Loftus Offus Kirkness str 427 Clydesdale - Trust Haven

Document Sample
Loftus Offus Kirkness str 427 Clydesdale - Trust Haven Powered By Docstoc
					                                                                    Tel: 086 111 3803
                                                                    Cell: 072 622 0036
                                                                    Fax: 086 512 7695

                                                                    Loftus Offus

                                                                    Kirkness str 427

People run daily risk of losing everything that we have worked for up to this point
in our lives. There are a variety of ways that we can minimise these risks, but
they take time and effort to implement – not signing sureties, collecting old
sureties, restructuring financial supply lines, etc. Probably the simplest route to
securing yourself is via the use of a trust.

Today’s business reality: A business owner (whether trading as a sole
proprietor, or in partnership, or under a close corporation, or under a (pty) ltd) will
always have the risk of having to pay the accumulated debts of the business.
Not only debts that you may have signed personal surety but also the general
debts of the business (taxes, VAT, supplier’s debts, and employee remuneration
that may be outstanding, etc).

If your business trades insolvently, and your creditors can prove this (the director
or managing member of that cc of company will be liable for the general debts of
that business – even though you haven’t signed any sureties or personal
guarantees. And, if you have signed sureties and have not been able to get that
sureties back from any of your creditors – the risk is even higher that sometime in
the future your personal assets will no longer be yours but belong to your
satisfied creditors.

While your assets may have a normal value much higher than the debt you’re
being summonsed for, these will not be normal times. When your assets are
auctioned they will usually raised a small fraction of their true worth. At times like

                                                                     Tel: 086 111 3803
                                                                     Cell: 072 622 0036
                                                                     Fax: 086 512 7695

                                                                     Loftus Offus

                                                                     Kirkness str 427

these, your creditors are interested only in retrieving their debts, and have no
responsibility towards ensuring a fair return for the goods sold.

In addition, by accumulating a high net asset value in your own name, you are
inviting future attack – from creditors as well as our beloved government on your
death. And at times like these you stand (or lie) alone.

If your business goal is to profitably deliver a service or activity, surely it follows
that part of your strategy must include a mechanism to secure the profits you
made? It does not make sense to constantly expose you life savings to attack.

Trusts are formed for lots of reasons. Our focus is on forming a trust to protect
your life assets. Once your assets are secured, you become much less of a
future target and can operate with much more confidence.

The majority of trusts formed today are simply to avoid tax. But any trust formed
for the primary purpose of reducing you tax load is liable to intense scrutiny by
the authorities. Our goal is to set up a trust with the main aim of protecting your
assets, while deriving whatever benefits are available.

Putting assets into the name of the trust is not a solid solution: people die, people
divorce; you pass control of your assets to someone else; they too can lose

                                                                   Tel: 086 111 3803
                                                                   Cell: 072 622 0036
                                                                   Fax: 086 512 7695

                                                                   Loftus Offus
                                                                   Kirkness str 427

everything if things go wrong for them; and the registered owner isn’t the true
owner – the person who paid for the asset is still the true legal owner.

As a business person, I want to deal and use my assets as I so desire, spend the
monies on myself and my family – more or less as I am spending now, but I do
want to risk owning these assets. I want the benefits of usage, without the
burden of ownership.

In fact, many of our assets are neither ours nor assets! Most people purchase
vehicles on HP or lease (not true ownership [and not true assets either]), homes
on mortgage loans (not true ownership until you have paid 400% of the cost of
the home [at current interest rates]), shares on overdraft, etc… In each case we
have bought the right to use or benefit from something without actual ownership.
Most of us value this right to use something now and much of our regular buying
aims towards this goal. Placing your assets into a trust is not a much different
concept. We will also look into the various tax benefits that a trust offer later on
this page – both estate duties (on your death) as well as income taxes. These
areas are the focus of almost all recent legislation, and are secondary to your
primary goals of asset protection.

