Buying Property as an Investment
23 Oct 2008
Article by Property Power
Over the last few years, many people in South Africa have turned to property as an investment class and entered the property market as investors. Like any other investment, you need to understand how the investment works before you decide to invest your hard earned money. It would be foolish to rush into an investment without understanding that investment.
Bear in mind that you are interested in:
Wealth creation; and
Wealth protection.
In other words, what we are saying is that once you have created wealth, you need to also protect it and sustain it. In addition, you may have other people who depend upon you and you need to worry about their futures as well. There are so many products and financial services out there. We all need help to get through this minefield and hence the need for the services of a financial planner, those with experience in growing wealth.
It is important to remember that...
Your financial planning is as much your responsibility as it is your financial planner's that is assisting you. Do not wait for your advisor to call you; take the initiative and be pro-active. Your circumstances may change and as a result it may become necessary to modify your portfolio.
Things that may happen include:
Having a child
Starting a new business
Getting married
Getting divorced
Being involved in an accident
Getting a new job
Paying off your debt
Property as an Investment
The purchase of your home is probably the largest purchase that you will ever make. The same care that you take when buying a home should go into the property that you wish to purchase as an investment. Perhaps even more so, because of the financial implications of the property that is bought as an investment. It is important that you are not pressurised by estate agents, your spouse, yourself or anyone else. You need to take your time over your investment decision and consider all of your options. The principles of investing in property is a vast subject area. We aim to introduce you to some important concepts in this article and to point out certain issues to keep in mind with respect to the purchase of investment property.
Costs excluded from the purchase price
It is important not to forget that there are significant costs that you will incur when buying or selling investment property. These costs have to be taken into account when buying a property as an investment, because they will affect the return on your investment. These costs are:
The purchase price.
Transfer duty - this is a tax that is paid to the government on the transfer of every property from one person to another as a result of the alienation of property, which is defined as a sale, donation or exchange of immovable property.
Bond registration costs - most people require the assistance of a bank to purchase their property. The bank will loan you money and in return you will have to provide the bank with some form of security, which is usually a bond registered over the property. The bond allows the bank to take the property away in the event of default. The bond registration will also be done by a conveyancer (not necessarily the same conveyancer doing the transfer) and the cost is also determined by a tariff.
Property transfer costs - this is different to the transfer duty that needs to be paid. In order to effect the transfer, you will need an attorney who is also a conveyancer. This is a specially qualified attorney who is allowed to attend to the transfer of property. The amount that you will pay is set out in a tariff guideline and varies with the value of the property.
Miscellaneous costs – people often forget to add up all the other costs, such as, levies, new carpets and curtains and various little maintenance jobs that may need to be completed before a tenant can move in.
Monthly costs of ownership – remember that you also have your monthly costs to pay, such as, rates and taxes, levies, water and electricity, home loan charges and administration fees, homeowners and loan protection insurance, household insurance, and so on.
Estate agents Commission – when you sell.
Capital gains tax - incurred when selling at a profit.
Financial Aspects
One of the most important aspects of purchasing property as an investment is the financial aspect of the transaction. Potential investors will often need to borrow money from a bank in order to finance the purchase of the property. The amount of debt that is required is also called the level of gearing. The higher the level of gearing, the greater the risk of financial distress should you lose your tenant or if interest rates go up. The advantage of gearing is that the interest that you are paying is tax deductible and therefore makes the investment more tax efficient.
You need to think about the following questions and issues before you purchase your investment property:
What is the return that I will be getting? – you need to determine what rental you will reasonably be able to charge and then you can calculate your gross yield from the property. The gross yield is calculated by taking the annual gross rental and dividing it by the price that you pay for the property. Compare the yield that you will earn with the interest rate that you will be able to get if your money was in the bank. Bear in mind that a holiday home will not generate a return if you do not want to let it out. Generally, holiday homes are not good investments as they stand empty for most of the year and are not able to generate any income.
What if I lose the tenant or interest rates increase? – can you afford to pay the bond as well as all the other expenses, like rates and taxes or the levy, if your tenant moves out and you cannot find a new tenant for a month or two? Will you be able to afford the bond repayments if interest rates go up by 2 or 3 percent? This is very important for you to work out as it may severely impact upon your cash flow.
Will the property produce positive cash flow? – there are many people who advocate using as much debt as possible when buying investment property. Although this will increase the amount of interest that you are paying and therefore reduce your taxable income, it does increase the risk of the investment for the reasons explained above. Ultimately, you want the property to produce positive cash flow for you. This means that you eventually want the property to be providing you with income, especially as you get closer to retirement. A property should be purchased because it will make you money, not save you tax. It is also pointless getting into a lot of debt to buy a property because you hope that it will increase in value. The property’s value may not increase the way you thought it would or at the same rate as might have expected.
Are you prepared to sell the property if you need to? – you must have an exit strategy if you need to get out of the investment. You cannot afford to be sentimental about the property and you must be prepared to sell it if the circumstances dictate that the time has come to move on.
How many properties can I afford to buy? – based upon the manner in which you have financed the purchase of your first investment property, how many properties could you afford to purchase? It is easy to get caught up with the excitement of buying investment properties, but it must be affordable and you need to ensure that you do not get into financial difficulty.
Have you done all your research? – you must do your research correctly and check that all of your facts and figures are correct. You need to think carefully about your intended property investment. We are all aware that property prices have risen tremendously and this means that the returns that you will be able to achieve are not as good as they were, say five years ago. This means that the property will probably not produce positive cash flow initially and you may therefore have to be subsidising your investment from your own pocket.
Are you prepared to manage your investment? – any investment needs to be properly managed and property is no exception. The question that you need to think about is whether or not you want to manage the property yourself or appoint a rental agent to look after the property for you. It can be a great burden to look after the property yourself and deal with your tenant directly. A rental agent can be very useful to use and it relieves you of a significant amount of stress.
