The role of your child’s guardian

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Choosing a guardian for your children is a huge decision to make and takes careful consideration.

If you have minor children, it is always advisable to nominate a guardian in your will who will love and care for your children if you are no longer around. Choosing a guardian for your children is a huge decision to make and takes careful consideration. Let’s have a closer look at the role and responsibility of a legal guardian.

What is a legal guardian?

A legal guardian is a person that you nominate in your will to take over the care of your child in the event that you pass away. Where you are married and your child has two natural guardians (i.e. you and your spouse), your legal guardian would only assume responsibility when both you and your spouse pass simultaneously. If you are the sole guardian of your child, the legal guardian that you appoint would assume responsibility in the event of your death. As a parent of a minor child, the Children’s Act makes provision for you to nominate a legal guardian in your will although it is important to remember that the nominated guardian must expressly accept the position if and when the time arises. Upon being appointed, a guardian is vested with the care of the child and acquires full parental responsibilities and rights upon acceptance of the appointment.

How does it differ from a godparent?

A guardian and a godparent perform completely different roles. While a guardian is a legal appointment in terms of the Children’s Act which comes with long-term responsibilities, a godparent has no legal standing and is generally considered to fulfil a spiritual role in the child’s life. That said, you are able to appoint your child’s godparent as their legal guardian in terms of your will.

Who can be appointed as a legal guardian?

A legal guardian of a child should be a fit and proper person, responsible, and a trusted friend or family member. The person you appoint should be someone you trust to effectively step into your shoes and take over the parenting of your child in every aspect. It is important to give careful consideration as to who would be best to care for your child, and who you can rely on to create a loving and holistic environment that is conducive to the child’s best interests. When choosing a guardian, give thought to their cultural background,  value system, religious beliefs, where they live, as well as their financial stability, as you will ideally want to nominate someone with a common set of morals and principles, and who is financially sound.

Can you appoint more than one guardian?

You may appoint two or more legal guardians in your will, although this can give rise to complications if the nominated guardians do not live together. Ideally, nominate a guardian in your will and then consider appointing an alternative guardian in case the nominated guardian passes away. Bear in mind that circumstances and relationships change over time, so be sure to review your will regularly to determine whether your nominated guardian is still the person you would want to care for your child.

Is a legal guardian remunerated for administering the minor’s estate?

Yes, a legal guardian is entitled to be paid for administering your child’s estate. You can set out the details of such remuneration in your will; alternatively, the guardian can be paid in accordance with the tariff set by the Master of the High Court.

What duties does a legal guardian perform?

The legal guardian takes over full parental rights and responsibilities of your child. The guardian must administer any property inherited by your minor child until they reach age 18, bearing in mind that you may stipulate a later age of maturity in terms of your will. The legal guardian will make all decisions regarding your child including lodging, schooling, extra-mural activities, pets, travel and vocational guidance. The guardian is also responsible for assisting or representing the minor child in administrative, contractual and/or legal matters until they reach maturity.

Does a legal guardian have financial control over the child’s inheritance?

If you have not set up a testamentary trust in your will, all funds bequeathed to your child will be payable to the guardian where you will expressly state that they can manage the funds on behalf of your minor child and where adequate security is provided. If your will is silent on this matter, any funds bequeathed to your child will need to be paid over to the Guardian’s Fund and will then be managed by the state. However, no guardian can sell or mortgage any immovable property belonging to the minor unless permission has been granted by the High Court, keeping in mind that the court will also act in the best interests of the child. Ideally, your will should make provision for a testamentary trust which comes into effect in the event of your death. All assets intended for your minor child should be bequeathed to the trust where they will remain in safe-keeping and be managed by the trustees nominated in your will.

Can the guardian also be a trustee?

Yes, you are able to appoint your child’s guardian as a trustee to the testamentary trust who will then be in a position to directly represent your child at trust meetings. In addition to the guardian, you may want to consider appointing a close friend or confidante as well as an independent, professional trustee, with three trustees being the optimal number for practical purposes. Keep in mind that one of the trustees’ most important functions is to manage and invest the trust assets in your child’s best interests, so be sure to appoint trustees who have sound financial acumen.

Will my child have any say?

Yes, the legislation makes it clear that the child’s views must be taken into account by the guardian depending on the age, maturity and stage of development of the child. While there is no set age at which a child can start making their own decisions, as they get older and more mature their wishes should be taken into account.

What happens if no guardian is appointed?

It is important to remember that the high court is the upper guardian of all children. If you do not appoint a guardian for your minor child in your will, a family member or friend would need to apply to the court to be appointed as the child’s guardian. This is a huge emotional and financial burden to place on one’s surviving family and friends, not to mention the minor child.

Will the guardian have enough money to care for my child?

Ensuring that your child is adequately provided for is your responsibility and this exercise should be undertaken in the financial planning process. It is unfair to nominate someone to the role of guardian without ensuring that there is sufficient liquidity in your estate to provide for your child until they reach at least age 18. Bear in mind that the person you nominate as guardian in your will must expressly accept the position. If you have not made adequate financial provision for your child and your guardian is not in a financial position to assume guardianship, they may refuse to accept the nomination. When making plans to provide for your child if you are no longer around, consider taking out a life policy with sufficient cover to provide for your child’s future needs, including their living expenses and education.

https://www.moneyweb.co.za/financial-advisor-views/the-role-of-your-childs-guardian/

This article is a general information sheet and should not be used or relied upon 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. Errors and omissions excepted (E&OE

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Choose your trustees carefully

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Many people who agree to take on the role of trustee are not fully aware of their duties and obligations, nor the extent to which they can personally be held liable.

