liberality or disinterested
benevolence before it can be said that it was a
donation.
52
53Ratio continue
- In this case the husband was under the legal
obligation to pay maintenance and it was a
debt due that did not cease upon death. The
trust was a mechanism which the parties
decided to use to discharge the maintenance
obligation. - The court noted that the divorced spouse also
gave a quid pro quo. She abandoned her
maintenance claim against the husband and
agreed to look at the trust for
maintenance. - It was therefore held that no donations tax was
payable.
53
54Comments on the Importance of this Case for
Financial Planners
- SARS could have invoked section 58 of the
Income Tax Act to claim donations tax for
the amount that was more than the legal
maintenance obligation. Therefore, if a
similar set of facts represent itself it may be
prudent to base ones planning on the basis
that SARS will the next time around invoke
section 58 of the Income Tax Act.
Therefore, it becomes important to calculate the
exact amount that relates to the
maintenance obligation so to avoid
donations tax as contemplated by section 58.
54
55Comments on Case
- In a divorce case it is foreseeable that the
parties will make some calculations based
on some methodology. The application of the
correct methodology is of paramount
importance. To start off with an estimated
capital lump sum does not make sense. It is
submitted that the point of departure in
any such negotiation in a divorce matter
will be to make an estimate of what the
amount is needed per month, for how long, and the
assumptions in respect of the investments
return as well as the inflation rate. It is
submitted that it is easier to accurately
determine the monthly expenditure needed
than an estimated capital lump sum.
55
56Benefits
- The capital amount is protected
- Avoid conflict between capital and income
beneficiaries - Effective income tax and capital gains tax
splitting can be achieved.
56
57Policies and Marital Regimes
- Accrual
- Principle of stipulatio alteri
- Law of contract right to claim suspensive
time clause - Hersov property right in respect of
estate duty
57
58Policies and Marital Regimes
- Community of Property
- Hees NO v Southern Life
- Payable to estate falls into joint estate
58
59Universal Partnerships and Spouse
- Butters v Mncora (181/2011) 2012 ZASCA 29
(28 March 2012)
59
60The Facts of the Case
- Mr Butters (B) and Ms Mncora (M) lived together
for 20 years as husband and wife, but were
not married in terms of the laws of the Republic
of South Africa. However, the evidence
shows that they were engaged. - B started a security business whilst M worked
as a secretary with a salary of R2 000 per
month. M, on the insistence of B, stayed at home
to look after the children. B provided for
all the maintenance needs of the family. - B accumulated many assets, all registered in
his name. - The relationship came to an end and a dispute
ensued as to whether she was entitled to
any of the assets, even though she was not
married to B. - M contended that it was her understanding that
they shared everything, whist B argued that
everything was his and his alone since she played
no part in his business life. - M made no direct contribution to Bs business,
but supported him, care for him and their
children, whilst also maintaining their common
home.
60
61The Legal Question
- Can a universal partnership exist between
parties in a cohabitation relationship? - Is it a requirement that M must have made a
contribution to the commercial entity or is
it sufficed that she contributed to the
maintenance of the family? - If such a partnership is recognized in our law,
can it be said on the evidence presented
that M will succeed in a claim against B?
61
62Decision of the Supreme Court of Appeal (SCA)
- The general rule in our law is that
cohabitation does not give rise to special
legal consequences. - Protective measures in terms of family law are
not available to unmarried couples, but the
remedies of private law may provide relief. - To succeed in a claim the law of partnership
must apply to the facts of the case. - The essential elements of a partnership in our
law are - Each of the parties must bring something into
the partnership whether it may be money or
labour or skill. - The partnership must be carried on for the
joint benefit of both parties. - The object must be to make a profit.
- The SCA dealt with all the requirements.
- B argued that M made no contribution to the
commercial undertaking (the business) and
therefore the first requirement is not fulfilled.
62
63- Roman and Roman Dutch law recognized universal
partnerships, apart from particular
partnerships entered into for the purposes of
a particular enterprise. - A distinction in respect of universal
partnerships must be made where parties
agree to put in common all their property,
present and in future, and the situation
where the parties agree that all they may acquire
during the existence of the partnership
from every kind of commercial undertaking
shall be partnership property. - The SCA held that a partnership enterprise may
extend beyond commercial undertakings and
therefore the contributions of both parties
need not be confined to a profit making entity.
The SCA accepted the evidence that the
partnership between the parties could include
both the commercial undertaking (business)
and the non profit part of their family
life. The contribution of M cannot be denied.
63
64- M fulfilled the first qualification and the
fact that she did not make a direct
contribution to the commercial undertaking does
not debar her from fulfilling this
requirement. The second and third requirement
that the partnership must be for the joint
benefit of parties and make a profit is also
fulfilled since they entered into a partnership
which encompassed both their family life
and the business conducted by B. - The non financial contribution of M is a
relevant factor since it is established
that the contribution to the commercial
enterprise is not the only requirement for
bringing something into the partnership, albeit
by conduct and not an express partnership
agreement. B shared in the benefits derived
from the contribution. Thus, the contributions of
both parties, financial or otherwise, was
shared and consumed in the pursuit of their
common enterprise.
64
65Held by SCA
- M succeeded in her argument that a tacit
universal partnership between her and B
existed and therefore the appeal of B fails.
65
66Comments on the Case
- The minority judgement did not disagree with
the exposition of the law by the majority,
discussed above. The minority decided that
the appeal should succeed based on the
evidence led in terms of the tacit agreement
between the parties. The importance hereof is
that any party that finds him or her in a
similar position should ensure that
concrete evidence is placed before the court
that there was indeed an express intention that
a contract came into being. In such an
instance, our law is now clear that legal
recognition and remedies are available for
a person in a cohabitation relationship.
66
67Comments on the Case
- For purposes of taxation, persons living
together are treated as a spouse, as
defined. The spouses deduction for estate
duty and rollover for capital gains tax relief
will be available. The same applies to
donations made between spouses, as defined.
67
68Comments on the Case
- The Domestic Partnership Bill in not yet
written into law in South Africa and
persons staying together in an unregulated
relationship should draw up a cohabitation
agreement that stipulates some of the following - Distribution of assets upon termination of the
relationship - Maintenance obligations towards each other
- Education and welfare of children
- Future payment of insurance policies and
ownership of the policy on the life of a
breadwinner - Establishing a trust for dependants
- The right to reside in the family home after
termination of the relationship. This aspect must
be in writing and signed by both parties to have
legal effect since it relates to immovable
property.
68
69Business Financial Planning
- Business financial planning is essentially no
different than personal financial planning.
It also deals with the creation and protection of
wealth. The only difference is that we deal
with employer owned policies as well as
individual owned policies. Where in personal
financial planning the owner and life assured is
usually the same person, this is often not
true for business financial planning. - For instance, a company will insure the life of
an employee or a business partner will
insure the life of the other business partners.
It is therefore important to have a good
understanding of the concept that one
person can be the owner of life insurance and
someone else the life assured.
69
70Business Financial Planning and Key Person
Policies
- The proceeds of a genuine key person policy
will assist the business to survive losses
and to meet expenditure to recruit and train
a new employee. Stated differently, the purpose
of the policy is to cover the business
against operating losses. - Section 11(w) deduction objective and
subjective criteria - Proceeds in Gross income, but may qualify for
an exemption - What about repayment of loan accounts and
surety ship plans?
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71Key Person Policies Estate Duty
- The first requirement is that the Commissioner
must be satisfied that all the requirements
are adhered to. SARS provides guidelines how he
will exercise his discretion. What follow
is the views of SARS in terms of a reference
guide published in 2008. - To enable SARS (on behalf of the Commissioner)
to consider whether the proceeds of a
policy fall within the ambit of the exclusion,
all the relevant documentation pertaining
to the case, namely - copies of the resolution taken by company to
take out such policy, and - application made for the policy and any other
documentation to prove that the proceeds of
the policy were not applied to benefit either the
estate, any relative of the deceased or any
person who was dependent upon the deceased for
his/her maintenance or a family company of
the deceased as envisaged in the relevant section
of the Act. - These documents must be submitted together with
the Liquidation and Distribution Account to
the Masters Office where the SARS estate auditor
will verify the documentation.
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