A trust is difficult to define, so we are going to take the short way out and look at
how it is similar to more familiar things. The law basically does not regard a trust
as a separate entity – unlike a CC or (Pty) Ltd which is regarded as quite
separate from the owners. While a CC or (Pty) Ltd is mainly created as a trading

                                                                     Tel: 086 111 3803
                                                                     Cell: 072 622 0036
                                                                     Fax: 086 512 7695

                                                                     Loftus Offus

                                                                     Kirkness str 427

vehicle, the trust has a simple function - to own any assets and allow them to be
used by certain nominated individuals.

Does it make a difference to you if you are the sole shareholder of a (Pty) Ltd,
whether your car is in your (Pty) Ltd or in your own name? As a sole shareholder
I can deal with the car as please – in exactly the same way I could if I owned the
vehicle myself. I can use it, destroy it, sell it, and reap the benefits of the sale.
With regard to usage, then, it makes no difference whether your car is in your
personal name, your CC, your (Pty) Ltd or your trust – for you can deal with the
car as you please. However, the difference is – if your car is in your CC or (Pty)
Ltd and you are the member or shareholder of the company, I can take away
your ownership of that company. I can then gain access to that company’s
assets – including the car. But if the car is in a trust, it is safe since I cannot own
a trust (technically speaking there is no value for me being a beneficiary on that
trust and as a result, the creditors can’t attach that car). So, as long as “your”
assets are correctly placed into your trust, you can use them without any fears
that they might be investegated by anybody – not matter what reason.

What can a trust own? A trust can own almost everything. It can own your
immovable properties (plots, residences, buildings, etc.), your household
contents (Hi-fi, TV, VCR, Fridge, etc), your tools and equipments (computers,
plant), motor vehicles, life assurance policies, investments, unit trusts, shares
and any other asset that you can possibly think of owning in this country. The
only things that a trust cannot own are: a close corporation (CC); arms and

                                                                    Tel: 086 111 3803
                                                                    Cell: 072 622 0036
                                                                    Fax: 086 512 7695

                                                                    Loftus Offus
                                                                    Kirkness str 427

ammunition; and certain investments. In each case the appropriate act of
parliament determines who is allowed to own these items. If you want a trust to
own your CC, you are going to have to convert it to a (Pty) Ltd and then move the
shares into the trust (A trust can own shares of a (Pty) Ltd – it’s only the CC
which is a challenge).

(Pty) Ltd                    CC                           Trust
Managing director            Managing Member              Managing Trustee
Director                     Member                       Trustee
Shareholder                  Member                       Beneficiary
Founding shareholder         Founding member              Founder/Donor

To get your assets into your trust – simply sell them to the trust. This is not a
normal physical sale, but rather a book entry sale. If it is not recorded as a sale,
then it will be deemed to be a donation. This can be problematic, since any
donation over R100,000 per year will be subject to donations tax of 20%.

When the assets are sold to the trust, the trust does not pay you for those assets.
Rather the trust opens a loan account and “owes” you the money. But ownership
is immediately transferred to the trust, via a book entry. This is very similar to
you lending money to your business. A loan account is created in your CC / (Pty)
Ltd and it now owes you for that loan.

                                                                     Tel: 086 111 3803
                                                                     Cell: 072 622 0036
                                                                     Fax: 086 512 7695

                                                                     Loftus Offus
                                                                     Kirkness str 427

This loan account that you now have in the trust is an interest free loan. It’s
critical that the trust not be seen to earn an income – otherwise you can hurt the
ability of the trust to protect your assets, and you will increase you own tax

Remember that the assets sold into the trust at the lowest possible armslength
values, because you want that loan account kept low. Although the loan account
is attachable by creditors, you have achieved 3 things:
   •   You protect the normal value, not the auction value;
   •   You protect the value of the assets to you; and
   •   You protect the growth value of assets.
But since the introduction of capital gains tax a balance in respect of the values
of these assets must be made.