When setting up your trust, whether through a trust deed (as in the case of an inter vivos trust) or through your will (in the case of a testamentary trust), you are required to appoint trustees to administer the assets of the trust. Selecting the most appropriate people to administer the trust assets for the benefit of its beneficiaries is important and is not a decision to be taken lightly.

Your trustees will have a fiduciary duty to look after the assets of the trust and will be required to exercise care and objectivity when performing their functions. Similar to managers of a company, your trustees are duty-bound in terms of the Trust Property Control Act to be guardians of the trust’s assets and to manage them as mandated in the trust deed.

Many people who agree to take on the role of trustee are not fully aware of their duties and obligations, nor the extent to which they can personally be held liable. Let’s have a closer look at the duties and responsibilities of trustees.

Appointing trustees

When setting up a living or inter vivos trust, the trust deed is your trust instrument and would appoint your trustees. As the trust founder, you would effectively enter into an agreement with the trustees in order to give effect to the trust. Where you set up a testamentary trust, your will becomes the trust instrument through which your trustees are appointed. Whether appointed to an inter vivos or testamentary trust, the first job of the trustees is to lodge the trust deed with the Master of the High Court and ensure that they are granted authority to act before acting or transacting on behalf of the trust. A trustee only has authority to act on behalf of the trust once the Master has issued the letters of authority. Bear in mind that where a trustee acts prior to being formally appointed, such action is void and cannot be subsequently ratified. When entering into transactions with a trust, it is therefore important to establish that the trustees have been formally appointed and have contractual capacity.

The independent trustee

From a governance perspective, it is always advisable to appoint an odd number of trustees to administer your trust, with three being the optimal number. Bear in mind that having too many trustees can be highly impractical especially when it comes to obtaining signatures, co-ordinating meetings and making decisions. Although not a legal requirement, appointing an independent trustee has become common practice in that it ensures a degree of objectivity in the management of the trust assets. In March 2017, the Master issued a directive to the effect that where South African trusts meet certain criteria, they are required to appoint an independent trustee to ensure that the trust is administered legally.

Specifically, trusts which have the power to contract with independent third parties, in which all the trustees are beneficiaries, and where all the beneficiaries are related, are required to appoint an independent trustee. While not required to be a professional person, it makes sense to appoint an independent trustee who specialises in fiduciary law or who has a sound understanding of trusts and the legislation pertaining to trusts. When appointing a professional trustee, bear in mind that they are entitled to be paid a fee as set out in the trust deed or as agreed to by the trustees.

Taking control of trust assets

To ensure the validity of a trust, the trust donor must relinquish control of the trust assets to the trustees. As such, one of the first functions of the trustees is to identify the various assets of the trust, prepare an inventory of assets, and then take control of them. In the event of immoveable property such as a holiday home or farm, the property must be duly registered in the name of the trust. The trustees are also required to set up a bank account in the trust’s name in which money received on behalf of the trust should be held. Any shares or investments should also be registered in the name of the trust. In the case of moveable property such as artwork or jewellery, the trustees have an obligation to make sure it is secured and appropriately insured.

Duties of trustee

The trustees are expected to exercise their discretion independently and without the influence of any other person. As such, their ability to act in good faith is paramount, and any conflict of interest should be avoided. Other than reasonable remuneration for their services, no trustee should stand to gain personally from the trust in their capacity as trustee. Trustees should also bear in mind that they can be held personally liable for any losses suffered by the trust as a result of their negligence (ordinary or gross) or intentional wrongdoing, and that their duty of care, diligence and skill is onerous.

A trust is not recognised as a separate legal person in South Africa, and it is therefore the trustees in their official capacity that can be held liable. Bear in mind that a clause in a trust deed which indemnifies a trustee against a breach of their duty is ineffective because the fiduciary duty of the trustee is paramount and cannot be contracted out of.

The powers of the trustees are set out in the trust deed which commonly grants the trustees fairly wide powers in the administration of the trust, including buying and selling trust property, making decisions regarding distributions to the beneficiaries, entering into contracts, opening bank accounts and making investment decisions.

When it comes to investing the capital of the trust, the trustees need to make prudent investment decisions in the best interests of the beneficiaries to ensure that the trust capital is protected against inflation while at the same time not exposed to unnecessary investment risks. This can be a difficult balancing act for trustees and may require them to seek independent investment advice, bearing in mind that trustees can be held liable if it is found that the trust’s money was not prudently invested.

In managing the trust’s assets, the trustees are also required to keep accurate records which must be kept for a period of five years. Although there is no requirement for trusts to be audited, the trustees are required to prepare annual financial statements and to submit the trust’s tax returns timeously. However, trustees should bear in mind that they remain at all times accountable to the Master who is able to request at any time a full account of the administration of the trust. He also has the power to request any document, account, statement or record in relation to the trust. The duties of the trustees also extend to ensuring that the trust complies with all related legislation, including the Income Tax Act, Tax Administration Act, the Banks Act amongst others.

From an administrative perspective, the trustees are required to keep the trust deed updated at all times, record all decision-making, prepare agendas and minutes of all meetings, draft resolutions, and facilitate regular trustee meetings.

https://www.moneyweb.co.za/financial-advisor-views/choose-your-trustees-carefully/

This article is a general information sheet and should not be used or relied upon 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. Errors and omissions excepted (E&OE

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Exemption of foreign pensions in South Africa

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Although there has been an increasing trend in recent times of emigrations from South Africa, there are many projects by the Department of Home Affairs to market South Africa as a friendly retirement destination for foreigners. The question, therefore, often arises: How will foreign pensions be taxed locally once persons become tax resident.

