Page 1 of 2 12 LastLast
Results 1 to 10 of 19

Thread: Estate duty issue

  1. #1
    Silver Member
    Join Date
    Aug 2014
    Location
    Johannesburg
    Posts
    310
    Thanks
    26
    Thanked 17 Times in 15 Posts

    Estate duty issue

    Hi all,

    I have a company that I founded.

    I borrowed a large some of money (R4mil+) from my mother to buy 5 rental properties cash. My mother now holds an asset against the company, and the company has a liability loan account against my mother.

    No formal agreement on the loan account has been set up but we have been paying our mother interest on her loan up to this point, no capital has been paid back yet.

    The shareholding of the company is split 15% me, and 85% into a inter vivos trust whereby my mother is the donor and my brother and I are trustees.

    I am the sole director of the company.

    What happens to the loan when my mother dies with regards to estate duty?

    I believe estate duty is calculated on 20% of any amounts over R3.5mil. Since the loan account is way more than 3.4mil we expect the estate duty to be quite sizable.

    The advise we have received is that upon my mothers deat the loan account bequeaths back to the company and an estate duty will be due that the company will have to pay. Once the company pays the estate duty the loan is closed and all money is capitalised back to the company.

    So if she dies tomorrow we will have to pony up some serious cash to SARS in order to settle the estate duty.

    Is this correct?

  2. #2
    Diamond Member HR Solutions's Avatar
    Join Date
    Mar 2013
    Location
    Capetown/Jhb
    Posts
    3,327
    Thanks
    113
    Thanked 214 Times in 202 Posts
    Interesting question this as I also have properties in a Trust, so will wait for answers.
    HR Solutions - Recruitment Specialists - Johannesburg & Capetown Tel: 0861-045-263
    Upload your CV @ www.2hrs.co.za

    Biometric Fingerprint Criminal Checks (AFIS)

  3. #3
    Silver Member
    Join Date
    Aug 2014
    Location
    Johannesburg
    Posts
    310
    Thanks
    26
    Thanked 17 Times in 15 Posts
    Just to clarify the properties were registered in the company, the trust holds 85% of the shares.

  4. #4
    Bronze Member
    Join Date
    Feb 2016
    Location
    Johannesburg
    Posts
    199
    Thanks
    17
    Thanked 41 Times in 35 Posts
    Hi Basement Dweller

    I'm not to sure about what you mean with this bit
    The advise we have received is that upon my mothers deat the loan account bequeaths back to the company and an estate duty will be due that the company will have to pay.
    however you should really have the loan committed to a written agreement and the agreement must plan for the likelihood that when your Mom passes away, there might well be a significant amount still owed. As matters stand (unless there are factors not mentioned) if your Mom were to pass away, the loan would most likely be called up by the executor. Potentially that is a far bigger problem than the duty, which in any event is to be paid by the estate, not the heirs.

    Who are the beneficiaries of the trust, by the way?

  5. #5
    Diamond Member HR Solutions's Avatar
    Join Date
    Mar 2013
    Location
    Capetown/Jhb
    Posts
    3,327
    Thanks
    113
    Thanked 214 Times in 202 Posts
    So in other words your mother is a donor to the company/trust ?
    It should be laid down on a resolution what will happen in the case of death.
    HR Solutions - Recruitment Specialists - Johannesburg & Capetown Tel: 0861-045-263
    Upload your CV @ www.2hrs.co.za

    Biometric Fingerprint Criminal Checks (AFIS)

  6. #6
    Site Caretaker Dave A's Avatar
    Join Date
    May 2006
    Location
    Durban, South Africa
    Posts
    20,977
    Thanks
    3,055
    Thanked 2,462 Times in 2,067 Posts
    Blog Entries
    12
    Quote Originally Posted by Basment Dweller View Post
    The advise we have received is that upon my mothers deat the loan account bequeaths back to the company and an estate duty will be due that the company will have to pay.
    It sounds a bit like you've been listening to the TREOC way - I have seen advices issued that present this way. However -

    I don't believe this bequeathing is automatic. The idea must surely be that your mother would bequeath the asset (the unpaid portion of the loan) to the trust (or the company???) in her will.

    The challenge is the estate duty would have to be paid out from the estate. Where would this cash come from?
    The trouble with opportunity is it normally comes dressed up as work.

