Estate Planning

1
Estate Planning
Estate Planning for Financial Planners 15
things that changed the last 5 years
1
2
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.
2
3
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

3
4
Estate Duty Abatement

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

4
5
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.

5
6
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.

6
7
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 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.

7
8
Example
Estate 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 spouse 4 500 000  
Net estate   500 000
Section 4A abatement   500 000
Dutiable estate  
Estate duty payable  

8
9
Example
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
9
10
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

10
11
Comments

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

11
12
Estate Duty Retirement Annuities

• Pre January 2009 position death
• Post January 2009 position death

12
13
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
• Income source for dependants as opposed to
  usufruct. (Further reading Tiny Caroll
  Tax Talk April 2012)

13
14
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
15
Capital Gains Tax Loan Accounts

• Waiver of Debt
• Donations to trust
• Bequest to trusts
• Collatio

15
16

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

16
17
Comments

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

17
18
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

18
19
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

19
20
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?

20
21
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.

21
22
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.

22
23
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.

23
24
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.

24
25
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.

25
26
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.

26
27
Trust Compliance SARS Compliance Programme
27
28
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.

28
29
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
  under-reporting.

29
30
Trust SARS Compliance Programme
30
31
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
31
32
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.

32
33
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
33
34
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.

34
35

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
   estate.
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.

35
36
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
   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.

36
37
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.

37
38
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
38
39

• 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.

39
40
Scenario 1 Bequeath R10 000 000 to his Spouse
and residue to Son
Property
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
40
41
Calculate residue of Son
 
Total assets 23 500 000
Less  
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
41
42
Scenario 2 Bequeath R10 000 000 to the Son and
the residue to his Spouse
Property
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
42
43
Calculate the Residue that the Spouse receives
Calculate residue  
Total assets 23 500 000
Less  
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
43
44
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.

44
45
Transfer DutySARS Transfer Duty Handbook
45
46
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
  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 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
  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.

46
47
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
  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 spouses age at the time of the
  deceaseds death
• Any other relevant factor.

47
48
Maintenance Claims against Deceased
EstatesSituation 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.
48
49
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.

49
50
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.

50
51
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 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.

51
52
Ratio

• 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
  donation.

52
53
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.

53
54
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.

54
55
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.

55
56
Benefits

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

56
57
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

57
58
Policies and Marital Regimes

• Community of Property
• Hees NO v Southern Life
• Payable to estate falls into joint estate

58
59
Universal Partnerships and Spouse

• Butters v Mncora (181/2011) 2012 ZASCA 29
  (28 March 2012)

59
60
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
  home.

60
61
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?

61
62
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.

62
63

• 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.

63
64

• 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.

64
65
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.

65
66
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.

66
67
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.

67
68
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
  relationship
• 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
  breadwinner
• 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
  property.

68
69
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.

69
70
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?

70
71
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.

71