As mentioned above, any investment needs to be correctly managed. We strongly advise you to obtain professional advice before committing your funds to any investment and you must be aware that you need to assess the performance of your investment on an annual basis. It is also important to educate yourself about the advantages and disadvantages of any investment before you spend any money.
Friday, October 31, 2008
Monday, October 27, 2008
Rand will claw back - Manuel
http://www.thetimes.co.za/Business/BusinessTimes/Article1.aspx?id=870399
Minister believes fear — not reality — is driving volatility, writes Tamlyn Stewart. Minister of Finance Trevor Manuel told Business Times on Friday that the huge swings in exchange rates were “worrisome”.
“I think we’re in serious overshoot territory now,” said Manuel. “It appears to me that there is still the close-out of positions and, as always happens in these circumstances, these foreign exchange markets overshoot. They overshoot very radically and then they claw back,” he said.
Asked how long the recovery would take, Manuel said: “The problem is I can’t answer that question because there are just so many ideas in play at the moment all over the world.”
The rand did regain some ground on Friday to trade at around R10.85 to the US dollar late on Friday evening, after a dismal week that saw the local currency sink to its worst levels since 2002.
Manuel referred to December 2001 when the rand touched R13.89 to the dollar: “Its traverse up out of that trough was probably faster than the route down. I think over the past 15 years you would find those kinds of movements and during the period we’re living through there’s likely to be quite a bit of that.
“Look at the intra-day highs and lows on the Dow. It can’t be rational movements that drive it through a thousand points in a single trading day,” he said.
Markets around the world plunged on Friday as investors sold stocks in a panic over fears of a global recession.
“Fear is the key, and I think that arises from circumstances where hedge funds have operated in a highly leveraged world with highly leveraged capital and they need to close out positions,” Manuel said.
“These oscillations are going to be there because it’s not informed by reality.”
Stanlib portfolio manager Hlelo Giyose said of the rand’s dismal week: “What has happened is that the world associates South Africa with commodity prices, and if commodity prices go down it means South Africa will have a tough time and its growth rate will suffer.
“But mining contributes about 6% to GDP, so to overly punish South Africa because of commodity prices is a thing of panic and short-sightedness.”
The battered rand and the global credit crisis will make it far more difficult for Eskom to raise the R340-billion it needs to finance its infrastructure build.
But Manuel said Eskom was already exploring financing options. “Eskom, for instance, has been talking to the African Development Bank and the World Bank with us. Those discussions have started,” he said.
Despite previous reluctance to source capital from the World Bank, the minister of finance said Eskom was an “exception”.
“I think in many respects what happens with Eskom is an exception — it is a big number; we need to do it.”
However, there are still concerns about the long lead times before World Bank loans become accessible. Manuel said R60-billion from government would buy Eskom time, but discussions had to start now.
“I’d rather have loans approved permitting draw-downs at short notice. ”
He said issues on the table in respect of World Bank loans were: “ Can we deal with the exchange rate risk, and can we borrow at a rate that is competitive with the rate at which we’d be able to borrow in capital markets?
“For many years we had the luxury of choice. That luxury has gone.”
Manuel said the admission by former chairman of the US Federal Reserve Alan Greenspan “that he may have misread the situation, misunderstood what was happening” was significant.
“When Alan Greenspan said in Congress on Thursday that financial markets have to be regulated, the scale of the change is actually quite phenomenal.
“ The next few months is likely to be a huge period of reappraisal of what went wrong, what needs to go right, and what the mechanisms are going to be to resolve some of the issues.
“Part of the message of the present to policymakers is that somehow we need to manage this so these polar extremes don’t arise, because it’s that that makes decision-making difficult.”
He noted that there had been more financial crises in the last 20 years than ever before.
“Many of them have tended to be in the developing world, now this is G7 stuff. (The G7 is the group of wealthy countries.)
“The sense I have about the future is that there’s no decoupling possible; I think countries are going to be locked into a globalised world.”
Minister believes fear — not reality — is driving volatility, writes Tamlyn Stewart. Minister of Finance Trevor Manuel told Business Times on Friday that the huge swings in exchange rates were “worrisome”.
“I think we’re in serious overshoot territory now,” said Manuel. “It appears to me that there is still the close-out of positions and, as always happens in these circumstances, these foreign exchange markets overshoot. They overshoot very radically and then they claw back,” he said.
Asked how long the recovery would take, Manuel said: “The problem is I can’t answer that question because there are just so many ideas in play at the moment all over the world.”
The rand did regain some ground on Friday to trade at around R10.85 to the US dollar late on Friday evening, after a dismal week that saw the local currency sink to its worst levels since 2002.
Manuel referred to December 2001 when the rand touched R13.89 to the dollar: “Its traverse up out of that trough was probably faster than the route down. I think over the past 15 years you would find those kinds of movements and during the period we’re living through there’s likely to be quite a bit of that.
“Look at the intra-day highs and lows on the Dow. It can’t be rational movements that drive it through a thousand points in a single trading day,” he said.
Markets around the world plunged on Friday as investors sold stocks in a panic over fears of a global recession.
“Fear is the key, and I think that arises from circumstances where hedge funds have operated in a highly leveraged world with highly leveraged capital and they need to close out positions,” Manuel said.
“These oscillations are going to be there because it’s not informed by reality.”
Stanlib portfolio manager Hlelo Giyose said of the rand’s dismal week: “What has happened is that the world associates South Africa with commodity prices, and if commodity prices go down it means South Africa will have a tough time and its growth rate will suffer.
“But mining contributes about 6% to GDP, so to overly punish South Africa because of commodity prices is a thing of panic and short-sightedness.”
The battered rand and the global credit crisis will make it far more difficult for Eskom to raise the R340-billion it needs to finance its infrastructure build.
But Manuel said Eskom was already exploring financing options. “Eskom, for instance, has been talking to the African Development Bank and the World Bank with us. Those discussions have started,” he said.