The Income Tax Act, in section 10(1)(gC), allows for an exemption of any amount received or accrued by a resident under the Social Security System of another country, or a lump sum, pension or annuity received by any resident from a source outside of South Africa. For this exemption to apply, the employment which gave rise to the funding of the foreign pension should be as a result of past employment outside of South Africa as well.

The term “past employment outside the Republic” refers to foreign services (employment). Only the portion of the lump sum, pension or annuity that relates to foreign services will be exempt from normal tax. Amounts that are not related to foreign services will therefore not qualify for this exemption. Interpretation Note 104, issued by SARS on 18 October 2018, specifically deals with the exemption from foreign pensions and transfers.

A lump sum, pension or annuity received by or accrued to a resident from a local retirement fund or insurer will not qualify for exemption, except in cases where an amount has been transferred to that local retirement fund or insurer from a source outside the Republic.

An apportionment calculation is available in the instance where services are rendered outside as well as in the Republic. The main aspect for consideration is that the lump sum, annuity or pension is linked to employment outside the Republic, as consideration for foreign services rendered. The following formula (which is applied on a time-based apportionment) is used to calculate the portion of a lump sum, pension or annuity that will be exempt as a result of services rendered outside the Republic:

  • Foreign services rendered divided by Total services rendered multiplied by Total amount received or accrued

Although South African tax residents are taxed on their global income, exemptions are available, and taxpayers should be aware of these, to ensure that they claim exemptions to which they are entitled. Importantly, the fact that an amount is exempt does not imply that it does not require to be disclosed to SARS. The full amount must still be included in income in the tax return, but the relevant exemptions will then be applied – full disclosure, therefore, remains a requirement.

This article is a general information sheet and should not be used or relied upon 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. Errors and omissions excepted (E&OE

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Beware of scams during filing season

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In late August 2020, a large credit bureau in South Africa was the target of a data breach where millions of private individual and company data records were compromised. This data leakage, coupled with the tax filing season, makes for the perfect opportunity for taxpayers’ information to be abused, subjecting taxpayers to potential financial loss.

Scammers thrive on the inherent vulnerability of taxpayers during the tax season and know how to capitalise on the taxpayers’ struggles in dealing with SARS and their fear of the tax process. In Augusts 2020 alone, many correspondence scams that contain links to phishing websites have already been identified:

Fraudsters are also capitalising on the filing season by posing as tax practitioners to obtain sensitive information, including banking details. Remember that any tax practitioner who charges you for their services, must by be registered with a regulated controlling body. (You can easily verify your practitioner’s details here: https://secure.sarsefiling.co.za/TaxPractitionerQuery.aspx).

SARS provides the following guidelines when dealing with correspondence that purports to be from them:

  • Do not open or respond to emails from unknown sources;
  • Beware of emails that ask for personal, tax, banking, and eFiling details (login credentials, passwords, pins, credit/debit card information, etc.);
  • SARS will never request your banking details in any communication that you receive via post, email, or SMS. However, for telephonic engagement and authentication purposes, SARS will verify your information. Importantly, SARS will not send you any hyperlinks to other websites – even those of banks;
  • Beware of false SMSes;
  • SARS does not send *.htm or *.html attachments;
  • SARS will never ask for your credit card details.

SARS has also made a facility available where scams or phishing can be reported. Taxpayers can either email phishing@sars.gov.za or call the Fraud and Anti-Corruption Hotline on 0800 00 2870.

All taxpayers are urged to remain vigilant this filing season and ensure that their data is protected.

This article is a general information sheet and should not be used or relied upon 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. Errors and omissions excepted (E&OE

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Employer reconciliation, third party declaration period opens

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The interim employer reconciliation and third party declaration period is now open, the South African Revenue Service (Sars) said on Tuesday.

On the Covid-19 Tax Relief Measures announced by the Minister of Finance earlier this year, Sars said this provided employers with deferral relief for Pay As You Earn, a four-month skills development levy holiday, and an enhanced employment tax incentive, as per the amended Disaster Management Tax Relief Administration Bill (DMTRAB).
“As part of ensuring that Sars provides certainty and clarity of the legal obligations of employers and third parties, Sars wishes to announce that the interim employer reconciliation and third party declaration period is now open and closes on 31 October 2020,” the Revenue Service said in a statement.

For both large and small employers, a reconciliation of the first six months of declarations of employment taxes, monthly payments of these taxes and employee tax certificates [IRP5 and IT3(a) certificates] generated between 1 March and 31 August, is due.

“The elements that must reconcile in the employer declaration on staff earnings for the first half of the year include the monthly employer declarations submitted for Pay As You Earn (PAYE), Skills Development levy (SDL), Unemployment Insurance Fund (UIF), Employment Tax Incentive (ETI), as well as the monthly payments of these amounts and the employee tax certificates generated depicting the values for PAYE, SDL, UIF and ETI, where applicable,” Sars said.

Third parties such as financial institutions, investment schemes and medical schemes, among others, are required to submit declarations such as medical contributions by members and expenses not covered by the medical scheme, interest earnings, retirement annuity contributions, amounts emanating from any investment, rental of immovable property, interest or royalty, amongst other declarations.

The Revenue Service warned that failure to fulfil these obligations may attract penalties and potentially criminal charges.

“The focus of Sars will be on the accuracy and completeness of what is submitted by employers and third parties, to avoid the many errors and corrections still experienced. These errors and corrections have a negative effect on the individual taxpayers that they relate to.”

Sars is refining its risk mitigation and detection measures, and sharpening its existing audit and investigation capacity to identify and collect the tax due, and address non-compliance.

“Employer and third party compliance, importantly, enables Sars to provide a seamless experience for individual taxpayers when fulfilling their tax obligations.”