You will now treat your personal life almost like a business. If you are going to
buy a TV or wall unit from Joshua Doore, you will tell them to invoice the trust.
Give them a trust cheque and that wall unit or TV is now owned by your trust. It
is now protected, because it was bought through the trust.

The trick now is to reduce the value of the loan account as fast as possible. The
ideal is to have a low loan account should any creditor try and investigates you
(in fact the real ideal is not to ever be investigated, but often that is out of our

                                                                    Tel: 086 111 3803
                                                                    Cell: 072 622 0036
                                                                    Fax: 086 512 7695

                                                                    Loftus Offus
                                                                    Kirkness str 427

Husband and wife can donate R100,000.00 each per year tax free. In the past
there was no physical donation you had to make to the trust. It was simple a
reduction of the loan account. For example, if your loan account is sitting at
R500,000.00 today, if you and your wife donate R100,00.00 each it will then be
reduced to R300,000.00. Next year after your donations your loan account will
reduce to R100,000.00, etc. The Capital Gains Tax issues require that there be
a genuine donation each year – which can be done in cash, with the cash being
withdrawn later. Otherwise the donation will attract capital gains tax. The net
effect is that the loan account is still reduced by the amount of your donation.

However, if you are going to rely solely on donations, your loan account is only
going to reduce slowly. Another form of reducing your loan account is via
rentals. The assets in your trust will then be rented to yourself and your family at
the depreciation cost as well as the upkeep costs of the assets. If the rentals
always equal the depreciation cost of the assets = nil income taxes. That rental
is not a rental that you physically pay the trust. Since you now “owe” the trust
rental, while the trust still “owes” you the original loan, you can simply set off the
2 debts – the net effect being to reduce your loan account. This can reduce your
loan account much more quickly. However if your trust is seen to be trading then
you can no longer have an interest free loan account. Interest will have to be
charged on the loan account causing the loan account to be increased and thus
increasing your personal tax liability, as this interest is a further income in your
hands. So before any rental is utilized investigations must be made to ensure

                                                                     Tel: 086 111 3803
                                                                     Cell: 072 622 0036
                                                                     Fax: 086 512 7695

                                                                     Loftus Offus

                                                                     Kirkness str 427

that the rental exceeds the interest being charged on the loan account that you
may have on the trust – so that the net effect is that the loan account is being
reduced and not being increased. Most of the time the rental mechanism to
reduce your loan account against your trust is no longer utilized.

The final way to reduce your loan account is via borrowings. Investments will
be in your trust such as shares, and endowments and unit trusts etc. When you
need money to spend on yourself and your family (education, holidays, and
groceries, etc) you simply recall your loan account – take the monies out of your
trust and spend it on yourself. In other words you will be reducing your loan
account by the amount of monies that you take out of the trust and spend on
yourself. If your trust owns your business all future profits will flow directly into
the trust without increasing your loan account. Whatever you spend of those
profits reduces your loan account.

The goal is have a low account, and you achieve this via regular, frequent
donations, rentals and borrowings. When to start? As soon as possible.
Because the sooner you start, the quicker you protect your assets.

If it was so simple to just give away your assets, then there wouldn’t be a
problem. You could relax and do nothing until the first sign of trouble, and then
simply give all stuff to the trust. Even the government knows this, so they have
added a small complication. And it really is a small one.

                                                                   Tel: 086 111 3803
                                                                   Cell: 072 622 0036
                                                                   Fax: 086 512 7695

                                                                   Loftus Offus
                                                                   Kirkness str 427

The law says simply that you must plan ahead a little, and allow some time to
elapse between your transferring of your assets and the arrival of your
challenges. If you can see the writing on the wall, it is usually too late!

If you transfer an asset to your trust then:
    •   The asset remains at risk for 6 months – no matter what.
    •   The asset remains at risk for a total of 24 months if you were insolvent at
        the time of the transfer.

