Wealth Management

The IGrow team conducts an in-depth financial analysis on your personal wealth & trust structures that are all linked to your investments, including your properties, shareholding portfolios, life policies, retirement annuities and existing pension or provident funds.

Our advice will ensure long-term succession planning while optimising taxation in the short, medium & long term. This enables you to leave a legacy to your loved ones.

Family Trust – Your Absolute Protector:

The Family Trust structure is the recommended vehicle in which to accumulate cash, have ownership of long-term assets and structure your life and disability cover. Everybody, even a salaried employee or a business owner, is at risk in his or her personal capacity, and therefore it is imperative to implement the best legal and tax efficient “structure” to optimise asset protection. The aim is to create wealth and to ensure that dependents and future generations are catered for.

A Trust creates a vehicle in which to own assets and, through the trustees, transact in its own name. Individuals are protected as beneficiaries and trustees.

A Trust is an entity that has the capacity to outlive the founder. In the event of an individual passing away, the trust will continue to operate as normal and will not incur any unnecessary taxes or forced asset sales.

Why your Life Cover should be owned by your Family Trust:

A strange fact is that over 95% of individuals have their Life Cover in their private capacity (individual names). They therefore do not enjoy any tax benefits and have very little protection (in many cases, none whatsoever). Spouses are usually nominated as the beneficiary, resulting in delayed tax implications which have an impact when least expected.

Benefits of a trust-owned life policy:

• No executor’s fees
• Continuity
• Protection
• Tax Benefits

All premiums plus 6% compound interest are deductible from the value of an estate for the calculation of Estate Duty.

Benefits of a Family Trust

Setting up of a Trust:

An “Inter Vivos” Trust is established during the founder's lifetime. The process of registering a trust is fairly easy, but it is of utmost importance to consult an experienced trust specialist to draft the Trust Deed. The Trust Deed is the contract that dictates the relationship between the founder, the trustees and the beneficiaries.

Estate Planning:

One of the primary advantages of a living trust is that it offers tax efficient management and control of assets during life and even after death. The growth in the estate is “pegged” and the value will increase in the trust. A trust creates an entity that owns assets outside your personal estate, consequently excluding these assets from estate duty.

Taxes and costs of up to 35% on death can be saved, including:

1.  Estate Duty (20% of net Estate)
2.  Capital Gains Tax (16,4%)
3.  Executor's fees (at 3,99% of your Gross Estate)
4.  Costs associated with the transfer of immovable property.

A trust will ensure uninterrupted access to capital and income after the death of an individual.The trust's bank accounts and cash reserves of the trust will be accessible and will not be frozen during the winding up of the individual's estate, which can take up to two years. A trust will ensure continued access to capital and income after death.

Protection of Minors

In South African law, a minor cannot be the registered owner of property, therefore assets are liquidated and the proceeds invested in the Guardian's Fund. Assets in trust are also protected against spendthrift children, who will not be able to reduce the assets to zero.

Multi-ownership of assets

Some assets cannot be divided (e.g. businesses, farms or other property). By placing these types of assets in trust, the heirs can be the beneficiaries of the income generated therefrom.

Confidentiality

A will becomes a public document on death. A trust does not form part of an estate, and therefore the information of assets held in a trust remains confidential.

Risk Planning:

Protection of assets against creditors

Personal liability is limited to the assets in an individual’s name. Creditors cannot access the assets in trust, unless it was set up with the intention to defraud creditors. Each risk poses a potential threat that could result in dire consequences.

The major risk categories are:

• Financial Risk: Mortgage bonds or hire purchase / lease agreements – the majority of South Africans need to make use of these sources of finance to purchase houses or vehicles. In event of default, all assets in one’s own name are at risk of being sold in execution. In a market where interest rates are fluctuating, banks execute against bonded assets when consumers default on payments.
• Business Risk: A business owner (whether a sole proprietor, a member of a CC or as a shareholder of a company) is likely to have signed personal surety for loans or credit agreements to the company, or is the co-principal debtor with the company in respect of any supplier’s credit arrangements.
• Personal Risk: Car accident/s, defamation in a public place, involvement in a scuffle or conflict with neighbours etc. (claims between natural persons that may arise from social interaction).
• Divorce or Family Risk: Statistically, a spouse can be the biggest creditor. A large portion of an estate may be awarded to the ex-spouse, as well as possible claims for maintenance, when a marriage ends in divorce.

Tax Planning:

• The advantages of proper tax planning in a well-structured trust are clearly defined in the tax legislation.
• Even minor beneficiaries can enjoy tax-friendly distributions.
• “Conduit Principle”: unlike companies or close corporations, the Trustees can decide to pay the Income Tax or Capital Gains Tax in the hands of the Trust, or distribute the income/gains and corresponding tax liabilities to the beneficiaries at their applicable marginal rate of tax, thereby paying much less tax.
• Income Splitting: trustees can apply the “conduit principle” and distribute income/gains to beneficiaries with low tax rates to effectively reduce the overall tax liability.

Leaving a Legacy:

• A Trust is an entity that will “outwit, outplay & outlast" an individual. It will not terminate (unless decided by the Trustees), therefore it can own properties and assets for generations, and pass the portfolio of assets to the next generation tax free.
• A Trust is the only vehicle which allows the accumulation of wealth and the transfer of assets from generation to generation, without incurring costs and taxes. By taking action, founders and trustees can ensure their children receive all wealth and assets accumulated. The dilemmas that unemployment, economic cycles and market conditions present can be avoided for one’s children, with an income producing Trust providing passive income streams primarily through property investment.

Multiple Trusts for a Comprehensive Structure

Property Investment Trust

Property carries a certain amount of risk (through bond finance) and should be protected by a Trust, as an asset holding entity. The costs and taxes (transfer duty) can be efficiently structured if a unit is purchased directly from a developer.

Residential Property Trust

In circumstances where the primary residence is bonded, it is best not to transfer that particular property into a “Family” Trust, as it introduces a “secured risk”, which could affect the other Trust assets in the Trust should the mortgage bond be executed and the home loan recalled.

Shareholding Trust/Business Trust

The shares in a company can be held in a trust and in the event of death, those shares or interests will not be included in the calculation of estate duty as part of the estate.

Experts agree that it is would be better to place shares into a Shareholding Trust to prevent the business value being included in an estate.

From a personal protection point of view, a private company is occasionally subject to the court's “piercing the corporate veil”, resulting in the individual being held personally liable rather than the company. The benefits of having these assets registered in a business trust will ensure complete peace of mind.