The decision of an estate owner to employ a trust as an estate planning
instrument normally involves the disposal of all or part of his growth assets to
the trust. This is done to ensure that the value of such growth assets is
pegged down in his personal estate, whilst any growth in the assets occurs in
the trust. The objective is to minimise any estate duty that will be payable
after his death. The transfer of such assets and the concomitant negotiation
of the settlement of the purchase price are normally agreed to occur on loan
account which will be repayable on demand.
Subsequent to the disposal of the assets, it is a well established estate
planning technique for the estate owner to reduce the loan account by
annually waiving R30 000 of such loan in favour of the trust. This results in
reducing the debit loan (asset) in the hands of the estate owner and thereby
also improving his position from an estate duty point of view. The liability
(credit loan) of the trust is thereby annually reduced. Because an individual
can donate R30 000 annually free of donations tax, no additional donations
tax liability will be incurred when applying this technique.
Most estate owners that have applied the abovementioned technique, include
in their will a provision whereby they bequeath any outstanding loan from the
trust at the date of the testator's death, to the trust as a legatee.
On 1 October 2001 South Africa entered into a new tax dispensation with the
introduction of capital gains tax (CGT). Comprehensive legislation was
included in the Income Tax Act (8th schedule) to regulate this new form of
taxation. Paragraph 12(5) of the 8th schedule specifically stipulates that a
reduction or waiver of a loan/debt will attract CGT.
Therefore the above mentioned techniques of donating a portion, and
subsequently bequeathing the outstanding loan amount to a trust suddenly
became the target of SARS' close scrutiny from a CGT perspective. Hence, it
was no surprise that the first High Court decision on CGT had recently been
delivered in this regard.
The purpose of this dissertation is to investigate and scrutinise, not only the
decision in the abovementioned court case, but also the various opinions and
arguments raised on this topic. The submission is that the findings and
conclusions of such an investigation should enable those involved in estate
planning and the preparation of wills to be wary of the CGT risks attached to
the abovementioned techniques and to avoid the pitfalls. Certain
recommendations and conclusions to achieve the same estate planning
result, are proposed in this dissertation. Certain suggestions were also made
with regards to the wording of provisions to be included in a will in order to
bequeath a loan or debt to a trust without the risk of attracting unforeseen
CGT. / Thesis (LL.M. (Estate Law))--North-West University, Potchefstroom Campus, 2006.
| Identifer | oai:union.ndltd.org:NWUBOLOKA1/oai:dspace.nwu.ac.za:10394/908 |
| Date | January 2005 |
| Creators | Strydom, Marlize |
| Publisher | North-West University |
| Source Sets | North-West University |
| Detected Language | English |
| Type | Thesis |
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