Legislative and system changes
The DMTRAB requires deferred amounts to be paid in six equal monthly instalments, commencing on 7 October 2020 until 5 March 2021.

“Sars has implemented these measures, but has not relaxed its deadlines for the submission of declarations and payment where relief has not been sought and thus penalties apply for late or non-submission,” said Sars.

Meanwhile, the latest version of e@syFile™ is available for the interim reconciliation period.

It has been updated for increased user-friendliness, as part of Sars’ service commitment to make compliance easier for taxpayers.

In addition, Sars has amended the Statement of Account (EMPSA) to include details of the deferred payments under the Covid-19 Tax Relief Measures.

This will allow qualifying employers to remain compliant.

A list of enhancements to the eFiling and e@syFile platforms can be viewed at Interim Reconciliation Enhancements.

Sars is directly communicating with third parties and payroll administrators to assist with filing and training where required.

Similarly, on the enforcement side, Sars is engaging third parties, particularly employers who have outstanding monthly returns and payments.

Voluntary disclosure

Sars also invited employers to regularise any tax defaults from previous years through the Voluntary Disclosure Programme (VDP).

A successful application through the VDP process waives penalties pertaining to the default disclosed, which otherwise could range up to 200%.

VDP applications can be made on eFiling.

Taxpayer queries

Employer and third party queries may be made to the contact centre or an appointment with a branch via the booking system on the Sars website.

“All third parties are reminded to consult the Sars website for important information on the interim reconciliation period at Third party declaration process and Employees Tax What’s New,” said the revenue service.

https://www.bizcommunity.com/Article/196/610/208337.html

This article is a general information sheet and should not be used or relied upon 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. Errors and omissions excepted (E&OE)

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Steps to take before drafting a will

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Drafting a will requires the drafter to give careful thought to a number of important issues.

If you’ve taken the wise step to consult with an expert to have your will professionally drafted, be sure to prepare yourself adequately for the consultation so that you have all the necessary information at hand. Drafting a will is not as easy as it may seem and requires the drafter to give careful thought to a number of important issues. Here’s what to consider before putting your will together:

Your matrimonial property regime

Determine which matrimonial property regime you are married under. It’s always surprising how many couples are not sure what marital regime they are married under nor how it impacts on their ability to testate. Remember, if you are married in community of property, you and your spouse own the joint estate in equal, undivided shares. This means that, when it comes to testation, only 50% of the joint estate is yours to bequeath. If you are married out of community of property with the accrual, bear in mind that the accrual contract continues to apply after your death. This means that your surviving spouse may have a claim against your deceased estate for their share of the accrual to the extent that it is less than yours. This could create liquidity problems in your estate if you intend leaving some or all of your assets to a third party. In addition, be sure to check your antenuptial contract as it may be that certain assets were specifically excluded from the accrual at the time of drafting the contract.

A guardian for your minor children

If you have minor children, choosing a suitable guardian for them is a priority, albeit often a difficult and divisive decision to make. Many couples struggle to find common ground when choosing suitable guardians for their minor children, so be sure to have these discussions before meeting with your financial advisor or fiduciary expert. When choosing a guardian for your children, give consideration to factors such as their existing relationship with your children, their financial stability, their morals and values and to what extent they align with yours, their religious beliefs, where they live, and also their willingness to take on the responsibility. Most importantly, have the discussion with the proposed guardians before meeting with your financial advisor to ensure that they agree to the appointment. For the purposes of preparing your will, your advisor will need the full names and ID numbers of the guardians.

Choose trustees for your testamentary trust

Also important for those with minor children is to set up a testamentary trust in your will for the safe custody of any assets intended for your minor children. Choosing appropriate trustees for the trust is an important task as it will be their responsibility to ensure that your wishes are carried out after your death. Generally speaking, three trustees is an appropriate number with one of the trustees being an independent person, such as your financial advisor, attorney or fiduciary expert. Appointing too many trustees can make the management and decision-making in the trust cumbersome and slow. Once again, for the purposes of drafting the will you will need the full names and ID numbers of the nominated trustees.

Your executor

Another important decision you need to make is that of choosing an executor. While you may be tempted to appoint a close family member, bear in mind that the job of executor is an administratively intensive and time-consuming one that requires a certain level of financial and legal knowledge. Further, keep in mind that the job of the executor begins immediately after one’s passing, which means that they may need to assume their responsibilities while in mourning. Also bear in mind that family relationships and dynamics change over time, and if you’ve nominated a close family member as executor conflicts of interest may arise which is never ideal.

Your assets and liabilities

Be sure to make a full inventory of your assets and liabilities, including business interests, trusts, jewellery, artwork, immovable property, investments, retirement funds and any valuable moveable property. It is essential for your financial advisor or fiduciary expert to have full sight of your assets and liabilities so that he can draft a will that aligns with your overall estate.

Trust assets

If you’re setting up a testamentary trust, be sure to identify exactly which assets you intend bequeathing to the trust. The purpose of a testamentary trust is to house assets that you intend bequeathing to your minor children. Bear in mind that, in terms of our law, minor children lack contractual capacity and are therefore unable to inherit. In the absence of a testamentary trust, any assets bequeathed to your minor children will be administered by the Guardian’s Fund until they are old enough to inherit the assets.

List your heirs

Your heirs are those people who stand to inherit the residue of your estate, which is whatever assets are left after all your debts, the cost of administration, and any legacies or special bequests have been distributed. When drafting your will, your advisor will need the full names and ID numbers of your heirs. Importantly, if there is an heir that you do not wish to benefit from your estate, you need to make a note of this.