Despite previous reluctance to source capital from the World Bank, the minister of finance said Eskom was an “exception”.
“I think in many respects what happens with Eskom is an exception — it is a big number; we need to do it.”
However, there are still concerns about the long lead times before World Bank loans become accessible. Manuel said R60-billion from government would buy Eskom time, but discussions had to start now.
“I’d rather have loans approved permitting draw-downs at short notice. ”
He said issues on the table in respect of World Bank loans were: “ Can we deal with the exchange rate risk, and can we borrow at a rate that is competitive with the rate at which we’d be able to borrow in capital markets?
“For many years we had the luxury of choice. That luxury has gone.”
Manuel said the admission by former chairman of the US Federal Reserve Alan Greenspan “that he may have misread the situation, misunderstood what was happening” was significant.
“When Alan Greenspan said in Congress on Thursday that financial markets have to be regulated, the scale of the change is actually quite phenomenal.
“ The next few months is likely to be a huge period of reappraisal of what went wrong, what needs to go right, and what the mechanisms are going to be to resolve some of the issues.
“Part of the message of the present to policymakers is that somehow we need to manage this so these polar extremes don’t arise, because it’s that that makes decision-making difficult.”
He noted that there had been more financial crises in the last 20 years than ever before.
“Many of them have tended to be in the developing world, now this is G7 stuff. (The G7 is the group of wealthy countries.)
“The sense I have about the future is that there’s no decoupling possible; I think countries are going to be locked into a globalised world.”
Friday, October 24, 2008
6 easy steps to finding the right life insurance
1. Work out how much life cover you actually need
Firstly you need to consider how much you owe your creditors. Should you pass away, is there anyone who will come knocking at your door, demanding a fist full of cash? Secondly, if you are the primary breadwinner, will there be sufficient capital to provide income for your dependants? Finally, you need to consider the hidden expenses like capital gains tax and estate duty, which become applicable on your passing.
2. Go shopping
Once you have determined how much life cover you actually require, its time to shop around.
We suggest going to one reliable source for all quotes. Using one source will mean that all variables (premium patterns, guarantee terms, benefit structure, etc) will be taken into account. In addition, using a single independent source, such as an independent website like ThinkMoney.co.za, a broker or financial planner, ensures that you will be able to compare apples with apples when assessing the various quotes.
3. Don’t buy a product unless you’ve compared it to something else in the market
Certain brokers and advisors only supply information relating to offerings from one company. This is not a true reflection of what is available in the market so insist on two or three quotes from different organisations in order to truly compare.
4. Never buy a life insurance product based purely on price
Cheap cover is not necessarily good comprehensive cover. You want the best deal, but you should never sacrifice the benefits for price.
5. Be aware of life insurance policies that waive medical underwriting
It is important to note that when you take life cover with no medical test, the underwriters may not pay out on death due to non-disclosure of a serious illness.
Although the conventional route of having the tests takes a little longer, it is still the safest choice to ensure a payout on death. Also, disclose all health related issues to the underwriters on application of your cover and let them make a decision based on all the information at hand. By following this route, there should not be any dispute when it comes to the policy payout.
6. Check the terms and conditions before you buy
This is a factor that is so often ignored. Remember that an insurance policy is a contract between the insured (you) and the insurer. Every contract comes with a set of rules by which each party needs to abide. You must take the time to understand what you are buying before you buy it.
Firstly you need to consider how much you owe your creditors. Should you pass away, is there anyone who will come knocking at your door, demanding a fist full of cash? Secondly, if you are the primary breadwinner, will there be sufficient capital to provide income for your dependants? Finally, you need to consider the hidden expenses like capital gains tax and estate duty, which become applicable on your passing.
2. Go shopping
Once you have determined how much life cover you actually require, its time to shop around.
We suggest going to one reliable source for all quotes. Using one source will mean that all variables (premium patterns, guarantee terms, benefit structure, etc) will be taken into account. In addition, using a single independent source, such as an independent website like ThinkMoney.co.za, a broker or financial planner, ensures that you will be able to compare apples with apples when assessing the various quotes.
3. Don’t buy a product unless you’ve compared it to something else in the market
Certain brokers and advisors only supply information relating to offerings from one company. This is not a true reflection of what is available in the market so insist on two or three quotes from different organisations in order to truly compare.
4. Never buy a life insurance product based purely on price
Cheap cover is not necessarily good comprehensive cover. You want the best deal, but you should never sacrifice the benefits for price.
5. Be aware of life insurance policies that waive medical underwriting
It is important to note that when you take life cover with no medical test, the underwriters may not pay out on death due to non-disclosure of a serious illness.
Although the conventional route of having the tests takes a little longer, it is still the safest choice to ensure a payout on death. Also, disclose all health related issues to the underwriters on application of your cover and let them make a decision based on all the information at hand. By following this route, there should not be any dispute when it comes to the policy payout.
6. Check the terms and conditions before you buy
This is a factor that is so often ignored. Remember that an insurance policy is a contract between the insured (you) and the insurer. Every contract comes with a set of rules by which each party needs to abide. You must take the time to understand what you are buying before you buy it.
Thursday, October 16, 2008
Shock for ABSA Home Loan clients
Shock for Absa home loan clients
Oct 16 2008 08:47 Elma Kloppers
Johannesburg - Of Absa's home loan clients, 130 000 or less than 17% will be affected by the decision to restrict access to the equity (own capital) in home loans.
The equity in a home loan is the difference between the outstanding bond amount and the original loan.
The decision resulted in shocked Absa home loan clients on Wednesday threatening to either move their bonds to other banks or withdraw the equity from their home loan accounts.
Responding to the uproar, Gavin Opperman, Absa's group chief executive for securitised loans in the retail division, explained that the economic climate left the bank with no choice other than to tighten its lending criteria in line with the regulations of the National Credit Act.
He said Absa's decision applies only to customers who use the 261 Flexi facility. Those using the 264 Flexi facility for access to capital will still at all times have access to it. These are clients who have paid a lump sum into their bond account.
Those affected will include clients who merely pay their instalments each month, but now need cash and want to draw some of the capital that they have built up via the 261 Flexi facility. In such cases clients will now have to apply and, in terms of Credit Act criteria, have their ability to repay the debt assessed.
Opperman says where the risk comes in is when these clients begin to nibble away at the money they have already paid off, while the term of the loan has not been extended. This means that their monthly bond instalments will increase because interest rates are high, and clients will consequently fall deeper into debt.
Those who have paid more than their monthly instalments will also in future also have to apply for access to their capital.
They will not, however, have to comply with the credit criteria. Opperman explains that the reason for the decision is that the bank is attempting to reduce future risk for both clients and itself, with all indications being that the housing market is in for an exceptionally difficult 2009.
The current cycle will continue for much longer than expected and it's better to take these prudent steps now, he adds.
- Sake24
Oct 16 2008 08:47 Elma Kloppers
Johannesburg - Of Absa's home loan clients, 130 000 or less than 17% will be affected by the decision to restrict access to the equity (own capital) in home loans.
The equity in a home loan is the difference between the outstanding bond amount and the original loan.
The decision resulted in shocked Absa home loan clients on Wednesday threatening to either move their bonds to other banks or withdraw the equity from their home loan accounts.
Responding to the uproar, Gavin Opperman, Absa's group chief executive for securitised loans in the retail division, explained that the economic climate left the bank with no choice other than to tighten its lending criteria in line with the regulations of the National Credit Act.
He said Absa's decision applies only to customers who use the 261 Flexi facility. Those using the 264 Flexi facility for access to capital will still at all times have access to it. These are clients who have paid a lump sum into their bond account.
Those affected will include clients who merely pay their instalments each month, but now need cash and want to draw some of the capital that they have built up via the 261 Flexi facility. In such cases clients will now have to apply and, in terms of Credit Act criteria, have their ability to repay the debt assessed.
Opperman says where the risk comes in is when these clients begin to nibble away at the money they have already paid off, while the term of the loan has not been extended. This means that their monthly bond instalments will increase because interest rates are high, and clients will consequently fall deeper into debt.
Those who have paid more than their monthly instalments will also in future also have to apply for access to their capital.
They will not, however, have to comply with the credit criteria. Opperman explains that the reason for the decision is that the bank is attempting to reduce future risk for both clients and itself, with all indications being that the housing market is in for an exceptionally difficult 2009.
The current cycle will continue for much longer than expected and it's better to take these prudent steps now, he adds.
- Sake24
Tuesday, October 14, 2008
Trusts, Asset Protection and Estate Planning
Trust information courtesy of iProtect - www.iprotect.co.za
Introduction
The concept of a Trust is over 900 years old and originates from English law. Over time the South African law on Trusts has been developed by legislature, the Courts and legal practitioners into the law have today.
A Trust can be described as a legal relationship which has been created by a person (known as the founder), by placing assets under control of another person (known as the trustee), during the founders lifetime (known as an Inter Vivos Trust) or on the founder’s death (known as a Testamentary Trust) for the benefit of third parties (the beneficiaries).
The Founder is the person who creates the trust and makes the initial funds available to the trust and is also known as the “Donor” or “Settlor”.
The Trustees are responsible for the administration of the trust property. They must act within the law and comply with the provisions of the Trust Deed.
The Beneficiaries are the persons who benefit from the trust, either now or in future. There cannot be a valid trust if there is not at least one beneficiary.
An Inter Vivos Trust is created by means of agreement (a contract) between the founder and the Trustees, during the lifetime of the founder. The agreement is called the trust instrument (the Trust Deed) and is signed in accordance with the Law of Contracts and registered with the Master of the High Court.
The Trust Deed is a legal document, requiring specialized legal expertise to draft.
A Testamentary Trust is created on the death of the testator in terms of specified provisions as set out in the testator’s Last Will and Testament.
Let’s start with what we may think we know about trusts:
These are some commonly perceived disadvantages:
• Firstly many people are under the impression that one needs to be wealthy to set up a trust, nothing could be further from the truth, in fact the best time to set-up your Trusts is just before you start to acquire your large assets or when you set up your business or practice – protection from day one.
• A further common myth that pervades is that the Government is “looking” at trusts. Trusts were previously not defined in the Income Tax Act as tax payers, this clearly gave rise to serious abuse of trusts for tax purposes. The Government has since 1991 made various amendments to the act to combat these practices. Since 2002 there have been no more amendments, so we can safely assume that there is a degree of stability in that area. Furthermore, the manner in which we will advise that you use your trusts, and the way they hold assets and trade, are securely within in the ambit of all existing laws and specifically the Income Tax Act.
• Transfer duty: duties payable on immovable property is higher in a trust as the transfer duty is levied at a flat rate of 8 %. However this is lower than the VAT that you pay when buying from a developer (14%). The comparison of the cost of the duty is further skewed when one acquires property at the lower end of the market, as there is a sliding scale that applies to natural persons (5-8%). The initial extra cost is well worth paying when one considers asset protection and death costs and taxes.
• The issue of Control: legally and technically, once a trust is formed, the assets that are held in trust are separated from the individual. The control of the assets is no longer in the hands of the individual. The reality however is that the individual, by being a trustee of the trust, will be privy to all decisions and retain negative “control”.
• Administration: a trust must be properly administered. The Trust Property Control Act requires that a simple set of annual financial statements be submitted. Please note that it is not mandatory that the financials be audited, as this will result in unnecessary further costs.
• The higher tax rate opinion: trusts are the most highly taxed entities or person in South Africa, they are taxed a flat rate of 40%. However there are mechanisms to minimise tax payable through the use of a trust. Paradoxically, by use of the “conduit principle”, tax efficiencies can be achieved through a Trust that cannot be achieved personally or through a Company. In short whether you have an income tax or capital gain, the taxation in the Trust can be minimized if not avoided.
Here are the facts – and compelling reasons why a Trust is the only legal vehicle affording holistic Asset Protection and Estate Planning for your assets, during and after your lifetime.
The concept and benefits of a trust:
• A trust is a separate entity from an individual, totally distinct as one person from another, however not unlike a Close Corporation (CC) or Private Company (Company) but quite unique, in that it is not a creature of statute, but it is the product of a contractual arrangement. The Income Tax Act, Deeds Registry Act, Transfer Duty Act, Value Added Tax Act and the Insolvency Act afford a Trust legal personality.
• A CC or a Company are entities created by completing and registering certain statutory forms with the Registrar of Companies which then registers the CC or Company and it comes into being. In contrast, a Trust is created by contract in a legal document, commonly referred to as a Trust Deed. The following points are important to remember: a Trust, while not a legal persona is separate from you; a trust is not owned by any natural or juristic person; and a trust never dies or terminates, unless it is terminated by agreement or sequestrated if it is unable to pay its debts. The latter qualities make a Trust the only entity which will afford total asset protection and estate duty savings along with a myriad of other benefits.
• There are various types of trusts, namely;
o Testamentary Trust,
o Vesting or Bewind Trust,
o Special Trust and
o Discretionary Trust
Only Discretionary Trusts are used for our purposes, as the other forms of trusts are of no benefit in affording the necessary asset protection and estate duty savings and Capital tax saving benefits that Discretionary Trusts are able to offer.
Trusts Benefits
Asset Protection
As individuals we face a number of possible situations which can result in us losing all of our hard earned assets, cash, investments and properties.
o Divorce
o Business creditor claims
o General creditor claims
o Other claims
o Retrenchment
o Sureties
The following are common scenarios which can result in substantial personal and corporate loss:
• A distressed business (new or established) will result in short-term obligations to creditors, for unpaid rental, supplier invoices, staff salaries, SARS taxes, bank loans, bank overdrafts and the like;
• Surety signed for any person or business will result in exposure to any claims for outstanding debt.
• Divorce is an emotional time, and very often irrational decisions are made which may result in assets being sold or liquidated unnecessarily.
• If married in community of property, you may face claims by creditors of your spouse.
• Generally your creditors may lay claim to your assets if you cannot pay your debts.
• Retrenchment for any variety of reasons, can leave you financially vulnerable, unable to meet your obligations, and place your assets at risk to creditors.
• Any individual may face a claim for damages, potentially resulting in the attachment of assets.
The above scenarios paint a bleak picture, but can be avoided and contained through the establishment of a Trust, or a combination of Trusts. The Trust is the only legal vehicle which can offer the individual total asset protection, achieved by virtue of the fact that a trust is not owned by the individual, and has a legal personality of it’s own quite distinct from the individual.
Once assets have been moved into a Trust, they no longer belong to an individual. There are certain laws that need to be borne in mind before the assets are secured. There is a window period prescribed in the Insolvency Act, which affords creditors protection from delinquent creditors. The Act prescribes that if a creditor has a claim against an individual who is solvent, and who has moved, sold, transferred or donated his assets, the creditor may within a 6 month period reverse such transactions and attach the assets. Assets must be timeously transferred into a trust so that this time period elapses, and the transferred assets are not liable to attachment under the relevant sections of the Act.
The situation is even worse if the individual is insolvent at the time of the transfer of assets, as the window period is extended to 24 months before the assets are secured from a creditor attachment
Benefits on Death
Proper Estate planning is essential to ensure a seamless flow of the benefits of your estate to your heirs, and to minimize or eliminate the Duties and Taxes triggered by death. A Trust is the only vehicle that eliminates any of these triggered events, and a smooth transition of your life’s hard-won assets is achieved.
• No Capital Gains - Capital gains tax is a form of tax levied on natural and legal persons, it was introduced on the first of October 2001. The tax normally only comes into effect when an asset is sold that has appreciated in value, there are other instances where the tax will be deemed to have been triggered, one such event is your death, you are deemed to have sold all your assets to your deceased estate. Therefore all the assets that you own at the time of your death, including properties, will attract CGT at a rate of 10% (we will for simplicity sake ignore roll-overs and exemptions for now) this is further exacerbated by the fact that the tax is due in cash, even though no money has changed hands or been received, this could leave your estate in a illiquid position. This can be avoided by merely placing all the assets in trust. The trust does not die and therefore the CGT will not be triggered, saving the investor substantial amount of CGT (10% of the value of the growth of any assets in your estate at the time of your death).
• No estate duty - On the death of an individual the receiver of revenue lurks ever so near to get a further portion of the investor’s estate in the form of estate duties. Any person who dies or who owns property in this country will be subject to Estate duties, please note that this covers all your world-wide assets. This also affects any non-resident or foreign national who has property in this country. The scope of property and assets is very widely defined and covers numerous classes of property and assets and all forms of rights to property, policies, annuities, investments and business. The tax is levied at a rate of 20 % of the net value of any assets you have in excess of 3.5 million, after certain deductions have been made. This is a massive amount of money to have to part with as a result of your death; the real sting in the tail is that this is a tax on after-tax money and assets, and in certain cases, intangible assets such as goodwill, which might be worthless after your death but yet attract Estate Duties.
It is crucial to establish the correct structure in order to ensure that you pay a minimal amount (if not Zero) of death duty. An average estate will pay approx 30% of any net value of such estate. It is important to note that certain assets which are not directly owned by an individual could be deemed to be their assets i.e. Usufruct rights, any interests in property, assurance policies. The latter along with all assets, business properties, movable assets, investments, cash unit trusts, shares, time share are valued and will form part of the estate of the individual, and after certain deductions of debts and exemptions, the net estate in excess of 3.5 million is taxed at 20%.
