Monthly Archives: August 2014

Slipper Day

Slipper Day at Newtons!

Advantages and disadvantages of trusts

1Trusts have various advantages, but unfortunately there are also disadvantages. Although this is not a complete synopsis of all the pros and cons, our experience may assist you in making decisions about Trusts.


  • Growth taking place in the Trust assets settles in the Trust and not in your personal estate.
  • By selling the assets to the Trust, the amount owed to you by the Trust will remain outstanding on the loan account and shall be regarded as an asset to your estate. This amount may be decreased for Estate duty purposes by utilising the annual Donations Tax exemption of R100 000.
  • A Trust offers protection against problems should you become mentally incompetent. This may also make the appointment of a curator to handle your financial affairs unnecessary.
  • A Trust remains confidential as opposed to documents like wills and records of deceased estates which are public documents and therefore open for inspection.
  • A Trust can offer financial protection to disabled dependents, extravagant children or beneficiaries with special needs.
  • A Trust can evade the administrative costs of consecutive estates by making provision for consecutive beneficiaries.
  • A Trust can lighten the emotional stress on your family when you die because the Trust will continue without any of the formalities that are required from a deceased estate.
  • By choosing your Trustees well you can ensure professional asset and investment management.
  • The Trust will enable you to have a degree of control over the assets in the Trust after your death, via the Trustees.
  • After your death and before the estate has been settled the Trust can provide a source of income for your dependent(s).
  • You will prevent your minor child’s inheritance from being transferred to the Guardian’s Fund.
  • You will avoid the problem of trying to distribute assets equally among the heirs.
  • Trust income can be divided among the beneficiaries with lower tax categories after the death of the initiator when individual exemptions may be utilised, but all taxable income kept in the Trust will be taxed at 40% without exemption benefits.
  • Levels of income may be varied according to the changing needs of the beneficiaries at the discretion of the Trustees.
  • Due to the assets remaining the property of the Trust and not the beneficiaries it need not be included in people’s estates as part of their assets when they die, which effects a saving in Estate duty.
  • The Trust assets will be protected from creditors for the same reason.


  • You don’t have full control of your assets, as the other Trustees also have a say in the matter.
  • A Trust is registered and the authorities can gain access to it.
  • You could possible choose the wrong Trustees. You could expect problems if the Trustees are vying heirs. This shows how important it is to have at least one independent Trustee.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

The impact of Capital Gains Tax at death

3Capital Gains Tax was implemented on 1 October 2001 but is still relatively new to many people, especially when it comes to estates and Estate duty.   

When a person dies, two tax entities come into existence for the purposes of Capital Gains Tax: the deceased and his/her estate.

Capital Gains Tax is levied on the value increase of an asset in the hands of the deceased, in other words the fair market value of the asset on the date of death, minus the cost at which the deceased had acquired the asset. When a person dies, it is regarded as alienation of all his/her assets on date of death, and the calculations are done as if the assets were sold by implication on the day preceding  death. All debarments to which the deceased would have been entitled during his lifetime are still available to the estate.

As in the case of Estate duty a bequest to the surviving spouse shall not be taken into account for the calculation of capital gain, as it is regarded as a so-called roll-over. The capital gain will then only be calculated in the estate of the surviving spouse. It is important, however, to take cognisance of the fact that the initial value at which the property was acquired shall, in such a case, be valid as base cost in the surviving spouse’s estate and not the value at which the roll-over took place in the deceased spouse’s estate.

In the case of primary property the estate will also qualify for the R2 million rebate applicable to primary property. The definition of a primary residence is a residence in which a natural person or a special trust holds an interest and in which the natural person or a beneficiary of the special trust or the spouse of the person or beneficiary is or was normally residing as his/her first residence and which he/she used mainly for domestic purposes.

Interest means among others the right of use or right of occupation. Consequently the right of existence in a retirement village does mean among others the right of occupation, therefore it will be subject to Capital Gains Tax yet qualify for the rebate applicable to primary property.

The estate also qualifies for an annual rebate of R300 000 in the year of death.

Deceased estates are subject to Capital Gains Tax. Upon death the property is valued against market value which is deemed to be the selling value of the property. With the implementation of Capital Gains Tax the Minister of Finance reduced the Estate duty rate from 25% to 20%, most probably to provide for the additional liability of Capital Gains Tax. Furthermore the rebate on Capital Gains Tax in the year of death amounts to R300 000 and not the usual R30 000 which is applicable to individuals.