Special bequests

Make a note of any special bequests that you would like to leave a person which could include a cash amount, a car or a piece of artwork. However, it is important to first understand the implications to your estate before making special bequests in your will. When distributing your assets, your executor will first use your assets to pay the costs of administering your estate and to pay your creditors. Thereafter, your legatees will receive any legacies due to them in terms of any special bequests you have made. Lastly, whatever is left in your estate will be awarded to your heirs. As such, it is important to determine whether there is sufficient liquidity in your estate to give effect to your wishes, and this is something your advisor should be able to assist you with. Once again, be sure to obtain the full names and ID numbers of any legatees you intend naming in your will. Bear in mind that many family members bear the same family names and initials, so be absolutely clear when naming your legatees.

Life policies and retirement funds

Generally speaking, it is advisable to make no mention of any life policies or retirement funds in your will as it can cause confusion when it comes to the beneficiary nomination. If you have nominated beneficiaries to your life policies, while the proceeds will be considered deemed property in your estate for estate duty purposes, the proceeds will be paid directly by the insurer to your nominated beneficiaries. Where you have any approved retirement funds in place – including pension, provident, preservation or retirement annuity funds – bear in mind that it is the trustees of these funds who make the decisions regarding the distribution of the funds in the event of your death.

20 July 2020 08:21   /  By  Craig Torr – Crue Invest (Pty) Ltd

https://www.moneyweb.co.za/financial-advisor-views/steps-to-take-before-drafting-a-will/

This article is a general information sheet and should not be used or relied upon 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. Errors and omissions excepted (E&OE)

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Business rescue VS liquidation: What is the difference?

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South Africa has been experiencing very slow economic growth and international rating agencies have subsequently downgraded South Africa’s investment outlook to “junk status”. This, and a myriad of other factors, have negatively impacted South African businesses, especially small and medium business enterprises. Many of these struggling enterprises are now at a crossroads: do they continue trading and hope that things will improve, whilst risking incurring further debts, or do they cut their losses and give up? This article will briefly explain what the difference is between business rescue and liquidation, two legal avenues which are available to financially distressed companies.

Business rescue:

Failing companies traditionally only had the option to liquidate. The Companies Act 71 of 2008 (hereinafter referred to as “the Act”) has created another option in the form of business rescue proceedings.[1] Companies which are in financial distress can be placed under business rescue where after a business rescue practitioner will be appointed. The main objective of business rescue proceedings is to reorganise and restructure the business in order to make it a more profitable and stable entity. This is achieved by placing the company and the management of its affairs, business and property under temporary supervision. Furthermore, it provides for the development and implementation of a business rescue plan.[2]

Business rescue proceedings can, similarly to liquidation proceedings, be launched on a voluntary basis or by way of a court application brought by creditors or other affected persons. A company must be in financial distress before it can file for business rescue. A company will be deemed to be financially distressed for purposes of this Act if:

“(i) it appears to be reasonably unlikely that the company will be able to pay all of its debts as they fall due and payable within the immediately ensuing six months; or

(ii) it appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months”.[3]

Companies meeting either of the requirements as set out above will thus be eligible to commence with business rescue proceedings in order to rehabilitate the financially distressed company. Some of the most prominent effects of a company being placed under business rescue are the following:

  1. A general moratorium on legal proceedings against the company is imposed. Creditors will accordingly not be able to institute civil claims against the company or execute on any court orders already granted.[4]
  2. A guarantee or surety previously given by the company in favour of any other person may not be enforced by any person against the company.[5]
  3. The company may only dispose of its property in the ordinary course of its business in a bona fide transaction which is at arm’s length.[6]
  4. The business rescue practitioner can “cancel or suspend entirely, partially or conditionally any provision of an agreement to which the company is a party at the commencement of the business rescue period, other than an agreement of employment.”[7] This places the business rescue practitioner in a powerful position to alleviate some of the financial commitments of the struggling company by renegotiating payment schemes with the company’s creditors.

The ultimate objective of business rescue proceedings is to save companies. This should, if possible, be the preferred course of action for a financially distressed company since it has the potential to preserve jobs and to reinstitute a stable and solvent company which can contribute to the South African economy.

Liquidation:

The objective of liquidation proceedings is fundamentally different from that of business rescue proceedings. Liquidation proceedings are not aimed at rescuing a financially struggling company, but rather to permanently end the company. It is important to note that liquidations of insolvent companies are still done in terms of the Companies Act 61 of 1973 (hereinafter referred to as “the Old Act”).

A company is regarded as being insolvent if its liabilities exceed its assets, or if it is unable to pay its debts as and when it becomes due.[8]

Liquidation of a company results in the establishment of a concourses creditorium and the company will cease to trade and its assets will be frozen. All civil proceedings against the company will stop as well as any execution processes against the company. The Master of the High Court will appoint a liquidator who will be responsible for collecting all of the company’s assets and to distribute same between the creditors after the costs of the liquidation have been paid.

Liquidation and business rescue proceedings, although applicable in similar circumstances have very different objectives and one should thus consider these objectives when choosing one or the other. Business rescue proceedings should be strongly considered where there is a reasonable prospect that the company may be able to trade on a solvent basis again. However, it does sometimes happen that a company is completely “down and out” and that there are absolutely no prospects of the company ever being able to service its debts and/or to trade on a financially viable manner again. In such cases, one should liquidate the company in order to protect the remaining assets in favour of the creditors. You should consult a knowledgable attorney if your company is financially distressed in order to determine the best way forward.

Reference List:

  • Companies Act 71 of 2008.
  • Companies Act 61 of 1973.

[1] Chapter 6 of the Companies Act 71 of 2008.