The solution to this frightening proposition is simple, by establishing the Family Trust and ensuring that all the assets are held by trust, the trust never dies, our law allows for the Trust to continue in perpetuity. On the death of the individual they should pay zero Estate duty.
• No executors fees - The investors death is again a hunting ground for further costs, not only is the estate subjected to CGT, and estate duties but also to executor’s fees. An executor is the person or company or firm that winds up the estate of the individual, for this task they are entitled to a maximum fee of 3.5 % of the gross value of the estate plus VAT in certain circumstances (please note the GROSS value of the estate before deducting liabilities etc). This is one of the most under-stated costs, and the impact is not adequately explained to people. Ordinarily an individual’s gross estate is quite substantial, and accordingly executor’s fees will be substantial. Again the solution to this is the formation of a trust, as the individual will not own any assets, and as all the assets are held by a trust or combination of trusts, the estate should have zero or inconsequential value, thereby eliminating the executor’s fees payable.
• Protection of minors - Our law does not allow for minors to directly inherit, therefore an individual who wants to leave all or any assets to minor persons will not be able to do so, or persons not adequately addressing the issue in their wills or via testamentary trusts will end up with a situation where all the assets will be liquidated into cash. This is the position as the funds or the cash needs to be held by the Guardians Fund. The fund can only hold cash as they do not have the ability or resources to administer assets, this great fund is controlled by the Government, and pays interest of +- 2%. In the event monies are not claimed, they are forfeited to the state, a wonderful thought!
In the interim the minors will have limited or no access to the fund for their needs, education, health, well being housing. Your dream of passing the fruits of your hard earned work in establishing your legacy to heirs is impossible as the Guardians Fund can only hold cash, and all your efforts will come to zero. The solution is to have all your assets and your properties in a trust, as the trust survives your death; any beneficiary may benefit and access assets immediately. Also bear in mind that property administered by your appointed Trustees will accrue at a much better rate than the interest earned in the Guardians Fund.
Saving of costs on death, in establishing a trust a host of costs can be saved as the entity continues in perpetuity.
Donations tax: This is another one of SARS anti avoidance mechanisms; you are not even allowed to give your assets away, other than to your spouse, and certain tax exempt institutions. You are limited to donations of R 100k per annum, this places you in an invidious position, if you wish to give assets or cash to children or parents or family or dependents, if you do you will face a taxation of 20% on any amount over 100k, this can be resolved by making these persons beneficiaries of your trust, a trust is exempt from donations made in pursuance of the trust.
Important: There is no necessity for a trust to terminate, a trust does not die and can therefore continue in perpetuity. This allows for the continuation of the assets which allows for future generations to benefit from your labour, no costs, no transfer, no cancellation of bonds, there is no Estate Duty, CGT or executors fees.
On the death of any individual, their estate is frozen, this is necessary in order for the Executor to wind up the estate, i.e. collect assets, pay debts, taxes, and only after that to make over bequests then distribute benefits to the beneficiaries and Heirs. All the while Spouse and dependants of the deceased have no access to any monies or assets; complex estates could take numerous years between 2-5 years to wind up.
As a Trust holds the assets and cash, they are immediately accessible versus the situation where an individual dies and takes it 2-5 years to wind up, causing unnecessary and untold hardship to the spouse and dependants.
As a professional graduate / practitioner / businessperson / entrepreneur have you seriously considered the following issues?
1. What events could result in jeopardising my financial position in my personal capacity or affect my business?
2. Could a change in legislation affect my business? E.g. Pharmacists and Medical practitioners should seriously consider this one.
3. How do I conduct or carry on my business or practise? Is the business correctly structured? Is the business set up in the most tax efficient manner? Is the business secure? Are the business assets secure?
4. Where are my profits and or dividends flowing?
5. Could my business affect my personal financial status?
6. Could one or more of my businesses affect each other?
7. What is my marital status? Could my spouse’s insolvency affect me or my business or have an impact on my or our assets?
8. Could a change in my marital status affect my financial position or affect my business?
9. Could my spouse’s insolvency result in me being able to practise my profession or take on a position on the board of directors or act as a trustee?
10. Could one or more of my partners, death, divorce or insolvency affect our business and in turn my personal financial position?
11. Are my personal assets secure? Are my business assets secure? Can I continue to carry on or conduct my business or practice with out these assets?
12. Could my staff / personnel affect the future of the business as a result of a claim against the business or as a result of their negligence or acts committed or omitted?
13. In my personal capacity, do I have any creditors?
14. Who or what could be construed or classified as a creditor? A spouse in a divorce action? My bank for unpaid loans, overdrafts, credit cards, home mortgage, store cards, claim from a domestic employee, damages claims, suretyships which could be acted on, If so what would transpire if I could not meet my obligations?
15. Who or what are my business creditors? My clients, customers, patients, suppliers, creditors, financiers, personnel, SARS, landlords, professional regulatory bodies, partners? You will soon realize the list is quite lengthy.
16. What do I stand to lose if a creditor were to make a claim on my assets or business assets?
17. If a partner / shareholder joins or leaves the business or practice, through death, disability or through purchasing or sale, what are the tax consequences?
18. Am I or we in the case of partnership adequately protected and do we have the liquidity or cashflow to deal with any consequences that may flow from an event arising as set out in 13 above?
19. What are the tax consequences of introducing new capital to the business or practice through the introduction of a new partner?
20. Who owns my business? Who controls my business?
21. If I am only a shareholder do I have limited liability? Can SARS or creditors attach my assets even though I am only a shareholder /member of a Close Corporation?
22. Can a creditor or SARS attach or claim assets in a trust?
23. What is my liability or rights in an insolvency or liquidation?
24. Can the business continue with out me or key personnel? Are there solutions to address the latter if the business can not continue?