You are solvent if the value of your assets is greater than the value of you
liabilities. Most people are solvent (even though their CC or (Pty) Ltd might not
be – the debts of the business will not be taken into account to calculate personal
solvency). The value of any sureties signed is not calculated either (unless the
bank had sued you already).

Again – when do you form your trust? As soon as possible, so if anything does
go wrong in the future, the window periods will have passed and the assets
cannot be reversed out of the trust. Certain assets are registered in your name
– properties, motor cars, investments, and policies. This complicates issues a
tiny bit.

Listed shares and Unit Trusts. Assuming your own shares – the cost of
registering those shares in the trust name can attract significant revenue stamp
duty. However, you can elect to hold assets in your own name as a nominee – in

                                                                   Tel: 086 111 3803
                                                                   Cell: 072 622 0036
                                                                   Fax: 086 512 7695

                                                                   Loftus Offus
                                                                   Kirkness str 427

other words you hold it for and on behalf of the trust – as long as it is recorded
that those shares are owned by the trust in the books of the trust. (A lot of those
shares are being held by brokers in their names for and on behalf of you). All
you have to do is advice your broker that he is now holding those shares for and
on behalf of the trust. Future share purchases will be made directly in the name
of the trust. For unit trust purchases ensure that the debt order goes through the
Trust account. Having said that, please check the capital gains tax implications
before signing anything!

Life assurance policies. If you are not married, simply cede the policy to the
trust (Complete the life company’s cession forms, nominating the trust as the
new owner [cessionary]). If you are married, then cede it to your spouse (this
reduces estate duties). To avoid capital gains tax, reduce the cash values to nil
before ceding the policy – which also means that there is no increase in the loan
account. Capital gains tax is an issue in ceding life policies, so it will pay you to
have the figures worked by your accountant first. In fact, it will probably pay you
to take out completely new policies (owned by the trust from the outset) rather
than ceding existing policies because there are no capital gains tax implications.

Motor cars. You will probably only move it into your trust once it has been fully
paid – as it doesn’t really belong to you until then (as long as you still owe money
on it, nobody can take it away from you). Then you can pass it through a
roadworthy, register it in the name of your trust and record the transaction in the
books of the trust. OR you can elect to remain the registered owner (as far as

                                                                     Tel: 086 111 3803
                                                                     Cell: 072 622 0036
                                                                     Fax: 086 512 7695

                                                                     Loftus Offus

                                                                     Kirkness str 427

the road authorities are concerned) and merely record ownership in the books of
the trust, thus holding the vehicle as nominee. The first method is simpler to
prove if you are ever investigated.

Home. The law says that if you want a house to be owned by a person, you
must get it registered in the name of that person. To get it registered in the name
of that person, you have to pay transfer fees and transfer costs to get into that
person’s name. To get any property transfer to a trust, it is 8% of the market
value of the property. However, if you want it to be protected, you have to incur
that kind of transfer cost and then again record it in the books of the trust. If you
transfer to the trust and there is a bond on the property, you have to cancel the
bond and re-register the bond in the name of the trust and again there is a further
cost for that.

If you are not willing to incur any cost to get the property into your trust, all that
you have to do is make sure that your property always has a realistic high bond.
As long as the property is fully bonded no one is going to try to take it away
because if they try to attach it and try to auction it, they have to settle the bank
first and there will be nothing left for the creditors.

Should you insist on bringing your home (residential property) under the
protection of your trust might we suggest that you register it rather in the name of
the trust. Firstly, if your property is registered in a PTY or CC you will pay capital
gains tax at a flat 14% on sale. Secondly, there is an additional dividend tax of

                                                                    Tel: 086 111 3803
                                                                    Cell: 072 622 0036
                                                                    Fax: 086 512 7695

                                                                    Loftus Offus
                                                                    Kirkness str 427

10% on any proceeds. Thirdly, companies are more expensive to administer.
This makes a property trust the preferred vehicle at this time.