[2] The purpose of the business rescue plan is to “rescue the company by restructuring its affairs, business, property, debt and other liabilities, and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis or, if it is not possible for the company to so continue in existence, results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company.” See section 128(1)(b)(iii) and section 150 in this regard.

[3] Section 128(1)(f) of the Companies Act 71 of 2008.

[4] Section 133.

[5] Section 133(2).

[6] Section 134(1)(a).

[7] Section 136(2). It is important to note that employees remain employed by a company under business recue proceedings with the same terms and conditions as before the business rescue proceedings. See section 136(1) of the Act in this regard.

[8] This is often referred to as commercial insolvency. See section 345 of the Companies Act 61 of 1973 where circumstances are set out in which a company will be deemed to be unable to pay its debts.

This article is a general information sheet and should not be used or relied upon 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. Errors and omissions excepted (E&OE)

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Wills, trusts and deceased estates: Your questions answered

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Estate planning and the winding up of deceased estates can be complicated areas to navigate. In this article we provide answers to some frequently asked questions about wills, trusts and deceased estates:

When and where must a deceased estate be reported?

When a person dies leaving property or a will, a deceased estate comes into existence. In terms of our law, a deceased estate must either be administered and distributed in terms of the deceased person’s will, if it is found to be valid. If the will is invalid, or if no will exists, the estate must be wound up and distributed in terms of the Intestate Succession Act. The procedure that must be followed is set out in the Administration of Estates Act. The deceased estate should be reported to the Master in whose area of jurisdiction the deceased was living 12 months prior to his death.

Who is responsible for reporting a deceased estate?

Generally speaking, a deceased estate should be reported by a family member or loved one of the deceased by lodging a death notice with the Master of the High Court. However, any person who has control or possession of any asset belonging to the deceased, or who is in possession of the deceased’s will, can report the estate. Once the estate has been reported, the Master will issue letters of executorship after which the full winding-up process must be adhered to.

What documentation is required when reporting a deceased estate?

The person reporting the deceased estate must complete a notice of death and provide the Master with a set of documents which includes the death certificate, marriage certificate, the will and its codicils, an inventory of the deceased’s assets, together with details of the nominated executor.

What happens if there is no will?

If the deceased did not leave a will or a will cannot be found, the state is tasked with the job of appointing an Executor Dative to the estate. The Executor Dative is responsible for trying to locate a will by enquiring at places such as the deceased’s bank, financial planner or accountant. If they cannot locate a will, the estate will be wound up according to the law of intestate succession. It is important to bear in mind that where the deceased was married in community of property, one half of the estate belongs to the surviving spouse and will therefore not devolve according to the rules of intestate succession. Only the deceased’s half of the joint estate will be available for distribution among the heirs.

How do the laws of intestate succession work?

In terms of the Intestate Succession Act, the deceased’s closest relatives will inherit in accordance with a strict order of inheritance and proportions, with the deceased’s spouse and children always benefiting first. Except in the case of the deceased’s surviving spouse or an adopted child, intestate succession is limited to the blood relatives of the deceased. This means that where a couple lived together without being formally married, the surviving partner will not be regarded as a ‘spouse’ in terms of the laws of intestate succession and therefore does not stand to inherit from the deceased’s estate. 

Who inherits if the person dies without a will?

Where the deceased leaves no valid will, the executor will first look to the surviving spouse and any children to distribute the assets to. Where the deceased leaves a spouse and descendants, the surviving spouse will inherit the great of either a child’s portion of an amount fixed from time-to-time by the Minister of Justice which is currently set at R250 000. A child’s share is calculated by dividing the estate by the number of surviving children, deceased children who have left offspring, plus the surviving spouse (or spouses in the case of polygamous marriages). The surviving spouse will therefore inherit the greater of either R250 000 or the child’s share, and the descendants will inherit equally from the residue of the estate.

Where the deceased has a surviving spouse but no descendants then the spouse will inherit the deceased’s entire estate. On the other hand, if the deceased has descendants but no spouse then the children will inherit the entire estate equally. If the deceased leaves no spouse nor children, then the executor will look to the deceased’s extended family to determine who inherits.

Who can draft a will?

Anyone aged 16 years and older who is of sound mind is considered competent to make a will. A person who is mentally incapable of appreciating the consequence of their actions at the time of drafting a will is considered not competent. Any person aged 14 years or older who is of sound mind and capable of understanding the consequences of his or her actions and can testify in court, is capable of witnessing a will.

Who is not able to inherit from a will?

There are a number of circumstances that can disqualify a potential heir. Firstly, any person who writes a will, or any part thereof, on behalf of the testator can be disqualified from inheriting, as is the writer’s spouse. Similarly, the witnesses to a will are not permitted to inherit from the deceased’s estate. Further, anyone who is found to be responsible for the death of the deceased, whether intentionally or negligently, is disqualified from inheriting from that person.

What are the requirements for a valid will?

In order for a will to be valid, it must be handwritten, typed or printed, and the signature of the testator or testatrix must appear at the bottom of each page and at the end of the will. Further, the testator’s signature must be made in the presence of two or more competent witnesses, and the will must be witnessed accordingly.

How are trusts administered?

Trusts in South Africa are governed by common law and the Trust Property Control Act and are administered by the trustees appointed to the trust. An inter vivos trust is set up in accordance with the trust deed, whereas testamentary trusts are set up in terms of the trust founder’s will.

What documents are required to set up an inter vivos trust?

In order to set up an inter vivos trust, you will need to lodge the relevant documents with the Master of the High Court who will then register the trust and issue letter of authority to the trustees. Required documentation includes the trust deed, registration fee, acceptance of trusteeship by each nominated trustee, and copies of trustees ID documents.