25. Do I have a succession plan to ensure continuity of the business or practice?
26. Do I know what my estate is worth? Do I have sufficient liquidity in my estate to deal with estate duties, capital gains taxes and executors fees? How can I best minimise if not avoid all the duties, taxes and charges on death to ensure that my spouse, partner, ascendants or descendents get what I intended them to?
27. Do I have a proper estate plan in place? Do I have a will?
28. Are my minor children adequately catered for on the event of my death?
29. What is my total exposure to creditors? What am I really worth?
30. Is my home protected? Should I really retain my home in my name and what are the ramifications if keep the home in name or not?
31. Have I correctly planned for my retirement? Do I have sufficient liquidity and cash flow?
32. How do I exit from my business or practice? What are the tax consequences?
33. Could I be held liable for any claims or taxes even after I sold my shares or portion / percentage of the business or practice?
If you have concerns about any of the above questions and scenarios, you should seriously consider proper personal and corporate structuring to minimize your risk.
www.iprotect.co.za
Introduction
The concept of a Trust is over 900 years old and originates from English law. Over time the South African law on Trusts has been developed by legislature, the Courts and legal practitioners into the law have today.
A Trust can be described as a legal relationship which has been created by a person (known as the founder), by placing assets under control of another person (known as the trustee), during the founders lifetime (known as an Inter Vivos Trust) or on the founder’s death (known as a Testamentary Trust) for the benefit of third parties (the beneficiaries).
The Founder is the person who creates the trust and makes the initial funds available to the trust and is also known as the “Donor” or “Settlor”.
The Trustees are responsible for the administration of the trust property. They must act within the law and comply with the provisions of the Trust Deed.
The Beneficiaries are the persons who benefit from the trust, either now or in future. There cannot be a valid trust if there is not at least one beneficiary.
An Inter Vivos Trust is created by means of agreement (a contract) between the founder and the Trustees, during the lifetime of the founder. The agreement is called the trust instrument (the Trust Deed) and is signed in accordance with the Law of Contracts and registered with the Master of the High Court.
The Trust Deed is a legal document, requiring specialized legal expertise to draft.
A Testamentary Trust is created on the death of the testator in terms of specified provisions as set out in the testator’s Last Will and Testament.
Let’s start with what we may think we know about trusts:
These are some commonly perceived disadvantages:
• Firstly many people are under the impression that one needs to be wealthy to set up a trust, nothing could be further from the truth, in fact the best time to set-up your Trusts is just before you start to acquire your large assets or when you set up your business or practice – protection from day one.
• A further common myth that pervades is that the Government is “looking” at trusts. Trusts were previously not defined in the Income Tax Act as tax payers, this clearly gave rise to serious abuse of trusts for tax purposes. The Government has since 1991 made various amendments to the act to combat these practices. Since 2002 there have been no more amendments, so we can safely assume that there is a degree of stability in that area. Furthermore, the manner in which we will advise that you use your trusts, and the way they hold assets and trade, are securely within in the ambit of all existing laws and specifically the Income Tax Act.
• Transfer duty: duties payable on immovable property is higher in a trust as the transfer duty is levied at a flat rate of 8 %. However this is lower than the VAT that you pay when buying from a developer (14%). The comparison of the cost of the duty is further skewed when one acquires property at the lower end of the market, as there is a sliding scale that applies to natural persons (5-8%). The initial extra cost is well worth paying when one considers asset protection and death costs and taxes.
• The issue of Control: legally and technically, once a trust is formed, the assets that are held in trust are separated from the individual. The control of the assets is no longer in the hands of the individual. The reality however is that the individual, by being a trustee of the trust, will be privy to all decisions and retain negative “control”.
• Administration: a trust must be properly administered. The Trust Property Control Act requires that a simple set of annual financial statements be submitted. Please note that it is not mandatory that the financials be audited, as this will result in unnecessary further costs.
• The higher tax rate opinion: trusts are the most highly taxed entities or person in South Africa, they are taxed a flat rate of 40%. However there are mechanisms to minimise tax payable through the use of a trust. Paradoxically, by use of the “conduit principle”, tax efficiencies can be achieved through a Trust that cannot be achieved personally or through a Company. In short whether you have an income tax or capital gain, the taxation in the Trust can be minimized if not avoided.
Here are the facts – and compelling reasons why a Trust is the only legal vehicle affording holistic Asset Protection and Estate Planning for your assets, during and after your lifetime.
The concept and benefits of a trust:
• A trust is a separate entity from an individual, totally distinct as one person from another, however not unlike a Close Corporation (CC) or Private Company (Company) but quite unique, in that it is not a creature of statute, but it is the product of a contractual arrangement. The Income Tax Act, Deeds Registry Act, Transfer Duty Act, Value Added Tax Act and the Insolvency Act afford a Trust legal personality.
• A CC or a Company are entities created by completing and registering certain statutory forms with the Registrar of Companies which then registers the CC or Company and it comes into being. In contrast, a Trust is created by contract in a legal document, commonly referred to as a Trust Deed. The following points are important to remember: a Trust, while not a legal persona is separate from you; a trust is not owned by any natural or juristic person; and a trust never dies or terminates, unless it is terminated by agreement or sequestrated if it is unable to pay its debts. The latter qualities make a Trust the only entity which will afford total asset protection and estate duty savings along with a myriad of other benefits.
• There are various types of trusts, namely;
o Testamentary Trust,
o Vesting or Bewind Trust,
o Special Trust and
o Discretionary Trust
Only Discretionary Trusts are used for our purposes, as the other forms of trusts are of no benefit in affording the necessary asset protection and estate duty savings and Capital tax saving benefits that Discretionary Trusts are able to offer.