The reason for a separate trust, which we prefer terming a property trust, is to
limit STC, and the conduit principle allows you to reduce capital gains tax to a
maximum of 10% (depending on the tax rates of the beneficiaries). We prefer a
separate trust (rather than the family trust) for 2 main reasons. Firstly, it means
that you don’t “trade” the family trust – with all the negative interest implications.
Secondly, it keeps all debts out of the family trust which means that you life
assets are never encumbered.

Commercial properties, however, are handled and taxed differently. If these are
owned by a PTY, simply transfer the shares into a trust. If the properties are in a
CC, convert the CC into a PTY, and transfer the shareholding to a trust. Don’t
forget to consider the capital gains tax implications.

A usufruct is a right that is registered against your property in favour of
somebody who has then the right to use the property and reap all the benefits of
that property.

A property is divided into what we call the bare dominium and then this usufruct
which is the use. If you register a usufruct in a property in favour of somebody,
because of that right against the property, the value of the property is reduced.
How much it is reduced is based on the age of that person and the value of the

                                                                  Tel: 086 111 3803
                                                                  Cell: 072 622 0036
                                                                  Fax: 086 512 7695

                                                                  Loftus Offus
                                                                  Kirkness str 427

property, which for our purpose if we are going to into the valuating of usufructs,
it is going to confuse you entirely. That is up to the transferring attorney, which
are called conveyances, and they will do the necessary in registering the usufruct
and calculating that usufruct value.

The bottom line is that a usufruct has a value. So you will take the value of the
property less the value of that usufruct and the nett result which will be a much
lower value – which is what you will pay 8% transfer duty on when you transfer
the property in your trust.

The downside of usufruct – despite the minimization of transfer duties – is the
capital gains tax implication on resale of the property. When you next sell the
property the saving in transfer duties must then be paid – which means that the
usufruct transfer is almost a delayed payment of full transfer duties. Thus this
mechanism is only to be utilized in respect of property you intend keeping for a
very long time.

Income tax benefits.

Trusts used to be taxed like individuals, then between 1998 and 2002, they were
taxed on a two-tier tax system: 32% up to R100,000.00 taxable income per year
and 42% on taxable income exceeding R100,000.00 per year. As of the 2002
budget, there is a flat rate of 40% on all income.

                                                                   Tel: 086 111 3803
                                                                   Cell: 072 622 0036
                                                                   Fax: 086 512 7695

                                                                   Loftus Offus
                                                                   Kirkness str 427

Trusts created for mentally disabled or physically disabled people who are
unable to earn sufficient income are treated differently. Since the main reason
for a business owner to form a trust is asset protection, chances are that the
income accruing to your trust will be similar to the individual tax rates.

Prior to the 1998 budget, there was numerous income tax benefits in using a
Trust and people registered trusts as the employees of a business and got away
with murder! The only real benefit available now is the splitting of investment
income. At the moment all your investment income is now being added onto you
tax return together with your salary. This typically pushes you into a higher tax
bracket. If your investments (and all your other assets which are capable
generating an income) are owned by your trust, the trust now pays its own taxes.
The split in the income may reduce the overall tax liability to yourself, despite the
higher tax rate in your trust. But it has to be carefully applied because of the
interest on your loan account. If however you are utilizing your trust for asset
protection your trust will not be deriving an income any way and thus taken taxes
on your asset holding trust is not an issue. The conduit principle ensures that
any income derived through the trust is taxed in the hands of the beneficiaries at
their personal marginal tax rate. This means you will never be worse off from an
income tax perspective.

Capital gains tax
The CGT rate for a trust is a flat 20%. However, in terms of the conduit principle
of a trust, transfer the CGT gain into the hands of the beneficiaries at their own

                                                                   Tel: 086 111 3803
                                                                   Cell: 072 622 0036
                                                                   Fax: 086 512 7695

                                                                   Loftus Offus
                                                                   Kirkness str 427

individual tax rates. This places you in a better position than any other vehicle –
at least for CGT purposes.