What is the Guardian’s Fund?

The Guardian’s Fund is designed to receive and manage money on behalf of persons who are legally incapable of doing so themselves and includes any inheritance intended for a minor beneficiary. The funds held in the Guardian’s Fund are invested in the Public Investment Commission and are subject to an annual audit. The guardian of a minor child whose funds are held in the Guardian’s Fund can claim maintenance for the minor from the fund. The Guardian’s Fund falls under the administration of the Master of the High Court and is currently administered by six branches including Cape Town, Pretoria, Bloemfontein, Kimberley, Pietermaritzburg and Grahamstown.

How does the Guardian’s Fund work?

The guardian of a minor child must claim maintenance from the Guardian’s Fund in respect of the child to cover the costs of the child’s living expenses, school and university fees, clothes, and medical expenses. A minor can claim the money invested in the Guardian’s Fund, together with any interest accrued, when they reach age 18. Money held in the Guardian’s Fund generally does not earn favourable interest, and the process of claiming can be cumbersome. As such, testamentary trusts are a favoured estate planning tool where a person intends bequeathing assets to minor children.

14 September 2020 06:17   /  By  Eric Jordaan – Crue Invest (Pty) Ltd

https://www.moneyweb.co.za/financial-advisor-views/wills-trusts-and-deceased-estates-your-questions-answered/

This article is a general information sheet and should not be used or relied upon 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. Errors and omissions excepted (E&OE)

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What you need to know about tax and work travel allowance in South Africa during Covid-19

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Covid-19 has far-reaching effects for the South African taxpayer and, unbeknown to many, may be silently increasing their tax liability for the 2021 year of assessment. 

There is a causal link between travel allowances (and the same applies to company vehicles) received by employees in the current tax year, and for which business travel was not possible. 

In this article Thamsanqa Msiza, head of individual tax returns, and Taritha Oosthuizen, tax consultant, revisit the general taxing principles of a travel allowance and reimbursement of travel expenses claims, as well as consider how Covid-19 may increase the tax burden of an employee. 

The general taxing principles of a travel allowance and a reimbursive travel allowance 

Travel allowance 

The travel allowance “deduction” operates on the premise that an allowance is included in a person’s taxable income (see section 8(1)(a)(i) of the Income Tax Act), to the extent that the allowance has not actually been expended on business travel (see section 8(1)(a)(i)(aa)). 

In summary, private travel is taxable and business travel is not taxable. Interestingly, the term “travel”, whether for business or private, refers to travel by “an engine powered road going vehicle”, as contained in SARS Interpretation Note 14. 

The SARS External Guide for Employers in respect of allowances specifically states that: 

“A travel allowance is any allowance paid or advance given to an employee in respect of travelling expenses for business purposes. Any allowance or advance in respect of travelling expenses not to have been expended on business travelling … shall be deemed not to have been actually expended on travelling on business. 

Where the employer is satisfied that at least 80% of the travel appertains to business mileage then only 20% of the allowance is subject to the deduction of employees’ tax. Should this not be the case then the allowance should be taxed at 80% on the payroll.” 

There are currently only two inclusion percentages that should be applied on the payroll, namely the 80% or 20%. Since the release of the 2019 SARS BRS Change – Patch Phase 3, it should be noted that the 100% inclusion rate is no longer applicable and should therefore not be implemented on payroll. 

To explain this by way of a practical illustration: 

Should an employee incur 80% or more on business mileage per annum, the allowance should be taxed at 20%, i.e., where it is proven that 20% or less of total mileage will be attributed to private use.
Should an employee incur less than 80% business mileage per annum, irrespective of what that amount is, the allowance should be taxed at 80%, i.e., where it is proven that more than 20% of total mileage is attributed to private use. 

Reimbursive travel allowance 

An alternative to providing an employee with a monthly travel allowance amount is to provide the employee with a reimbursive travel allowance. A reimbursive travel allowance is an allowance paid to an employee for actual business kilometres travelled, according to either the SARS determined rate – which is R 3.98 per kilometre from 1 March 2020 – or as determined by the employer. 

The taxing of the reimbursive allowance has fundamentally changed from 1 March 2018. Where an employee is reimbursed using a rate higher than the SARS prescribed rate, the differential between the SARS prescribed rate and the rate utilised by the employer will be subject to employees’ tax (PAYE), regardless of the number of business-related kilometres travelled. 

It is advisable that employers prudently consider their reimbursement rates against the prescribed rate. An unintended consequence of reimbursing an employee on a higher rate will increase the employee’s PAYE liability and may result in lower employee take-home pay. 

An alternative to avoid this possible occurrence would be for the employer to reimburse the employee at a rate below the prescribed rate of R 3.98 per kilometre. The reimbursement will not attract PAYE and will also not be taxable on the employee’s personal tax return. 

In our practice we have a golden rule when it comes to employee travel debates, i.e. company car vs. travel allowance vs. reimbursive structure: an apples-with-apples computation must always be done. This means your opinion is only valid once you have done the actual computation on what gives the tax optimal outcome. 

Although the reimbursive changes have not altered an employee’s ability to claim against a travel allowance, they have introduced an additional record-keeping requirement. This especially becomes complex where travel reimbursive rates have changed during the tax year. 

On 5 May 2020, the Commissioner for SARS gave taxpayers a valuable insight in what can be expected in the coming months in light of Covid-19. Although not stated expressly, with a grim outlook on the decrease in revenue collection, SARS will look to extract every cent possible from the tax base. 

Building on their 2019 tax season approach, SARS will most likely enhance their robust stance on verifications and audits of tax returns. It is now, more than ever, particularly important to maintain an accurate and detailed travel logbook and to adopt good tax filing and compliance strategies. 