  7. #7
    Silver Member
    Join Date
    Aug 2014
    Location
    Johannesburg
    Posts
    310
    Thanks
    26
    Thanked 17 Times in 15 Posts
    Thanks for the input all, I'll try respond to everyones comments in one go:

    - We consulted with a CFP, estate planning and trust specialist from Citadel Wealth Management, supposedly one of the biggest players in the wealth advisory industry. We paid a premium for him to set up the trust and the will for our mother. If he's not the right guy for this job then I don't know who is (definitely not those hobos from TREOC).

    - Our mother funded the company on a loan to the company. She is now a creditor of the company.

    - The beneficiaries of the trust are my brother and I

    - I am the executor of my mother's estate

    - The advise we got from the Citadel guy was that when she dies, her will will instruct the executor to bequeath (give back) the loan back to the company and any remaining assets bequethed to the trust, the company will no longer owe money to my mother's estate but will be liable for the estate duty i.e. 20% of any amount over 3.5mill.

    - We were advised to spend the next few years either paying off the loan account or saving up the money for the estate duty.

    - The company is currently a going concern and is in a good position to raise the funds required but if she dies tomorrow we might have an issue coming up with the money in order to wind up her estate.

    - No loan account agreement has been reached yet, but we have already started paying it back to our mother, but no terms have been set

    - The company has not declared a dividend yet, and will most likely never declare one until the loan account has been significantly reduced.

    Funny enough I've been getting all kinds of conflicting advise from various professionals on this matter, i.e. CFP's, lawyers and accountants...and I'm not talking about around braai discussions, I'm talking about paid sit down advise from advisory professionals.

  8. #8
    Silver Member
    Join Date
    Aug 2014
    Location
    Johannesburg
    Posts
    310
    Thanks
    26
    Thanked 17 Times in 15 Posts
    Here is the exact clause in our mother's will regarding the instruction on the loan account:

    4.7.1 I specifically bequeath my credit loan account of Rxxxx in xxxx (Pty) Ltd, back to the company in terms of Section 12. A of the Eighth Schedule of the Income Tax Act. Should the loan have been reduced prior to my death, then the outstanding balance of the loan due to me is hereby bequeathed as above.

    4.7.2 The proviso to this bequest specifically, is that the directors of xxxx (Pty) Ltd, immediately assume all responsibility for meeting my deceased estates liquidity and taxation obligations, from trust unds, and settle these obligations on my behalf. This has already been agreed to prior to my death.

  9. #9
    Diamond Member HR Solutions's Avatar
    Join Date
    Mar 2013
    Location
    Capetown/Jhb
    Posts
    3,327
    Thanks
    113
    Thanked 214 Times in 202 Posts
    Just a question ...
    Who are the Trustees ?
    If your mother was a Trustee and yourselves (not only beneficiary) and the company is owned by the Trust , then surely this will uncomplicated things with loans if she had to die and estate wind up problems ? The Trust would not have to be wound up - it stays as the entity ?
    HR Solutions - Recruitment Specialists - Johannesburg & Capetown Tel: 0861-045-263
    Upload your CV @ www.2hrs.co.za

    Biometric Fingerprint Criminal Checks (AFIS)

  10. #10
    Silver Member
    Join Date
    Aug 2014
    Location
    Johannesburg
    Posts
    310
    Thanks
    26
    Thanked 17 Times in 15 Posts
    Mother is the trust donor, trustees/beneficiaries are my brother and I. Our mother can't be a donor and trustee at the same time.

    Its not the trust that will be wound up, its my mothers estate that will be wound up whereby her only significant asset is the loan account to the company.

Page 1 of 2 12 LastLast

Similar Threads

  1. injury on duty
    By acerb38 in forum Labour Relations and Legislation Forum
    Replies: 1
    Last Post: 04-Apr-14, 04:50 PM
  2. Injury on duty
    By acerb38 in forum Labour Relations and Legislation Forum
    Replies: 5
    Last Post: 28-Oct-13, 02:48 AM
  3. Injury on Duty
    By ZINNIE in forum Labour Relations and Legislation Forum
    Replies: 4
    Last Post: 25-Jul-12, 05:28 PM
  4. [Question] Injured on Duty
    By HRTEAM in forum Labour Relations and Legislation Forum
    Replies: 1
    Last Post: 09-May-12, 10:06 PM
  5. [Question] import duty
    By lark ireri in forum Tax Forum
    Replies: 8
    Last Post: 19-Jan-11, 07:41 PM

Did you like this article? Share it with your favourite social network.

Did you like this article? Share it with your favourite social network.

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •