You have taken expert advice on the role of a trust as part of your overall financial and estate planning. You are satisfied that the fees and costs are well worth it in the longer term. You have worked with your financial planner and legal specialist, crafting the deed for your particular circumstances. You are happy that your co-trustees understand their roles and that at least one of them is not an immediate family member. Your legal specialist has submitted all the papers to the Master of the High Court, and, after all the activity of the past few weeks, you sit back, take a deep breath, and wait for the response.
At last, the official letter arrives, in the customary brown envelope. Your financial planner checks it at once for any errors in spelling and for incorrect ID numbers, for such errors are common and can play havoc once they find their way into the computer and compliance systems, which rule our lives. You breathe a sigh of relief as you note that all details are correct, and immediately start work on the trust’s tax registration. The original letters of authority must not be lost under any circumstances and therefore you should file it in a safe place (for example, in safe custody with Sanlam Trust).
Your legal specialist should supply you with the form, which SARS needs you to complete. The form (IT77TR) can be completed on line as well. Encouraged by how smooth the process has been so far, you eagerly tackle this next task. Mindful of your financial planner’s advice always to retain photocopies, you add them to your trust file and submit the registration application. The trust accountant or auditor, duly appointed by the Master, must assist you all the way with tax matters of the trust in future.
You obtained the various account application forms from the bank at which you intend to open the trust bank account, and you proceed to fill them in. You then make contact with your co-trustees to obtain their details and signatures. Your earlier concerns with compliance have been laid to rest, as your planner has counselled you on what to expect from a FICA point of view. You fully appreciate the importance of conducting all trust banking transactions via its own bank account.
You do not want to pay donations tax by donating assets to the trust. That, your planner advises, is potentially a waste of money. However, you can donate a certain amount each year without paying donations tax. You make a note to look at this when cash flow permits.
Instead, you decide to sell some of your growth assets to the trust. Because the trust does not have cash in its bank account to pay you, you agree that it can pay later. It will owe you the purchase price. To formalise this, you create a loan account liability in the trust’s books and you record your claim in your personal books of account. You do not want anyone to suggest that the trust’s assets are actually yours, and so you are careful to attend to these details. Caution: The rules regarding this strategy have been severely impacted by new tax legislation. You may have to charge the trustees interest on the loan or face a nasty tax shock yourself. Consult your financial planner on all aspects of your strategy going forward.
Working with your financial planner, you have already calculated that the growth in the assets you intend selling to the trust will be substantial going forward. Therefore, you do not mind paying some capital gains tax when you transfer ownership to the trust. You meet with your co-trustees to sign the necessary resolutions. You have one particular fixed property, which you wish to place in trust. You have transferred some cash into the trust’s bank account to pay the transfer duty and the conveyancing attorney’s fees, and you and your co-trustees sign the transfer papers, happy in the knowledge that all future growth in the property will belong to the trust, and not to you.
You also have some collective investments and listed shares, and as you sign the instruction to transfer these, you note that the percentage securities tax is quite reasonable.
In addition, as cash flow permits, you donate some cash up to the annual threshold, and lend the balance to the trust, noting that there are no costs to this exercise (save for the income tax aspects mentioned above).
In view of the high tax rates imposed on trusts, the trustees may elect to invest available cash in an endowment plan, which offers a tax-sheltered investment.
You and your co-trustees meet to plan the next steps. When the meeting is over, you pause to reflect on your fiduciary journey. With some sound advice and counselling, you are well on your way to achieving the protection you want.
Article originally written by Clive Hill in 2012, edited and rewritten by David Thomson, Senior Legal Adviser, Sanlam Trust in 2019.