To reiterate: private travel is taxable and business travel is not taxable. 

Similarly, the Covid-19 restrictions will have a direct impact on the business claim lodged against the fringe benefit. This may very well create an employee’s tax exposure for those employers who apply the 20% rule or otherwise will cause an unwelcome surprise tax liability…. 

Could the current context of Covid-19 restrictions introduce an added interpretation problem on what constitutes business travel? Where an employee falling under the essential services category has travelled for business purposes during the lockdown periods, one would not anticipate any dilemma in claiming against a travel allowance. 

Considering that the restrictions announced by Government were legally binding, it will be interesting to see whether a claim for business kilometres travelled by a non-essential service employee, during the same period, will also be considered as valid business kilometres. 

This may very well become an added SARS audit requirement…. 

Covid-19 and travel allowances 

The travel allowance will become a contentious item where employees are receiving a travel allowance for business travel and such business travel is not possible, under the levels of restriction. Consequently, employees will be required to take extra care in preparing their logbooks. 

In determining the taxing rate of the travel allowance – that is whether taxes should be withheld on 80% or 20% of the travel allowance – the employer and employee would have adopted a rate based on the actual travel performed in previous years, and on which much anticipation has been placed for the 2021 year of assessment. 

Regardless of the rate adopted by the employer, the sudden impact of Covid-19 and the limitations placed on the employee’s business travel may translate into a 2021 tax liability for the employee on submission of the related return. 

Employers that have resolved to taxing 20% of a travel allowance paid to an employee who is not an essential services employee should perhaps consider adopting the 80% rate. This will likely assist the employee to “prepay” the pending tax liability resulting from an expected reduced travel allowance claim. 

In case of a reimbursive travel allowance, the above dilemma appears to be conveniently avoided, even where a tax liability arises. 

reimbursive allowance is paid to an employee at a rate multiplied by business kilometres travelled. This thus creates a relationship between the allowance and the business kilometres travelled. 

Employees will find that the risk of a deferred 2021 tax liability is eliminated, as their business travel claim will be directly aimed at the reimbursive allowance. The importance of a well-maintained travel logbook, for such employees, must be emphasised. 

In addition, it is best practice that the employer’s resolution to tax more of the allowance should be performed on a case-by-case basis and based on the factual circumstances of the employee, as opposed to a blanket approach. 

The change in withholding taxes will reduce take-home pay and will be felt immediately in the employee’s pocket, although preventing a cash flow burden in the long run. 

For full article follow this link 

https://businesstech.co.za/news/business-opinion/421568/what-you-need-to-know-about-tax-and-work-travel-allowance-in-south-africa-during-covid-19/ 

This article is a general information sheet and should not be used or relied upon 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. Errors and omissions excepted (E&OE)

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Viewpoint: Deemed disposal at death

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Section 9HA of the Income Tax Act is a deemed disposal rule for deceased persons is effective from 1 March 2016 and is applicable in respect of a person who dies on or after that date 

Section 9HA of the Income Tax Act and the rewritten section 25 relocate some of the capital gains tax implications in the Eighth Schedule to the main body of the Act. Section 9HA deals with the deceased person, while section 25 deals with the deceased estate and heirs or legatees, including a surviving spouse. 

In terms of section 9HA, a person is deemed to have disposed of all assets at market value at date of death, except: 

  • Assets left to the surviving resident spouse 
  • Long-term (SA policies) of the deceased, or 
  • Deceased interest in retirement funds (SA and non-SA funds) 

When a person disposes an allowance asset, this triggers a possible recoupment or scrapping loss and capital gains tax under the Eighth Schedule. Prior to 1 March 2016, an allowance asset was deemed to be disposed of at market value under paragraph 40(1) on the date of death, but this disposal applied only for purposes of the Eighth Schedule. Under this rule, only the capital gain or loss was therefore taken into account 

From 1 March 2016, the deemed disposal takes place under section 9HA. This triggers a possible recoupment or scrapping loss, and capital gains tax under the Eighth Schedule.
The Eighth Schedule applies to both capital assets and trading stock but prevents double deductions and taxation. Trading stock is accounted for under the main body of the Income Tax Act, and it therefore holds no further capital gains tax implications at the date of sale. Prior to 1 March 2016 the market value of trading stock held and not disposed of on the date of death which exceeded its closing stock value was dealt with as a capital gain/loss. Trading stock was regarded as held by the deceased on the date of death for the purposes of section 22(1), whereas for capital gains tax purposes it was disposed. From 1 March 2016, section 9HA deems trading stock to be disposed of at market value on the date of death. The deemed disposal is included under gross income and holds no further capital gains tax implications. 

The inter-spouse roll-over relief under paragraph 67 of the Eighth Schedule continues under section 9HA for the deceased person and under section 25 for the surviving spouse, but now includes trading stock. 

Special Advice

When a person, donates an asset during his/her lifetime, subject to the exemptions, this triggers donations tax at 20% plus capital gains tax as a donation is a disposal for the purposes of the Eighth Schedule. Should a person hold onto the asset until the date of death, at the date of death, subject to the deductions and abatement, estate duty is levied at 20% plus capital gains tax as a person is deemed to have disposed of all his/her assets at the date of death. Therefore, both events result in potentially 20% donations tax or estate duty plus capital gains tax. 

Muneer Hassan CA(SA) is a Tax Consultant, Senior Lecturer in Taxation at UJ and lecturer on the Gauteng Board Course 

https://www.accountancysa.org.za/deemed-disposal-at-death/ 

This article is a general information sheet and should not be used or relied upon 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. Errors and omissions excepted (E&OE)

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