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What is the most effective way to move a company into a trust?

There are various options, and many factors to consider when dealing with the transfer of assets.

What is the most effective way of moving a company into a trust? My parents currently own a closed corporation (CC) containing a share portfolio and a few properties (residential). To reduce estate duty and to continue their legacy we want to move the CC into a trust. What will be the most cost and tax-effective way of doing so?

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“In this world, nothing can be said to be certain, except death and taxes.” Benjamin Franklin

Estate duty encompasses both death and taxes. There is currently an abatement of R3.5 million, so if an estate is more than the abatement of R3.5 million it is subject to 20% estate duty, and more recently estates larger than R30 million are subject to 25% estate duty. Spouses may access each other’s abatement and on the death of the surviving spouse, an application of a R7 million abatement would apply, and the estate more than abatement will be subject to estate duty. There is also the consideration of executors’ fees, which are legislated to be no more than 3.5% plus Vat on the estate.

Transferring assets into an inter vivos trust would be a way to avoid estate duty on the assets that have been accumulated. Trusts are can cost anything between R4 000 and R20 000 to set up, and then the annual servicing costs can add up, depending on the structure of the trust.

Trusts have been under Sars’s microscope in recent years as they have been used as effective tax avoidance vehicles in the past. The most recent guidance by Sars is that the income earned in a trust would be taxed at 45% and the effective rate for capital gains tax (CGT) is 36%. This can be mitigated by using the conduit principle, which distributes/flows the income to the beneficiaries of the trust, and the beneficiaries will pay tax at their marginal tax rate, which is advantageous if the individual’s marginal tax rate is low.

The ways to transfer assets to a trust could be through the following:

Donation: You can donate R100 000 per year; anything more than R100 000 is taxed at 20% in the hands of the donor.

Sale of the asset to the trust: The sale of an asset to the trust would be the normal process of distributing assets. The price of the asset would be at market value for tax purposes. As the assets in question are residential properties, the sale of the properties would trigger transfer duty and CGT.

The sale of the shares of the closed corporation in this case, to the trust at market value, could also be an option, subject to the beneficiaries of the trust being natural persons. This will trigger transfer duty and CGT.

The latest transfer duty rates are provided in the table below.

Transfer duty 2021 (March 1, 2020 to February 28, 2021)

Value of the property (R)​​ ​Rate
​1 – 1 000 000​ ​0%
1 000 001 – 1 375 000 ​3% of the value above R1 000 000
1 375 001 – 1 925 000 ​R11 250 + 6% of the value above R 1 375 000
1 925 001 – 2 475 000 ​R44 250 + 8% of the value above R 1 925 000
2 475 001 – 11 000 000 ​R88 250 +11% of the value above R2 475 000
​11 000 001 and above ​R1 026 000 + 13% of the value exceeding R11 000 000


Another option to consider is using a will as the guidance to set up a testamentary trust on death that can be used as a legacy structure where all bequeathed assets can be placed, then using a life insurance policy, which can be an effective method of providing liquidity to an estate, to cover the estate duty and other costs. This would need to be structured correctly to avoid unnecessary taxes paid.

There are many factors to consider when dealing with the transfer of assets, the consultation of a trust and tax expert would be the best way forward for your personal circumstances.

Do you have any questions you would like answered by registered financial planners?



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