Newsletter 11

Termination of Existing Trusts

Article on termination of Trusts

Article on termination of Trusts

Termination of Existing Trusts

Several important aspects to consider when terminating a Trust

When a Trust no longer serves its purpose or has been distributed there are several important aspects to consider.

The distribution will trigger a capital gains tax event. The question is what the difference is between the market value of certain assets and their base cost. Any positive difference will be subject to capital gains tax. The next question is in whose hands the capital gain will vest as the inclusion rate for this tax differs for the trust and individuals materially. Can you extract your family home or other fixed property by way of a distribution to a trust beneficiary and if so, do you have to pay transfer duty again?

The first step is to make sure that the Trust Deed provides the necessary powers for early termination and whether any capital gain can be vested. You must start with the constitution of the Trust, namely with the Deed.

The next step is to calculate the position as regards potential capital gains tax. Here Covid-19 may have provided you with an unintended benefit. The value of equities has declined materially especially if the effective date of the distribution was around the end of March 2020. Capital gains tax may be neglible. The net asset value of any private company holding as determined by your auditor may also be such that any capital gain may now be little or nothing.

If section 7C of the Income Tax is a problem for you, now is the time to reconsider your Trust. The window of opportunity will not be too long as markets show signs of recovering, albeit slowly.

Once a Trust has been distributed it is not the end of the process.

In order to de-register the Trust with S A Revenue Services you need to first de-register the Trust with the Master of the High Court. The Master has its requirements for this. Unless you attend to this you will have to continue submitting returns to SARS although they may be nil returns. You will however have to pay your tax practitioner until no more returns are required.

Ending the Trust requires the same attention as when you started it. It must be done with the necessary skill and not in isolation. How does it affect your Will and post-planning?

We can assist you with terminating your Trust properly and do not have to be one of the existing Trustees.

The most important question is whether you should not keep your Trust for reasons such as protection of beneficiaries and preservation.

Just phone a family home office friend:
Nico Botha FPSA® - 082 901 0831
Adv Sarel Carstens - 083 610 0416