Your primary residence gets handled differently. If it is in your own name, the
first R1.5 million of gain is exempt. However, this benefit is nullified by the estate
duty implications. You need to make a decision about how important protection
is for your own circumstances. [The reality is that you might sell before you die,
but you will definitely die – and probably holding a property]

To repeat, because this is a critical principle – Capital Gains Tax does not have
to be declared within the trust, but can be shifted against a beneficiary who will
then pay CGT according to his/her income tax rate. This CGT can be spread
amongst the various beneficiaries to reduce it even further.

Estate duty is a death tax, which is levied on the deceased estate of all South
Africans who is ordinary residents in South Africa.

Estate duty is a deeply complex issue which can be simplified enormously by
using a trust. If you have set up a trust, then you should have almost no estate
duty. Because the trust does not die. The only issue that would have to
calculate on your death is the size of your loan account – that is how much the
trust owes you.

                                                                   Tel: 086 111 3803
                                                                   Cell: 072 622 0036
                                                                   Fax: 086 512 7695

                                                                   Loftus Offus
                                                                   Kirkness str 427

Another death benefit is that everyone’s concern is that when they die, the estate
is frozen, the bank accounts are frozen and then their dependents have no rights
and have no access to those funds and assets. If you have a business it can
take as long as 2 years to wind up the estate. This can cause serious hardship
to your family. However, if you have a trust, the accounts of the trust and assets
in the trust are not frozen and obviously everyone has got access from day one.

Minor children can’t inherit in our law. So, if you don’t have a will with a
proper testamentary trust, that inheritance will not go to your children, but will go
to the Government for safekeeping until your children reached the age of 18 (and
they sell all assets, because they can’t hold assets – they can only hold cash).
All your assets are liquidated by auction and the proceeds go into the Guardians
Fund where it earns approximately 5% interest a year. (And your children have
no access [or even limited access] to the funds).

If you have a trust, the trust deed defines how and where the assets can be used
for the benefit of your heirs, preventing them from squandering and losing them.
Consequently, all assets are safeguarded for the spouse and the children and no
one outside that unit can ever affect and attached those assets. A trust also
ensure that no CGT is payable as there is no transfer of assets on death.

The trust is a body, a legal entity, something of some form (like a CC or a (Pty)
Ltd) which is created by means of a legal agreement, called a Trust Deed, by a
person called the Founder (donor), who appoints people called Trustees, to

                                                                      Tel: 086 111 3803
                                                                      Cell: 072 622 0036
                                                                      Fax: 086 512 7695

                                                                      Loftus Offus

                                                                      Kirkness str 427

administer the trust assets for the sole benefit and purpose of people nominated
in the Trust Deed called the beneficiaries.

The founder can be one of the Trustees and can be one of the beneficiaries.
However, you should never be the sole Trustee and sole beneficiary of the trust.
If so you will lose the benefits that a Trust is trying to offer, including the
protection of those assets against yourself.

Should you be the founder of your trust? It makes no difference, providing you
are forming a trust for protection and death benefits reasons [which should
always be the reason that you are forming it]. If you are forming it for the income
tax benefits that it allows, then you should not be the founder of your trust. In
99% of our trusts, the Founder will be you, so that we can make sure that you are
doing the trust for the right reasons and not the wrong.

Trustees. You should preferably have not less than 3 trustees. Most people
select their spouse as a trustee with them on their trust. The third trustee will
always be a total independent person and that person will not be a family
member nor very close friend, for the law requires and independent trustee in
order to get the benefits of the trust, including the protection. She/He will play a
advisory role whenever you need help in the buying and selling of assets and he
plays the arbitrator role in case the other trustees deadlock over an issue.

