Time to protect your assets as best you can?
THE world has become a challenging place. It has become difficult to make ends meet for many people in South Africa. Living costs have gone up post Covid, and business owners have especially been impacted and may even be at risk of losing everything. Pierre-olivier Gourinchas from the International Monetary Fund reckons “the worst is yet to come and, for many people, 2023 will feel like a recession”. It is expected that the global economy will shrink by a third in the next year.
Now, more than ever, is it important for estate planners to protect what they have gathered over many years. The times where people treated their estate plans and the execution thereof (including trust structures) “slap dash” are over. Even SARS is having a closer look at trusts – refer to their media release with the title “SARS sharpens its focus on trusts” (www.sars.gov.za/media/media-releases/).
Estate planning
Often people believe that estate planning is something they do only in preparation for the day they die. In financial planning, more emphasis is usually placed on investment strategies and the creation of wealth than on estate planning, despite the fact that estate planning forms one of the key supporting pillars of a sound financial plan. A lack of proper estate planning often results in situations where people are compromised.
The Wikipedia definition of estate planning is deceptively simple: “The process of disposing of your estate.” This definition implies that you can arrange your financial affairs while you are alive for your own and others’ benefit, as well as for the benefit of those you favour after your death (your legacy), obviously subject to legislation such as the Maintenance of Surviving Spouses Act.
Proper estate planning is otherwise widely defined as the arrangement, securement, management and disposition of your estate so that you, your family and other beneficiaries may enjoy, and continue to enjoy, the maximum benefits from your estate and your assets during your lifetime and after your death, no matter when death may occur.
This is, therefore, a great deal more than just the retirement planning performed by most financial advisers. What would happen if you died a few months before retirement? You would certainly defeat the whole object of proper estate planning.
Estate planning involves the arrangement of your assets so that they can be moved – in the most efficient way possible – to people whom you wish to inherit your assets.
It also involves ensuring that no unnecessary taxes and estate duty are payable.
Proper estate planning involves structuring your estate in such a way that you can benefit from it while you are still alive. You simply need to make sure that your estate is secured at all times in order to ensure current and future maximum enjoyment.
An estate plan should also be flexible enough to ensure that future adjustments resulting from factors such as changing laws, financial situations and family needs can be made, especially given the current unpredictable world.
SARS sharpens its focus
Trusts are still largely unregulated, which frequently leads to their abuse. The courts and SARS are, however, becoming impatient with trustees and trust service providers. In July last year, SARS presented a webinar on “Trust and Tax Obligations”. It was a clear message to the public to start getting their affairs in order. SARS acknowledged that while its trust capabilities might have been lacking in the past due to their specialised nature, it is now implementing measures to achieve its objectives.
Noises are being made that SARS will soon require regular reporting on trusts – they are even speaking about “real-time” reporting. Accountants and tax practitioners often proudly state that they pass SARS trust audits and acknowledge that they have provided sloppy information to SARS for many years and continue to get away with it. Those days are numbered and will be over soon!
Trust regulation
The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction.
Over the years trusts have worldwide been identified as vehicles where people can hide assets. Schemes designed to obscure beneficial ownership (a beneficial owner is a person who enjoys the benefits of ownership though the property’s title is in another name) often employ a “hidein-plain-sight” strategy. FATF is considering greylisting South Africa (with an estimated probability of 85%), with potential major repercussions, as a result of weaknesses identified by them.
In response, the government has approved a bill that will tighten legislation around the beneficial ownership of companies, trusts and nonprofit organisations. This will create more onerous reporting obligations, including the reporting of beneficial ownership in trusts. Financial firms and banks will be required to apply enhanced due diligence to any South African client, leading to more invasive and extensive processes of assessing the source of funds and true identity of clients, focusing on beneficial owners.
More than ever, estate planners should ensure that their affairs are in order and approach a professional to assist them.
Van der Spuy is a Chartered Accountant with a Masters degree in tax and a registered Fiduciary Practitioner of South Africa, a Chartered Tax Adviser, a Trust and Estate Practitioner and the founder of Trusteeze, the provider of a digital trust solution.