Trust me, it's not part of the pie anymore...

In a recent Supreme Court of Appeal judgment in WT v KT, the Supreme Court of Appeal ruled that trust assets do not form part of a joint estate.

In this particular case, WT and KT were married in community of property. WT instituted divorce proceedings against KT. The question was whether assets of a family trust created before they got married could be regarded as part of the joint estate. The Supreme Court of Appeal overruled the previous court order and found that there was no basis for the finding of the high court that the trust had formed part of the joint estate, and set it aside on appeal.
These matters are however considered on a case by case basis.

Trusts and estates

The attribution of income and capital gains that are realised in the trust to the lender or donor will no longer be possible. The trust will be taxed as a separate taxpayer. The vesting of income and capital gains that are realised in the trust to the beneficiaries to be taxed in their hands will no longer apply.

It would appear that if a beneficiary receives a distribution from the trust, the beneficiary will be taxed on the receipt as ordinary revenue. This would mean that the beneficiary can no longer deduct individual annual allowances on interest and capital gains as the income and capital gains do not retain their identity but are treated as ordinary revenue.

Reaching consensus

In terms of our law a person is generally not permitted to regulate his/her estate by means of a contract. Such an arrangement would be regarded as against good morals and invalid except for a donation in contemplation of the death of the donor; and in an ante nuptial contract.

Whether an agreement is an invalid pactum successorium or a binding contract will depend on the terms of the agreement. As is the case with all contracts, it requires parties to be in agreement. Provided that there are no statutory prohibitions, a contract is complete as soon as the parties reach consensus.

When referring to buy-and-sell agreements, it refers to provisions contained in shareholder and association agreements, whereby the parties regulate the disposal of their shares and will normally be backed by a buy and sell policy, which will mean that the proceeds of the policy will be used to buy out the deceased partner’s interest in the business.

Davis Tax Commission

It must be noted that South Africa’s tax policy compares favourably with many developed and emerging markets. Given the pace of globalisation, the low economic growth and increasing social challenges, such as high unemployment, there is a real need to address these challenges, thus the establishment of the Davis Committee in 2013. In line with priorities at the moment, there is an urgent need to address these concerns and requires all parties involved to commit themselves fully to the process.

Digital estate planning

Digital estate planning can help your client by locating and accessing all online accounts; determining the financial value and whether it needs to be reported; and easily distributing digital assets while avoiding identity theft.

Role of the adviser

An adviser can help clients to organise their digital property and assets by having them read up on digital asset policies; suggesting that they invest in an online backup for their computer; researching companies that are active in their area; and advising them to use a digital vault or portal that can be accessed by their spouse in the event of an emergency.

Advisers should also nurture relationships with clients in order to strengthen bonds and go beyond just the financials.