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Estate Planning


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Title: Estate Planning

Estate Planning
Estate Planning for Financial Planners 15
things that changed the last 5 years
Definition of Estate Planning Meyerowitz
The arrangement, management and securement and
disposition of a persons 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.
Topics Selected
  • Estate Duty Abatement
  • Estate Duty Retirement annuities
  • Capital Gains Tax Loan accounts
  • Variation of Trusts
  • Trust compliance SARS Compliance programme
  • Tax Compliance Section 74A of the Income Tax
    Act to obtain information.
  • 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

Estate Duty Abatement
  • Pre January 2010 position
  • Benefit of abatement often lost
  • Post January 2010 position
  • Deduction of R7 000 000

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.

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.

  • 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 Princes
    estate was R5 000 000. Princesss assets
    when she passed away was R7 500 000.
    Calculate the estate duty of both the respective
    estates. Ignore executors fees.

Estate of Prince    
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 spouse 4 500 000  
Net estate   500 000
Section 4A abatement   500 000
Dutiable estate  
Estate duty payable  

Estate 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
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

  • Trust structures
  • Rationale of legislation
  • Reason may exist to still use a trust
  • 10,5 million
  • Burden of proof s 23 bis

Estate Duty Retirement Annuities
  • Pre January 2009 position death
  • Post January 2009 position death

  • 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
  • Income source for dependants as opposed to
    usufruct. (Further reading Tiny Caroll
    Tax Talk April 2012)

Example of taxes and cost savings
Fund Money Market Fund Retirement Annuity
Invested 3 000 000 3 000 000
Growth (10) 300 000 300 000
Income Tax 120 000 nil
Total value 3 180 000 3 300 000
Estate duty 636 000
Executor's fees 126 882
Tax on retirement fund nil
After taxes and fees 2 417 118 3 300 000
Capital Gains Tax Loan Accounts
  • Waiver of Debt
  • Donations to trust
  • Bequest to trusts
  • Collatio

  • Case law
  • ITC 1793
  • ITC 1835
  • Comments by academics

  • Solutions
  • Bequeath to spouse or other trust
  • Bequeath residue
  • Drafting of Will
  • Create liquidity in the Trust

Variation of Trusts
  • Risk profiling of trust may have changed
  • Potgieter v Potgieter (629/2010) 2011 ZASCA
  • Facts of the case
  • Argument of children of deceased founder
  • Arguments of newly appointed capital
  • Decision of the SCA

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

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?

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.

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
  6. They had the power to remove and appoint
  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

Decision of Court
  • The trusts were not treated as separate
    existing entities.
  • The trusts are the alter ego of the couple.
  • There was a deliberate attempt to rearrange
    their financial affairs to evade creditors.
  • The court referred to the Badenhorst and
    Jordaan cases that held
  • One must have regard to the terms of the trust
    deed, and
  • consider evidence how the affairs of the trust
    was conducted.
  • 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.
  • In terms of the trust deed, the beneficiaries
    could not challenge the administrative
    affairs of the trust. It therefore created rights
    for the beneficiaries, but then does not
    allow protecting those rights and thus not in
    accordance with the principle that the trust
    assets should be administered for the benefit of
    the beneficiaries.

Decision of Court continued
  1. 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.
  2. 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.
  3. 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.
  4. There was no evidence that the transfer of
    movable assets actually took place,
    because proof for the payment of goods and
    delivery was absent.
  5. On the evidence it was clear that the married
    couple could not convince the court that
    the de facto control was relinquished.

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.
  • Investments in Trust Risk profiling.

Comments on the Case
  • 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.

Trust Compliance SARS Compliance Programme
Trust SARS Compliance Programme
  • Our preliminary sampling exercise has shown
    that under-declaration of income is an area
    of concern, where an individuals 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.