The interaction between the CGT and Estate duty can be explained with the following examples:

Uncle Koos is a widower who dies without debt, but he owns a residence worth R1.8 million, a vehicle to the value of R160 000, furniture and household appliances which are worth R200 000 and a beach house to the value of R1.5 million, which he bought for R700 000. His Income tax rate in the year of death is 30%. The primary residence, the vehicle and the furniture and household appliances are exempt from Capital Gains Tax. The beach house, however, is subject to CGT which is calculated as follows:

Value at date of death: R1.5 million

Minus base cost: R700 000

= R800 000

Minus Capital Gains Tax rebate in year of death: R300 000

= Capital gain R500 000

Taxable portion (33,3%): R166 500

The amount of R166 500 is added to Uncle Koos’ normal taxable income and taxed at 30% (his Income tax rate). The tax on that is ±R50 000.

His estate’s Estate duty is calculated as follows:

Residenc: R1.8 million

Vehicle: R160 000

Furniture and household appliances: R200 000

Beach house: R1.5 million

Total assets: R3 660 000

Minus liabilities (Income tax): R50 000

Net value of estate: R3 610 000

Minus estate rebate: R3 500 000

= Taxable portion of estate: R110 000

His estate’s Estate duty at 20% on the taxable portion of the estate is R22 000. His estate thus pays a total of R72 000 to the Receiver of Revenue. It is clear that it is not tax upon tax (compound tax) as many people argue, but in fact two different types of tax.

It is therefore extremely important to plan your estate thoroughly to ensure that it doesn’t find itself in a dangerous position as far as owed Capital Gains Tax and Estate duty are concerned.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

Ten business etiquette tips

2No-one wants to work in an environment which is unpleasant, unproductive and ripe for litigation, which is exactly what you will get where employees are rude, careless and dismissive. Such behaviour will spill over to customers and will eventually lead to legal proceedings and loss of business. Proper business etiquette practices must start from the top, but every employee should contribute towards promoting these values.

1. Everyone Has a Role

Remember that all the employees in your company and their jobs are interconnected, and that what happens to one, affects the other. Don’t treat any employee in such a way that, when you need him tomorrow, he has become disloyal because of your treatment of him.

2. Make Meetings Useful

When you call a meeting, keep other employees’ schedules in mind, and come to the meeting prepared and organised, so as not to waste people’s time. Thank everyone for their contributions and attendance, and be sure to send out minutes of the meeting with action items. If these are not necessary, it means that the meeting was not supposed to be held in the first place.

3. Prompt Communication

If you receive a call or email from a client or employee, tend to the matter as soon as possible. Even if you cannot make work of it right away, let the person know that it might take some time, but that you are looking into the matter.

4. Use of email

The speed of sending emails can lead to careless, sloppy writing and unprofessional appearance. Use correct spelling, grammar and punctuation, as you would with any other written communication. Avoid unclear information or one-word answers, so that you can wrap the exchange up without too many emails being sent.

5. Respect Others’ Time

When you have to interrupt someone, try to do it at a time that suits them. Be polite and quick, so that he can get back to his work. Don’t interrupt meetings unless it is extremely urgent.

6. Dress for Success

It is always safer to be overdressed rather than underdressed. Take care with your appearance – it sends out a message of respect to your employer, co-workers and customers.

7. Keep Your Boss Informed

Don’t inundate your boss with compliments or always agree with him. Treat everyone with respect, but remember that your employer is your superior. Keep him informed of any setbacks, problems or developments you might experience, so that he is aware of your situation at all times.

8. Respect Other Cultures

If your company works across language, cultural and geographical borders, remember to treat others with respect. Try to learn at least the basic how-do-you-do’s in all the languages you do business in to demonstrate your desire for cooperation. Study different customs of greeting, eating and public holidays, for example, so that you display the correct behaviour.

9. Timelines

There are often timelines and deadlines in business which you have to keep. This means that you will sometimes have to forfeit teatime or shorten your lunch hour because you have more pressing matters to attend to.

10. Remember the Basics

The most important rule is to remember your basic manners, such as “please,” “thank you” and “you’re welcome”. Don’t raise your voice and never use offensive language.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.