                                                                 Tel: 086 111 3803
                                                                 Cell: 072 622 0036
                                                                 Fax: 086 512 7695

                                                                 Loftus Offus
                                                                 Kirkness str 427

Your beneficiaries are you and your heirs. If you are married with children, it is
clearly you, your spouse and your children. If you are married without children, it
is you, your spouse and whoever would be you and your spouse’s alternate heirs
when the tow of you eventually die – like parents, brothers and sisters, nephews
and nieces, charitable organizations, etc. If you are unmarried, beneficiaries like
parents, brothers, sisters, nephews and nieces, are usually the beneficiaries that
bachelors and spinsters nominate on their trust. Again, it is based on your
personal circumstances and deciding who would be your choice to be your

In law, the Master of the High Court who registers you trust may be compared to
the Company’s office who registers CC and Pty (Ltd)’s. He is there, if anyone
reports a trust for any fraud, or misdemeanours of any nature whatsoever, to ask
your accountant and the trustees to find out exactly what is going on and if need
be, he can step into the shoes of those trustees to make sure that it is run
And then you want to use an accountant to draw up annual accounts. These
simple bits of paper are what will protect your assets when you are investegated.
A trust does not have to undergo an annual audit (unless the trust deed says it
must). That makes it an inexpensive entity to operate. An accountant is really
the key in making sure that your trust does own your assets, because everything
depends on those book entries.

                                                                 Tel: 086 111 3803
                                                                 Cell: 072 622 0036
                                                                 Fax: 086 512 7695

                                                                 Loftus Offus

                                                                 Kirkness str 427

A trust cannot own a CC, but can hold the shares in a (Pty) Ltd. This allows a
number of benefits.

Assume that you own tow businesses and one goes under. If the creditors
attach you personally, the other [good] company is now at risk because it is also
in your name. By having your companies in trust, it compartmentalizes your
business investments from each other.

As company ownership is an asset, it is at risk from any individual owner
personal problems – marital problems, personal financial disaster. Ownership
vested in a trust compartmentalizes access to the shares.

With the shares in a trust, growth in your business asset does not attract estate
duties, and nor does it attract Capital Gains Tax. Any profits and dividends can
flow directly into the trust, without having to use loan accounts and other
mechanisms. Further more whatever you spend of these profits reduces the loan
account that you may have against your trust. The window periods also do not
apply in respect of the future assets that you have bought with these profits
because it has gone straight to the trust and not through your hands and then
sold to the trust.

CC’s are created by means of filling in the simple blue forms called CK1 forms,
which are filled and registered with the Company’s office. A (Pty) Ltd however is
much more formal and the company documents are quite voluminous and have

                                                                     Tel: 086 111 3803
                                                                     Cell: 072 622 0036
                                                                     Fax: 086 512 7695

                                                                     Loftus Offus

                                                                     Kirkness str 427

to be notarized by a notary, which is a special type of attorney and actual shares
have to be issued.

In the past, CC’s had a few tax advantages over (Pty) Ltd’s. Nowadays they are
similarly taxed, with the advantages of using the CC being lower structural costs,
and lower audit fees. A (Pty) Ltd must be audited each year, and it’s start-up
cost is higher.

The winding up of a CC happens in the Magistrates Court, and is relatively
inexpensive and simple. To wind up a (Pty) Ltd is a Supreme Court matter, and
consequently much harder and more expensive.

There are many benefits from using a (pty) ltd. The directors will have more
protection over their personal estates (The Close Company Act allows anyone to
sue a CC member while these options are not available in the Companies Act).
No director of a (Pty) Ltd can represent the firm without the knowledge or
consent of the directors – which can happen in a CC. Each member is then
jointly and severally liable for that debt.

Although there is always a risk of being sued – whether a cc member or a (pty)
ltd director – there is greater risk of personal liability in a CC versus a (Pty) Ltd.