Trust SARS Compliance Programme
  • 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

Trust SARS Compliance Programme
Tax Compliance

The Tax Administration Bill (TAB) that will soon
become law substantially expands SARSs
information gathering powers. Section74 A In
its Strategic Plan 2012/13 - 2016/17 (at p 25)
SARS talks of 'becoming data and information
rich' and then states "By increasing and
integrating data from multiple sources, SARS
will increasingly be able to gain a complete
economic understanding of the taxpayer and trader
across all tax types and all areas of economic
activity. By moving from a transactional to an
economic view of the taxpayer and trader, SARS
will be able to detect inaccuracies in
declarations as well as to identify those who
have attempted to stay outside the tax net
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.

Summary of the provisions of the 2006 and 2007
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
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
  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.

  1. 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
  2. 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.

Comments on Case
  1. 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
  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

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
  • 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

Assume that the estate planner presents you with
the following assets and liabilities of his
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
  • 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
  • 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.

Scenario 1 Bequeath R10 000 000 to his Spouse
and residue to Son
Fixed property 10 000 000
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
Net estate 11 500 000
Abatement 3 500 000
Dutiable estate 8 000 000
Estate duty payable 1 600 000
Calculate residue of Son
Total assets 23 500 000
Liabilities of estate 1 000 000
Estate liabilities 1 000 000
Bequest to spouse 10 000 000
Residue 11 500 000
After estate duty 9 900 000
Scenario 2 Bequeath R10 000 000 to the Son and
the residue to his Spouse
Fixed property 10 000 000
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
Bequeath residue to spouse 11 500 000
Net estate 10 000 000
Abatement 3 500 000
Dutiable estate 6 500 000
Estate duty payable 1 300 000
Calculate the Residue that the Spouse receives
Calculate residue  
Total assets 23 500 000
Liabilities of estate 1 000 000
Estate liabilities 1 000 000
Bequest to son 10 000 000
Residue 11 500 000
After estate duty 10 200 000
  • 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.

Transfer DutySARS Transfer Duty Handbook
Maintenance of Surviving Spouses Act
  • The Maintenance of Surviving Spouses Act
    determines that in certain circumstances,
    the surviving spouse holds a claim for
    maintenance against the estate of the deceased
  • 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 his reasonable
    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
  • 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.

Maintenance of Surviving Spouses Act
  • The following factors must be taken into
    account in considering the surviving
    spouses 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
  • 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 spouses age at the time of the
    deceaseds death
  • Any other relevant factor.

Maintenance Claims against Deceased
EstatesSituation where the Spouses are not
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.
Oshry NO and another v Feldman 2011 1 All SA
124 (SCA)
  • F O married late in life, both second
    marriages. O died leaving F with
    insufficient means in his will.
  • F claimed under MSSA. The High Court found that
    payment had to 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.

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
  • 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
  • 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.

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
  • This was made an order of court. The capital
    and income beneficiaries were the spouse
    and the children. Only the children were 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 deals with donations tax.

  • The Supreme Court thus held that section 55 of
    the Income Tax Act 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 disinterested
    benevolence before it can be said that it was a

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
  • 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
  • It was therefore held that no donations tax was

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 ones 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.

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.

  • The capital amount is protected
  • Avoid conflict between capital and income
  • Effective income tax and capital gains tax
    splitting can be achieved.

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

Policies and Marital Regimes
  • Community of Property
  • Hees NO v Southern Life
  • Payable to estate falls into joint estate

Universal Partnerships and Spouse
  • Butters v Mncora (181/2011) 2012 ZASCA 29
    (28 March 2012)

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 Bs business,
    but supported him, care for him and their
    children, whilst also maintaining their common

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?

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.

  • 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.

  • 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.

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.

Comments on the Case
  • 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.

Comments on the Case
  • For purposes of taxation, persons living
    together are treated as a spouse, as
    defined. The spouses deduction for estate
    duty and rollover for capital gains tax relief
    will be available. The same applies to
    donations made between spouses, as defined.

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
  • Distribution of assets upon termination of the
  • Maintenance obligations towards each other
  • Education and welfare of children
  • Future payment of insurance policies and
    ownership of the policy on the life of a
  • Establishing a trust for dependants
  • 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

Business Financial Planning
  • Business financial planning is essentially no
    different than personal financial 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.

Business Financial Planning and Key Person
  • 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?

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 proceeds of
    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 Masters Office where the SARS estate auditor
    will verify the documentation.

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