2013 is well under way and February is already upon us. February is an important month for Trustees and those who have used a Trust in their Estate Planning. This is because February is the month to consider donations and distributions; donations to the Trust and distributions from the Trust.
Donations to a trust
The annual donations tax exemption, that is the amount each person can donate without having to pay donations tax is currently R100 000.00. High net worth individuals should consider donating R100 000 per annum (or R200 000 per couple) to someone other than their spouse, for example their children, grandchildren or possibly a trust. Donations to a Trust would have the following benefits:
· the asset value of the Trust would be increased by R100 000.00;
· the asset value of your own Estate would be reduced by R100 000; and/or
· if you have a loan account in the Trust, the Trustees can use the donation to repay R100 000.00 of your loan account and reduce your loan by that amount.
· the donation must be an actual donation of cash or assets and not simply an accounting entry as this is not accepted by SARS;
· any repayment of your loan account by the Trustees must also be made in cash;
· any person can make the donation so if both of you and your spouse make a donation the annual amount the Trust’s assets would be increased by (and yours would be reduced by) is R200 000.00. Using the annual donations tax exemption in this way would increase the Trust’s assets by R1 million over a five year period.
In each financial year of a Trust, the Trustees must decide whether they will retain or distribute the Trust’s income, whether in whole or in part and, if it is to be distributed, to which beneficiaries the distribution will be made. This decision must be made before the end of the Trust’s financial year (usually the end of February in each year) and minuted in the Trust’s minute book.
· as the amount of income for the year may not have been finalised before the decision is made, it is currently acceptable for the Trustees to make a general decision in this regard, for example, that all dividend income will be retained in the Trust and all interest or rental income distributed to certain beneficiaries;
· ensure the beneficiaries who are to receive or be credited with the income are entitled in the terms of the Trust Deed to receive income from the Trust;
· consider the implications of any distribution on the beneficiaries own tax affairs as the distribution may have to be included in the calculations for the beneficiaries February Provisional Tax returns.
Should you have any queries or require additional information please contact Lisa Hudson-Peacock on 021 701 1161.
Source: Legacy Fiduciary Services and Estate Planners SA (Pty) Ltd.