Two things have recently come to my attention and they are a serious danger to those uninformed people who haven’t done their homework.
These people have consulted the kind of “expert” who we could call an “omelette maker”: the kind who has his eggs (he gets paid when he draws up trusts) and then when they break (they go wrong) he has an omelette because now he’s got more work defending you from the consequences of his bad advice, for which he gets even more money out of you.
1. Bare dominium/usufruct
Firstly some people are being advised to go the bare dominium/usufruct route. This is sometimes a route that makes sense when you are transferring a property into a trust. It depends on the circumstances. The idea is that you separate the fruits of use (i.e. living in your house) from the official ownership of the house (which goes to the trust) and, based on your age and other factors, this could mean that as little as 10% of the value of your house needs to be transferred, hence you save on those incredibly expensive transfer fees. It’s also supposed to give you security so you won’t lose your house.
Take care! Do you think for a minute that the banks haven’t worked this one out? In your agreement with them, it will simply state that you cede the usufruct to the bank, and assume security in your personal name, which puts you back in the same position as you would be if you owned the house in your personal name – or maybe even a worse one.
This route is being sold to customers on the basis that in these tough times, it is a way of safeguarding your assets. I’m afraid that is simply not true.
“Personal service trusts”
The second problem involves the Receiver of Revenue, who has noticed that a lot of people think they can put their assets into a trust and then lease them back and in that way, claim them as expenses and thus save on tax.
According to a SARS auditor, the directive from the Taxation Appeal Court (TAC) is that they should be considered “personal service trusts”. In this case, the individual will go back to full taxability on these assets, and who knows, perhaps there will be penalties too. There is a crucial court case coming up in November, and on the results of this, SARS will move to stop this behaviour.
Will SARS win in court? There are no guarantees, but remember that the law, like the educational system, does not operate in a vacuum and is subject to the same pressures by the same powerful sectors of our society.
My trust course
On hearing this, I took a look at my trust course to see how it fitted with what I say, and I found, as I did with my property courses, that it is all entirely in keeping with the legal requirements as well as the current conditions we find ourselves in, even though these have changed since I first started teaching.
The rule, as always? Inform yourself and take responsibility, don’t rely on the “experts”.
5 comments:
Is it true to always have 3 or more trustees on a trust or can there be 2?
It depends on how and by whom the trust deed was drawn up.
Although it is generally accepted that there will be at least three trustees in inter vivos trusts, two are perfectly sufficient.
It is even possible to have only one trustee as is the case with some trust companies.
Some experts do however convince people that you must have an independent trustee and then appoint themselves as the independent trustee – and in doing so collect monthly fees for doing in essence nothing.
Where can I find someone who knows Hannes Dreyer's principles on wealth creation to assist me in creating a trust. I completely understand the problem with the so-called 'experts' but to do things like this one would still want an 'enlightened' professional.. hehe.
Thanx for sharing your wisdom Hannes. Its Much needed and much appreciated.
Pieter Minnaar
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