The ideal way to get your business into a Trust is to set up a completely new Pty
owned by your Trust. Then to wind down the trading of the old CC or Pty [the

                                                                  Tel: 086 111 3803
                                                                  Cell: 072 622 0036
                                                                  Fax: 086 512 7695

                                                                  Loftus Offus
                                                                  Kirkness str 427

one you personally own], and wind up the trading in the new trust-owned Pty.
This avoids attracting CGT on the sale and revenue stamps – and more
important there is no loan account in your trust for selling the shares into the

This allows you to wipe the slate clean. Everything that you have done in the
past via the CC will then remain in that CC (without the rest of the business).
You are starting afresh. The sale must be done correctly, the agreement must
be done correctly, it must provide for what we call zero rate provisions so there
are no VAT or tax implications and obviously the sale is advertised in the
Government Gazette and the local newspaper, where your business is located.

The end result is that the CC sells its business to the new (Pty) Ltd, which will be
owned by the Trust or Trusts, depending on whether you have more than one
shareholder, and a loan account is then created in the books of the (Pty) Ltd,
showing that it owes the CC a certain amount of monies for that business.

Since January 2003, however, the deregistration or liquidation of a CC or (Pty)
Ltd means that the assets within the entity attract STC [Secondary Tax on
Companies] at a 2008 rate of 10%. This means that any loan account will also
attract this same tax. This leaves 2 options. Either convert from the CC to the
(Pty) Ltd, or if forming a new company do not sell the old one – simply wind it
down. This results in 2 benefits – no loan account against the trust while still
wiping the slate clean.

                                                                   Tel: 086 111 3803
                                                                   Cell: 072 622 0036
                                                                   Fax: 086 512 7695

                                                                   Loftus Offus

                                                                   Kirkness str 427

As individuals, our economic role is simply to gain wealth. Yet often our business
militates directly against that dream. As the business grows (which should
enhance our wealth) the risks increase (which means higher stress). So the
ideal personal structure should make use of every weapon in the legal arsenal.

Step 1.      Place personal, life assets into a family trust.
Step 2.      Place the shares of your trading company into a second trust which
             we prefer calling a share trust. Reasons for the share trust include
             sureties signed by the shareholders, fights among partners,
             spouses being part of the business and where the owners are
             investegated when a company folds.
Step 3.      Hold business assets in a separate vehicle. The trading business
             will hold all the liabilities and current assets (stock, debtors), but
             any more permanent assets should be held elsewhere. This
             ensures that your trading firm remains lean an unattractive to
             potential antagonists. Typically this vehicle might be registered for
             VAT – something you wouldn’t want to do for your family trust.
             Watch for recoupment tax when transferring assets out of the
             company to this business asset trust. If recoupment tax is an issue
             there is a way of overcoming that problem by using the existing
             company owns the assets alone and trading the business under a
             separate company, thereby separating the assets of the business
             from the new trading company. The shares of the trading company

                                                                     Tel: 086 111 3803
                                                                     Cell: 072 622 0036
                                                                     Fax: 086 512 7695

                                                                     Loftus Offus

                                                                     Kirkness str 427

              will be held by the share trust and the shares of the asset holding
              company can be held either by the family trust or by the business
              asset trust. This transaction must be handled by a professional
              trust expert. But the end result – whether through a business asset
              trust or assets staying behind in the old company and trading the
              business in the new company – is that the business assets are

(In our opinion it is illegal, because it is not in the best behalf of the beneficiaries)

Peter Carruthers said “I cannot conceive of a business owner not having a safe
place for life assets. While a trust is not perfect, it’s the best thing available.”

A Trust is really the only legal and flexible and easy way of protecting your assets
and it has a number of other benefits, such as death benefits, the income tax
benefits that it provides. It is the basis for having the ideal structure for yourself
and that of your business.

Knowing your assets are untouchable allows you the freedom to get on with your
business, without losing sleep worrying about losing everything.

                                                                    Tel: 086 111 3803
                                                                    Cell: 072 622 0036
                                                                    Fax: 086 512 7695

                                                                    Loftus Offus
                                                                    Kirkness str 427


Your family is relying on you to protect their future. All it takes is one small,
misplaced signature – and your financial future can be wiped out. But your trust
will save you.


Shared By: