2. fpi 2012 estate planning errol meyer - mcatv.co.zamcatv.co.za/files/download/estate...

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Estate Planning

Estate Planning for Financial Planners

“15 things that changed

the last 5 years”

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Definition of Estate Planning – Meyerowitz

“The arrangement, management and securement and

disposition of a person’s estate so that he, his family and

other beneficiaries may enjoy and continue to enjoy the

maximum from his estate and his assets during his lifetime

and after his death, no matter when death may occur.”

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Topics Selected� Estate Duty – Abatement

� Estate Duty – Retirement annuities

� Capital Gains Tax – Loan accounts

� Variation of Trusts

� Trust compliance – SARS Compliance programme

� Tax Compliance – Search and Seizure

� Wills

� Transfer Duty

� Maintenance

� Donations

� Policies and marital regimes

� Universal Partnerships and spouse

� Business Financial Planning – Income tax – Key person and other applications

� Business Financial Planning – Estate Duty

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Estate Duty – Abatement

� Pre – January 2010 position

• Benefit of abatement often lost

� Post – January 2010 position

• Deduction of R7 000 000

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Estate Duty – Deduction

� Post-31 December 2009 position

As a result of the 2009 amendment, section 4A(2)

provides that when a person was the spouse at the time

of death of one or more previously deceased persons,

the dutiable amount of the estate of that person must be

determined by the deduction from the net value of his

or her estate of an amount equal to R3,5 million:

• multiplied by two; and

• reduced by the amount deducted under section 4A from the net

value of the estate of any one of the previously deceased persons.

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Estate Duty – Deduction

� Where a person and his or her spouse die

simultaneously, the person of whom the net value of the

estate, determined in accordance with s 4, is the smallest

must be deemed for the above purposes to have died

immediately prior to his or her spouse.

� To take advantage of this “transferable abatement” the

executor of the estate of the surviving spouse must

submit a copy of a return submitted to the Commissioner

for the estate of the previously deceased.

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Example

� Princess passed away two years after Prince.

Prince, on his death bequeathed R500 000 to his son

and the residue to his spouse, Princess. The gross value

of Prince’s estate was R5 000 000. Princess’s assets

when she passed away was R7 500 000.

Calculate the estate duty of both the respective estates.

Ignore executor’s fees.

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ExampleEstate of Prince

Property –Deemed Property –

Assets not part of the liquidation and distribution account

Gross value of the estate 5 000 000

Allowable deductions 4 500 000

Bequest to spouse4 500 000

Net estate 500 000

Section 4A abatement 500 000

Dutiable estate –

Estate duty payable –

–

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ExampleEstate of Princess

Property 7 500 000

Inheritance from Prince 4 500 000

Own assets 3 000 000

Deemed Property –

Assets not part of the liquidation and distribution

account –

Gross value of the estate 7 500 000

Allowable deductions –

Net estate 7 500 000

Section 4A abatement 6 500 000

Dutiable estate 1 000 000

Estate duty payable 200 000

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Note the following:

� The estate of Princess is 2 x R3 500 000 less the net

estate of R500 000 of Prince.

� Stated differently: 2 x R3 500 000 less the unused portion

of the abatement = R6 500 000.

� It is thus not relevant that the abatement in terms of

previous legislation was R1 500 000 or R1 000 000.

� Definition of “spouse”

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Comments

� Trust structures

• Rationale of legislation

• Reason may exist to still use a trust

� 10,5 million

� Burden of proof – s 23 bis

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Estate Duty – Retirement Annuities

� Pre – January 2009 position death

� Post – January 2009 position death

D45 Top of page: New 2012 branding to be inserted onto the top of the pageBottom of page: Maroon banner and wording to be removed Dhevaras, 2012/02/13

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Comments

� Consistent assumptions for planning

� Tax benefits

• Estate duty –lump sums and annuities

• Capital gains tax

• Income Tax

• Taxation of retirement fund lump sums

• Tax free build up in approved funds

• Perfect vehicle to transfer retrenchment benefits

• Income source for dependants as opposed to usufruct.

(Sale of property vs RA)

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Comments

� Perfect vehicle to transfer retrenchment benefits

� Income source for dependants similar than trust as

opposed to use of usufruct. Age of 70 is no longer a bar.

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Capital Gains Tax – Loan Accounts

� Waiver of Debt

• Donations to trust

• Bequest to trusts

• Collatio

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� Case law

• ITC 1793

• ITC 1835

� Comments by academics

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Comments

� Solutions

• Bequeath to spouse or other trust

• Bequeath residue

• Drafting of Will

• Create liquidity in the Trust

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Variation of Trusts

� Risk profiling of trust may have changed

� Potgieter v Potgieter (629/2010) [2011] ZASCA 181

• Facts of the case

• Argument of children of deceased founder

• Arguments of newly appointed capital beneficiaries

• Decision of the SCA

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Importance of SCA Case for Financial Planning

� Must my children be part of the trust meeting to

“educate them”?

� Always leave a door open to amend the deed

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Trust Substance over form?

� FNB v Britz – 20 July 2011

� The legal question

• Could the court pierce the veneer of the trust and order that the

assets of the trust can be attached by creditors?

• What legal and factual circumstances will warrant such a conclusion?

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Arguments by Married Couple

1. As a businessman and being married in community of

property, he was advised to re-arrange his business affairs

and personal portfolio of assets.

2. He established a trading trust, which was run as a

business, and two trusts to house personal assets.

3. He contended that all times he differentiated between the

assets of the trust and his personal assets.

4. Rental paid to the trust to occupy the residence were

market related and covered the bond payments.

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Arguments by Creditor

1. The married couple are effectively in full control of the trust assets.

2. If not for the trust, the couple would have acquired the assets in their own name.

3. The married couple are the sole trustees in terms of the trust deeds.

4. They have an unfettered discretion to deal with trust assets.

5. They are the ultimate beneficiaries of the trust assets.

6. They had the power to remove and appoint trustees.

7. The couple could at any time, in their absolute discretion, transfer the assets to themselves because they were included as capital beneficiaries in terms of the trust deed.

8. The transactions entered into with the trust were simulated.

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Decision of Court1. The trusts were not treated as separate existing entities.

2. The trusts are the ‘alter ego’ of the couple.

3. There was a deliberate attempt to rearrange their financial affairs to evade creditors.

4. The court referred to the Badenhorst and Jordaan cases that held:

a. One must have regard to the terms of the trust deed, and

b. consider evidence how the affairs of the trust was conducted.

5. The clause that allows successive trustees to be appointed is indicative of placing the control of the affairs of the trust in the hands of the married couple.

6. In terms of the trust deed, the beneficiaries could not challenge the administrativeaffairs of the trust. It therefore created rights for the beneficiaries, but then does notallow protecting those rights and thus not in accordance with the principle that thetrust assets should be administered for the benefit of the beneficiaries.

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Decision of Court – continued

7. There was no proof of a lease agreement between the married couple and

the trust that houses the property, thus ostensibly use the property as their

own. By doing so they also not fulfilling their fiduciary duty towards the

beneficiaries of the trust.

8. The court found authority for their decision in corporate law with respect to

the abuse of a legal entity which leads to the piercing of the corporate veil. It

was held that fraud is not a pre-condition and that a court applies a look

through approach. Of importance for the court is that the personality of the

trust was abused or misused.

9. On the evidence there was no proper paper trial to determine who really paid

the bond. It was unclear whether loan accounts were created or whether

donations were made to the trust.

10. There was no evidence that the transfer of movable assets actually took

place, because proof for the payment of goods and delivery was absent.

11. On the evidence it was clear that the married couple could not convince the

court that the de facto control was relinquished.

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Comments on the Case

� An interesting aspect is that the court regarded the

interest free loan with no specific terms as indicative of

control in the specific circumstances.

� Our law will always pay due regard to the substance of

the transaction over the form that a transaction is

couched in. To arrive at such a conclusion the court will

look at the terms of the trust deed as well as the factual

circumstances.

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� To conclude that the trust deed has the power to appoint further trustees, or that an interest-free loan is made to the trust, is not sufficient on its own to regard trust assets as that of an estate planner. All the surrounding circumstances must be taken into consideration to avoid the result of the case discussed. It is strongly suggested:

� To appoint an independent trustee, although the court did not make much of the fact that the parties were married in community of property and acting as trustees.

� Be meticulous in the documentation of transactions with and by the trust, always keeping in mind that the object of the trust is for the benefit of the beneficiaries.

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Trust Compliance – SARS Compliance Programme

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Trust – SARS Compliance Programme

� Our preliminary sampling exercise has shown that

under-declaration of income is an area of concern, where

an individual’s declared income is not consistent with their

asset base. To date, 467 potential wealthy individuals

have been identified where there are discrepancies

between their asset base and declared income, and they

can expect much closer scrutiny from SARS.

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� Wealthy individuals are also generally linked to a number

of trusts and companies, some of which are used as

vehicles to channel and hide their assets and income.

Most of the wealthy South Africans we have reviewed are

linked to more than 10 associated companies on average

and 87% of these associated companies and 59% of

trusts have outstanding returns. A total of 67% of audits

conducted into trusts show serious under-reporting.

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Tax Compliance – Search and Seizure

� SARS letter of enquiry or audit

� Section 74 D – Search and Seizure

� The Rights of Taxpayers

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Wills – Interpretation

Pienaar v Master of the Free State High Court [2011] ZASCA112 (01 June 2011)

� The testator (Du Toit) executed a Will in November 2006

(2006 Will) and then later another Will in May 2007

(2007 Will). The deceased was married to Cynthia du Toit

but were divorced from her prior to executing both wills

mentioned above.

� The deceased had two daughters born from a previous

marriage and a son, Derick born from the marriage

between him and Cynthia.

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Summary of the provisions of the 2006 and 2007 Wills

2006 Will Inheritance 2007 Will Inheritance

Cynthia Sanlam Investment Cynthia Lifelong use of property

Derick Property + Car Derick and daughters Property

Residue Daughters One daughter and Derick

Cash

Car Son-in-law

Residue Daughters

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The Supreme Court of Appeal of South Africa held as

follows:

1. Referring to case law, as a general rule Wills

(in the absence of a revocation clause) of a testator must

be read together and the earlier will are deemed to be

revoked as far as they are inconsistent with the later one.

2. Both Wills dealt with the entire estate.

3. There was no revocation clause in the 2007 Will.

4. The 2007 Will was in effect a new “scheme”

5. Relying on Price v The Master 1982 (3) SA 301 (N) it held

that if there are two Wills with similar provisions but

different in effect, and each Will deal with the entire

estate, then they cannot stand together and the later will

must be construed as impliedly revoking the earlier.

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6. The golden rule of interpretation is to ascertain the

wishes of the testator from the language used in the will.

The Appeal Court assumed that the testator knew what

the term “residue” meant. Therefore the Appeal Court

concluded that it was the intention of the testator to

include the Sanlam Investment policy in the residue of

the estate.

7. The order of the High Court (Bloemfontein) was set aside

and the Appeal Court concluded that the 2007 Will

impliedly revoked the 2006 Will in so far as it was

inconsistent with the 2007 will.

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Comments on Case1. Testators must be certain about their understanding of the meaning of

the term “residue”. Remember that the residue is paid after estate duty

is accounted for. Where a direct investment bequest is made which is

dutiable, the estate duty will be paid out of the residue of the estate,

leaving the residuary heirs less. If the investment is classified as a

policy, in other words have a life insured in terms of the investment

contract, the proportionate estate duty payable will be collected from

the beneficiary. It is therefore crucially important to determine the

nature of the investment and whether the estate duty payable on the

investment will be collected from the legatee or the residuary heir!

