A sharp correction in share prices on the Johannesburg Stock Exchange (JSE) represents a good opportunity for high-net-worth individuals, concerned to protect the value of their wealth, to donate assets into an inter-vivos trust.
Philip Wheeler, managing director of Appleton Trust, the private banking arm of Appleton Financial, says the value of assets transferred into an inter-vivos trust is pegged at their value at the time of transfer.
"It would make sense to transfer equities into a trust while they are relatively undervalued," he says. "This will limit estate duty in the eventual estate and the potential saving over a number of years could be fairly considerable."
You only need worry about creating a trust if your dutiable estate is more than R2 million, bearing in mind that the first R1 million of an estate is not liable for duty and there are costs associated with setting up and maintaining a trust.
According to Deloitte & Touche's Pay Less Tax1997, you can either donate all your assets to a trust, in which case you pay donations tax above R25 000 a year, or sell your assets to the trust at full market value against a loan account. If you have used the loan account route, you can regularly reduce the value of the loan account by donating up to R25 000 of it to the trust each year without attracting donations tax. Any balance left in the loan account when you die will be included in your estate.
Wheeler adds that, with the end of the tax year looming, individuals with inter-vivos trusts who have not already done so should donate the R25 000 tax-free amount to their trusts.