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Newsletter 47 (Jul 2020)
Newsletter 47 (Jul 2020)

Dear Colleague
HOPE is seeing light in spite of being surrounded by darkness.
Dinesh Kapgate

Start every day with a new hope,
leave bad memories behind and
have faith for a better tomorrow.


LEARN from Yesterday, LIVE for Today, HOPE for Tomorrow.
Albert Einstein

As long as one is still breathing, there is always hope for a better day.
Remember that executor fees earned on outside estates contribute to the EFBOE competition which ends on 31 October 2020. If you encounter someone who needs an executor or an agent for an executor of a deceased estate, refer them to EFBOE.
EFBOE/Capital Legacy joint venture
Just a reminder of the amazing Legacy Protection Plan™ which provides for all the fees, expenses, as well as immediate cash to meet the cost of the funeral and household expenses after death.  This policy can be linked to any existing EFBOE-Will.  You do not have to re-sign a new Will if the client already has a Will with EFBOE.
Courier services are fully operational again.  Please ensure that your clients’ original signed Wills are returned to EFBOE for safe keeping. Please contact your broker consultant if you have an arrangement for collection in place.
Please keep your broker consultant updated on the progress regarding unsigned Wills. If a client is not interested anymore or went elsewhere, please inform EFBOE so that these Wills can be cancelled and not unnecessarily followed-up on.
Read more about this in the next edition.
Many people think that they remove an asset from their personal estate when they sell it to a trust.  Normally the trust does not pay for assets due to a lack of liquidity in the trust, but a loan account is opened and the trust owes the money to the seller. This loan account will be viewed as an asset in the seller’s personal estate in the case of an insolvency and for estate duty purposes.
In 1984, there was such an insolvency case between Magnum Financial Holdings (Pty) Ltd (in liquidation) versus Summerly. In the event of an insolvency, all the assets held in the trust may be subject to the claims of the estate planner’s creditors if the loan account is called up and the trust is unable to repay the loan amount.
When assets are sold to a trust on a loan account basis, the loan agreement should clearly state all the terms related to the loan, i.e.:
  • Term of the loan;
  • Interest rate (for Section 7C of the Income Tax Act purposes);
  • Repayment terms; and
  • Breach, etc.
Without a loan agreement, it could be alleged that the real intention of the seller was to donate the assets to the trust and then donations tax will be levied on the market value of the assets “donated” to the trust (ITO paragraph 38 of the Eighth Schedule to the Income Tax Act).
Donations tax at 20% of the amount is payable on any donation from a natural person over R100 000 per year if the accumulation of that amount and all pervious donations during a person’s lifetime is up to R30 million and 25% in excess of R30 million. Note that the amount of donations tax payable by the seller may be included in the base cost of the asset when calculating the capital gains tax payable of the sale (ITO paragraph 22 of the Eighth Schedule to the Income Tax Act).
Should the true nature of the transaction be challenged, the Courts have clearly stated that simulated transactions will be ignored. In the Relier (Pty) Ltd v Commissioner for Inland Revenue case of 1997 the Court distinguished between the substance versus form of an arrangement and held that effect will be given to unexpressed agreements and implied understandings. In the absence of a written agreement, which contains the repayment terms, the transaction may be regarded as a donation by the South African Revenue Service (SARS).
There should be a real intention to repay the loan. The loan should not be made repayable on demand, as it may be an indication that the seller has control over the trust.
Care should also be taken regarding the interest rate charges on the loan.  In the past people charged no interest on the loan, but with the introduction of anti-avoidance provisions through Section7C of the Income Tax Act, it is not so easy anymore.  Section 7C taxes interest-free loans and loans that carry interest below the official interest rate, which is the repo rate plus one percent. Detailed calculations should be made to determine which interest rate charged will have the most favourable tax outcome, which obviously must be defendable.
A trust offers asset protection against creditors, but while there are loans or claims against the trust by any person, like the seller, the trust could be exposed to the creditors of that person. Therefore, the value of the loan account should be reduced to zero as soon as possible. The smaller the loan remaining in the seller’s estate upon death, the less the executor’s fee and estate duty will be.

It is not a good idea to sell assets to a trust at less than market value to try and minimize the loan amount.  It will have the following unintended consequences:
  • The seller will be liable for donations tax on the difference between the market value and the sale price of the assets.
  • Any income from this difference will be taxed in the hands of the seller until he dies because of the provisions of Section 7(9) of the Income Tax Act.
SARS will view any transaction where a connected person sells assets to a trust at less than market value as if it took place at market value and the actual values at which the assets were sold can be substituted by SARS with market values (ITO paragraph 38 of the Eighth Schedule to the Income Tax Act).
It is clear from the above that there are a few things to consider and there is paperwork that must be completed.  If this is not done properly, it might have costly tax implications.
Source: Phia van der Spuy
MONEY TALKS - Ferrari burial
Over the years, people have had interesting bequests and stipulations in their Wills. These unusual wishes score points for individuality and eccentricity but could get weird and quite bizarre at times.
Sandra Illene West of Texas, an oil heiress and Beverly Hills socialite, was obviously her own woman and loved cars. She loved her car so much that she took it to her grave when she died in 1977. 
In her handwritten and signed Will, she presented her late husband’s brother, Sol West, with an ultimatum.  He could choose between $10,000 or $2 million.  To receive the $2 million, he had to bury her dressed in a lacy nightgown, reclined in the front seat of her 1964 powder-blue Ferrari.
So, at the grave site in Alamo Masonic Cemetery in San Antonio, Texas, next to her late husband’s grave, a 2.75-meter-deep-hole was dug.  The box of 1.8x2.4x4.6 meter, which contained the Ferrari with her body at a comfortable slant, aptly dressed in lingerie, was placed in this hole.  A concrete mixing truck poured cement over and around the box to protect it from vandals.  Her wish was granted. Who says you cannot take something to the grave?
Until next time!
The “Let’s Talk EFBOE Team

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