2. A poorly drafted Last Will and Testament can lead to tremendous

hardship and may not reflect the true intention of the testator. To avoid

litigation and uncertainty, as in this case, it is recommended to have

a revocation clause and prepare a new Will that clearly demonstrates

the intention of the testator.

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Wills and Estate Duty Planning

� Assume that you have a scenario where an estate

planner wishes to bequeath an amount of R10 000 000

to his spouse and R10 000 000 to his son.

� The way you choose to describe these bequests in the

last will and testament may have an impact on the final

estate duty payable and whether the wishes of the

testator can be fulfilled.

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Assume that the estate planner presents you with the

following assets and liabilities of his estate.

Fixed property 10 000 000

Cash 10 000 000

Life policy payable to the estate 3 500 000

Total liabilities of the estate 1 000 000

Total estate liabilities such as executors fees, etc 1 000 000

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� The estate planner may choose to bequeath an amount

of R10 000 000 to his spouse and the residue to his son.

It is his intention that the son must also receive an amount

of R10 000 000. Alternatively, the estate planner may

choose to bequeath an amount of R10 000 000 to his son

and the residue to his spouse.

� In the first scenario, the son will not receive R10 000 000

as planned by the estate planner. In the latter instance

you will note that an estate duty saving of R300 000 can

be achieved with the result that both heirs will receive

more.

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Scenario 1 – Bequeath R10 000 000to his Spouse and residue to Son

Property –


Cash 10 000 000

Deemed property –

Policies payable to estate 3 500 000

Total 23 500 000

Liabilities of estate 1 000 000

Estate liabilities 1 000 000

Direct bequest to spouse 10 000 000


Abatement 3 500 000


Estate duty payable 1 600 000

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Calculate residue of Son

Total assets 23 500 000

Less



Bequest to spouse 10 000 000

Residue 11 500 000

After estate duty 9 900 000

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Scenario 2 – Bequeath R10 000 000 to the Son and the residue to his Spouse

Property –


Cash 10 000 000

Deemed property –

Policies payable to estate 3 500 000

Total 23 500 000



Bequeath residue to spouse 11 500 000


Abatement 3 500 000


Estate duty payable 1 300 000

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Calculate the Residue that the Spouse receives

Calculate residue

Total assets 23 500 000

Less



Bequest to son 10 000 000

Residue 11 500 000

After estate duty 10 200 000

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Comment

� From the above calculation we can now conclude that the

son will indeed receive R10 000 000. The total estate duty

payable is also reduced to R1 300 000.

� Therefore, bequeathing the residue of the estate to the

spouse will ensure that an additional R300 000 as a result

of the estate duty savings is available for distribution.

Also, the son receives R10 000 000 and not only

R9 900 000.

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Transfer DutySARS Transfer Duty Handbook

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Maintenance of Surviving Spouses Act � The Maintenance of Surviving Spouses Act determines that

in certain circumstances, the surviving spouse holds a claimfor maintenance against the estate of the deceased spouse.• Section 2(1) of the Act determines that if the marriage is dissolved by

death after the commencement of the Act, the surviving spouse has a claim against the estate of the deceased spouse for the provision of hisreasonable maintenance needs until his death or remarriage in so far as he is unable to provide therefore from his own means or earnings.

• The claim arises regardless of the matrimonial property system which operated in the marriage.

• However, the claim arises only in so far as the surviving spouse is unable to provide for her reasonable maintenance needs from his own means and earnings.

• The surviving spouse shall not, however, have a right of recourse against any person to whom money or property has already been paid.

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Maintenance of Surviving Spouses Act

� The following factors must be taken into account in considering

the surviving spouse’s reasonable maintenance needs:

• The amount in the deceased estate available for distribution amongst

heirs and legatees.

• The existing and expected means, earning capacity, financial needs

and obligations of the surviving spouse and the subsistence of the

marriage.

• The standard of living of the surviving spouse during the subsistence

of the marriage and his age on the death of the deceased spouse.

• The duration of the marriage

• The surviving spouse’s age at the time of the deceased’s death

• Any other relevant factor.

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Maintenance Claims against Deceased Estates

Situation where the Spouses are not Divorced

Maintenance of Surviving Spouses Act 27 of 1990.

Section 2(1)

If a marriage is dissolved by death the survivor shall have a claim against the

estate of the deceased person for reasonable maintenance until his death or

remarriage in so far as the surviving spouse cannot provide from his/her own

means and earnings.

Section 2(3)(b)

The spouse shall have the same order of preference as a claim for

maintenance of a dependent child of the deceased spouse, and if these claims

compete the claims shall be reduced proportionately.

Section 2(3)(d)

The executor of the deceased estate may enter into an agreement with the

survivor and the heirs, which includes the creation of the trust in settlement of

the claim of the survivor.

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Factors

Section 3

Certain factors can be taken into consideration to establish the

reasonable maintenance, namely:

1. The amount in the estate available for distribution to the heirs

2. The existing and expected means, incapacity, financial needs

and obligations of the survivor and the subsistence of the

marriage

3. The standard of living of the survivor giving the subsistence of

the marriage and his age at the death of the deceased spouse

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Oshry NO and another v Feldman [2011] 1 All SA 124 (SCA)

� F & O married late in life, both second marriages. O died leavingF with insufficient means in his will.

� F claimed under MSSA. The High Court found that payment hadto be regular payments and cannot be lump sum.

� On appeal SCA found that court a quo erred and that maintenance can be lump sum in terms of the 1998 Maintenance Act.

� A claim against the deceased estate for maintenance is deductible for estate duty purposes, provided that it is reasonable.

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Situation where a Person dies after a Divorce

� The Divorce Act is relevant and not the Maintenance of Surviving Spouses Act.Kruger NO v Goss and another [2010] 1 All SA 422 (SCA)

This case dealt with rehabilitative maintenance, which is usually for a

limited period of the date of divorce.

Maintenance does not extend beyond death of maintenance payer unless

divorce order states that.

“Of course a spouse is free to agree to bind his/her estate to pay

maintenance after death. That is not what occurred in the present case.

To allow maintenance claims of the kind encountered here against

deceased estates might have all sorts of undesirable consequences.”

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DonationsWelch Case – Discussion

� The facts of the case were briefly (simplified) the following:

� The husband divorced his spouse in 1996. In order to provide for rehabilitative maintenance for the divorced spouse and maintenance for the children he agreed to make approximately R3 000 000 available to the trust.

� This was made an order of court. The capital and income beneficiaries were the spouse and the children. Only the childrenwere the capital beneficiaries. SARS argued that the settlement of assets to a trust was a gratuitous disposal of property in terms of section 55 of the Income Tax Act, that is the section that dealswith donations tax.

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Ratio

� The Supreme Court thus held that section 55 of the Income TaxAct is not applicable if a quid pro quo (mutual consideration, something for something. Afrikaans – teenprestasie) was given.

� The Supreme Court held that section 55 of the Income Tax Act requires that the disposition of the asset must be out of “pure liberality” or “disinterested benevolence”.

� Also, section 55 did not alter the common law, which requires that a disposition must be out of “pure liberality” or “disinterestedbenevolence” before it can be said that it was a donation.

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Ratio – continue

� In this case the husband was under the legal obligation

to pay maintenance and it was a debt due that did not

cease upon death. The trust was a mechanism which the

parties decided to use to discharge the maintenance

obligation.

� The court noted that the divorced spouse also gave a

quid pro quo. She abandoned her maintenance claim

against the husband and agreed to look at the trust for

maintenance.

� It was therefore held that no donations tax was payable.

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Comments on the Importance of this Case for Financial Planners

� SARS could have invoked section 58 of the Income Tax

Act to claim donations tax for the amount that was more

than the legal maintenance obligation. Therefore, if a

similar set of facts represent itself it may be prudent to

base one’s planning on the basis that SARS will the next

time around invoke section 58 of the Income Tax Act.

Therefore, it becomes important to calculate the exact

amount that relates to the maintenance obligation so to

avoid donations tax as contemplated by section 58.

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Comments on Case

� In a divorce case it is foreseeable that the parties will

make some calculations based on some methodology.

The application of the correct methodology is of

paramount importance. To start off with an estimated

capital lump sum does not make sense. It is submitted

that the point of departure in any such negotiation in a

divorce matter will be to make an estimate of what the

amount is needed per month, for how long, and the

assumptions in respect of the investments return as well

as the inflation rate. It is submitted that it is easier to

accurately determine the monthly expenditure needed

than an estimated capital lump sum.

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Benefits

� The capital amount is protected

� Avoid conflict between capital and income beneficiaries

� Effective income tax and capital gains tax splitting can be

achieved.

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Policies and Marital Regimes

� Accrual

• Principle of stipulatio alteri

• Law of contract – “right to claim” + suspensive “time clause”

• Hersov – “property” = right in respect of estate duty

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Policies and Marital Regimes

� Community of Property

• Hees NO v Southern Life

• Payable to estate – falls into joint estate

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Universal Partnerships and Spouse

� Butters v Mncora (181/2011) [2012] ZASCA 29 –

(28 March 2012)

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The Facts of the Case� Mr Butters (B) and Ms Mncora (M) lived together for 20 years as husband and

wife, but were not married in terms of the laws of the Republic of South Africa.

However, the evidence shows that they were engaged.

� B started a security business whilst M worked as a secretary with a salary of

R2 000 per month. M, on the insistence of B, stayed at home to look after the

children. B provided for all the maintenance needs of the family.

� B accumulated many assets, all registered in his name.

� The relationship came to an end and a dispute ensued as to whether she was

entitled to any of the assets, even though she was not married to B.

� M contended that it was her understanding that they shared everything, whist

B argued that everything was his and his alone since she played no part in his

business life.

� M made no direct contribution to B’s business, but supported him, care for him

and their children, whilst also maintaining their common home.

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The Legal Question

� Can a universal partnership exist between parties in

a cohabitation relationship?

� Is it a requirement that M must have made a contribution

to the commercial entity or is it sufficed that she

contributed to the maintenance of the family?

� If such a partnership is recognized in our law, can it be

said on the evidence presented that M will succeed in

a claim against B?

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Decision of the Supreme Court of Appeal (SCA)

� The general rule in our law is that cohabitation does not give rise to special

legal consequences.

� Protective measures in terms of family law are not available to unmarried

couples, but the remedies of private law may provide relief.

� To succeed in a claim the law of partnership must apply to the facts of the

case.

� The essential elements of a partnership in our law are:

• Each of the parties must bring something into the partnership whether

it may be money or labour or skill.

• The partnership must be carried on for the joint benefit of both parties.

• The object must be to make a profit.

� The SCA dealt with all the requirements.

� B argued that M made no contribution to the commercial undertaking

(the business) and therefore the first requirement is not fulfilled.

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� Roman and Roman Dutch law recognized universal partnerships,

apart from particular partnerships entered into for the purposes of

a particular enterprise.

� A distinction in respect of universal partnerships must be made where

parties agree to put in common all their property, present and in future,

and the situation where the parties agree that all they may acquire

during the existence of the partnership from every kind of commercial

undertaking shall be partnership property.

� The SCA held that a partnership enterprise may extend beyond

commercial undertakings and therefore the contributions of both parties

need not be confined to a profit making entity. The SCA accepted the

evidence that the partnership between the parties could include both

the commercial undertaking (business) and the non profit part of their

family life. The contribution of M cannot be denied.

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� M fulfilled the first qualification and the fact that she did not make a

direct contribution to the commercial undertaking does not debar her

from fulfilling this requirement. The second and third requirement that

the partnership must be for the joint benefit of parties and make a profit

is also fulfilled since they entered into a partnership which

encompassed both their family life and the business conducted by B.

� The non financial contribution of M is a relevant factor since it is

established that the contribution to the commercial enterprise is not the

only requirement for bringing something into the partnership, albeit by

conduct and not an express partnership agreement. B shared in the

benefits derived from the contribution. Thus, the contributions of both

parties, financial or otherwise, was shared and consumed in the pursuit

of their common enterprise.

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Held by SCA

� M succeeded in her argument that a tacit universal

partnership between her and B existed and therefore the

appeal of B fails.

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� The minority judgement did not disagree with the

exposition of the law by the majority, discussed above.

The minority decided that the appeal should succeed

based on the evidence led in terms of the tacit agreement

between the parties. The importance hereof is that any

party that finds him or her in a similar position should

ensure that concrete evidence is placed before the court

that there was indeed an express intention that a contract

came into being. In such an instance, our law is now clear

that legal recognition and remedies are available for

a person in a cohabitation relationship.

68


� For purposes of taxation, persons living together are

treated as a spouse, as defined. The spouse’s deduction

for estate duty and rollover for capital gains tax relief will

be available. The same applies to donations made

between spouses, as defined.

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Comments on the Case� The Domestic Partnership Bill in not yet written into law

in South Africa and persons staying together in an

unregulated relationship should draw up a cohabitation

agreement that stipulates some of the following:

1. Distribution of assets upon termination of the relationship

2. Maintenance obligations towards each other

3. Education and welfare of children

4. Future payment of insurance policies and ownership of the policy

on the life of a breadwinner

5. Establishing a trust for dependants

6. The right to reside in the family home after termination of the

relationship. This aspect must be in writing and signed by both

parties to have legal effect since it relates to immovable property.

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Business Financial Planning

� Business financial planning is essentially no different than personalfinancial planning. It also deals with the creation and protection of wealth. The only difference is that we deal with employer owned policies as well as individual owned policies. Where in personal financial planning the owner and life assured is usually the same person, this is often not true for business financial planning.

� For instance, a company will insure the life of an employee or a business partner will insure the life of the other business partners.It is therefore important to have a good understanding of the concept that one person can be the owner of life insurance and someone else the life assured.

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Business Financial Planning and Key Person Policies

� The proceeds of a genuine key person policy will assist the

business to survive losses and to meet expenditure to recruit

and train a new employee. Stated differently, the purpose of

the policy is to cover the business against operating losses.

� Section 11(w) deduction – objective and subjective criteria

� Proceeds – in Gross income, but may qualify for an

exemption

� What about repayment of loan accounts and surety ship

plans?

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Key Person Policies – Estate Duty

� The first requirement is that the Commissioner must be satisfied that all the

requirements are adhered to. SARS provides guidelines how he will exercise

his discretion. What follow is the views of SARS in terms of a reference guide

published in 2008.

� To enable SARS (on behalf of the Commissioner) to consider whether the

proceeds of a policy fall within the ambit of the exclusion, all the relevant

documentation pertaining to the case, namely

• copies of the resolution taken by company to take out such policy, and

• application made for the policy and any other documentation to prove that the proceedsof the policy were not applied to benefit either the estate, any relative of the deceased or any person who was dependent upon the deceased for his/her maintenance or a family company of the deceased as envisaged in the relevant section of the Act.

� These documents must be submitted together with the Liquidation and

Distribution Account to the Master’s Office where the SARS estate auditor will

verify the documentation.

2. fpi 2012 estate planning errol meyer - mcatv.co.zamcatv.co.za/files/download/estate...

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