Page 27 - Nexia SAB&T Estate Planning Guide 2024

n The growth in the assets from the date of transfer to date of his death
accrues to the trust, and at most, only the value of the asset at the date of
the transfer (usually in the form of a loan account) is retained in his estate.
n The loan account is usually gradually reduced during the estate planner’s
lifetime by loan repayments, further reducing estate duty liability. The loan
repayments may take the form of a tax free donation of up to R100,000 per
annum to the trust by the estate planner. Interest-free or low interest loans to
trusts may have certain donation tax consequences, and the estate planner
needs to bear in mind Section 7C of the Income Tax Act (no.58 of 1962),
which is explained in more detail in the paragraph E below.
n Actual cash must exchange hands, as a writing off of a loan constitutes a
capital gains tax event whereupon capital gains tax is payable.
n Any growth in the asset(s) will take place in the trust and not in the estate
planner’s hands. The increase in value will not be included in the estate
planner’s estate and the value of his estate (and therefore estate duty) is
reduced accordingly.
n In this way, estate duty may be by-passed for one or more generations.
n These benefits are only applicable to a discretionary inter vivos trust and not
vested or bewind trusts.
n The estate planner needs to bear in mind:
u Section 3(3)(d) of the Estate duty Act
u Incidental costs involved with transferring an asset to a trust – such as
transfer duty and conveyancing fees (with immovable property), and
Securities Transfer (when transferring securities or shares)
u Capital gains tax considerations
u The mechanism used to transfer the asset(s) to the trust will have an
impact on the estate planner’s plan:
By donation:
u The estate planner will pay donations tax on the value of the assets
donated to the trust. The first R100,000 per annum per natural person is
exempt from donations tax.
By sale:
u Assets can be sold to the trust at fair market value against a loan
account. The sale must be at fair market value, otherwise the estate

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