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Estate Plans with CCs and Trusts |
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1. You may have read from time to time that Close Corporations were about to disappear under new Company Law Legislation. Now as I understand it, their status however, is secure and will be retained and indeed a most interesting development has occurred, namely that with effect from 11th January 2006 Inter Vivos Trusts can with certain restrictions become and be members of Close Corporations. The qualifications are that the Trust does not have a juristic person as a beneficiary. The Trust is required in the CC’s Founding Statement to nominate a natural person as its representative and that person will then have all the obligations and rights as such of a member and the CC in turn will not be obliged to observe any particular obligations that might exist between that member and the Trust.
2. It is also provided that if the number of members together with the number of beneficiaries under such a Trust exceed 10, the exemption will forthwith cease once and for all to apply even if the number of beneficiaries or members is then reduced to below 10! This development has huge implications for Estate Planning purposes. The Estate of an individual owning an interest in a CC will be subject (on death) to Estate Duty together with Capital Gains Tax which could result in a payment to SARS in the region of up to 25% of the value of the Estate. If that interest in the CC is sold to a Trust via an interest free loan repayable on demand, sooner rather than later, all that will be left in the Estate will be the debt duly diminished by dividend “repayments” and the ravages of inflation. No taxes will be payable on the assets or inherent value of the CC at all which could have amounted to up to 25%.
3. Thus for instance where a CC owns property if all members interests were sold to a Trust the appreciation in that property value would be protected against Estate Duty or CGT but at the same time the beneficiaries of the Trust would enjoy by way of internal arrangements all the rights to occupation that previously existed between the members.
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