Trusts Benefits
Asset Protection
As individuals we face a number of possible situations which can result in us losing all of our hard earned assets, cash, investments and properties.
o Divorce
o Business creditor claims
o General creditor claims
o Other claims
o Retrenchment
o Sureties
The following are common scenarios which can result in substantial personal and corporate loss:
• A distressed business (new or established) will result in short-term obligations to creditors, for unpaid rental, supplier invoices, staff salaries, SARS taxes, bank loans, bank overdrafts and the like;
• Surety signed for any person or business will result in exposure to any claims for outstanding debt.
• Divorce is an emotional time, and very often irrational decisions are made which may result in assets being sold or liquidated unnecessarily.
• If married in community of property, you may face claims by creditors of your spouse.
• Generally your creditors may lay claim to your assets if you cannot pay your debts.
• Retrenchment for any variety of reasons, can leave you financially vulnerable, unable to meet your obligations, and place your assets at risk to creditors.
• Any individual may face a claim for damages, potentially resulting in the attachment of assets.
The above scenarios paint a bleak picture, but can be avoided and contained through the establishment of a Trust, or a combination of Trusts. The Trust is the only legal vehicle which can offer the individual total asset protection, achieved by virtue of the fact that a trust is not owned by the individual, and has a legal personality of it’s own quite distinct from the individual.
Once assets have been moved into a Trust, they no longer belong to an individual. There are certain laws that need to be borne in mind before the assets are secured. There is a window period prescribed in the Insolvency Act, which affords creditors protection from delinquent creditors. The Act prescribes that if a creditor has a claim against an individual who is solvent, and who has moved, sold, transferred or donated his assets, the creditor may within a 6 month period reverse such transactions and attach the assets. Assets must be timeously transferred into a trust so that this time period elapses, and the transferred assets are not liable to attachment under the relevant sections of the Act.
The situation is even worse if the individual is insolvent at the time of the transfer of assets, as the window period is extended to 24 months before the assets are secured from a creditor attachment
Benefits on Death
Proper Estate planning is essential to ensure a seamless flow of the benefits of your estate to your heirs, and to minimize or eliminate the Duties and Taxes triggered by death. A Trust is the only vehicle that eliminates any of these triggered events, and a smooth transition of your life’s hard-won assets is achieved.
• No Capital Gains - Capital gains tax is a form of tax levied on natural and legal persons, it was introduced on the first of October 2001. The tax normally only comes into effect when an asset is sold that has appreciated in value, there are other instances where the tax will be deemed to have been triggered, one such event is your death, you are deemed to have sold all your assets to your deceased estate. Therefore all the assets that you own at the time of your death, including properties, will attract CGT at a rate of 10% (we will for simplicity sake ignore roll-overs and exemptions for now) this is further exacerbated by the fact that the tax is due in cash, even though no money has changed hands or been received, this could leave your estate in a illiquid position. This can be avoided by merely placing all the assets in trust. The trust does not die and therefore the CGT will not be triggered, saving the investor substantial amount of CGT (10% of the value of the growth of any assets in your estate at the time of your death).
• No estate duty - On the death of an individual the receiver of revenue lurks ever so near to get a further portion of the investor’s estate in the form of estate duties. Any person who dies or who owns property in this country will be subject to Estate duties, please note that this covers all your world-wide assets. This also affects any non-resident or foreign national who has property in this country. The scope of property and assets is very widely defined and covers numerous classes of property and assets and all forms of rights to property, policies, annuities, investments and business. The tax is levied at a rate of 20 % of the net value of any assets you have in excess of 3.5 million, after certain deductions have been made. This is a massive amount of money to have to part with as a result of your death; the real sting in the tail is that this is a tax on after-tax money and assets, and in certain cases, intangible assets such as goodwill, which might be worthless after your death but yet attract Estate Duties.
It is crucial to establish the correct structure in order to ensure that you pay a minimal amount (if not Zero) of death duty. An average estate will pay approx 30% of any net value of such estate. It is important to note that certain assets which are not directly owned by an individual could be deemed to be their assets i.e. Usufruct rights, any interests in property, assurance policies. The latter along with all assets, business properties, movable assets, investments, cash unit trusts, shares, time share are valued and will form part of the estate of the individual, and after certain deductions of debts and exemptions, the net estate in excess of 3.5 million is taxed at 20%.
The solution to this frightening proposition is simple, by establishing the Family Trust and ensuring that all the assets are held by trust, the trust never dies, our law allows for the Trust to continue in perpetuity. On the death of the individual they should pay zero Estate duty.
• No executors fees - The investors death is again a hunting ground for further costs, not only is the estate subjected to CGT, and estate duties but also to executor’s fees. An executor is the person or company or firm that winds up the estate of the individual, for this task they are entitled to a maximum fee of 3.5 % of the gross value of the estate plus VAT in certain circumstances (please note the GROSS value of the estate before deducting liabilities etc). This is one of the most under-stated costs, and the impact is not adequately explained to people. Ordinarily an individual’s gross estate is quite substantial, and accordingly executor’s fees will be substantial. Again the solution to this is the formation of a trust, as the individual will not own any assets, and as all the assets are held by a trust or combination of trusts, the estate should have zero or inconsequential value, thereby eliminating the executor’s fees payable.
• Protection of minors - Our law does not allow for minors to directly inherit, therefore an individual who wants to leave all or any assets to minor persons will not be able to do so, or persons not adequately addressing the issue in their wills or via testamentary trusts will end up with a situation where all the assets will be liquidated into cash. This is the position as the funds or the cash needs to be held by the Guardians Fund. The fund can only hold cash as they do not have the ability or resources to administer assets, this great fund is controlled by the Government, and pays interest of +- 2%. In the event monies are not claimed, they are forfeited to the state, a wonderful thought!
In the interim the minors will have limited or no access to the fund for their needs, education, health, well being housing. Your dream of passing the fruits of your hard earned work in establishing your legacy to heirs is impossible as the Guardians Fund can only hold cash, and all your efforts will come to zero. The solution is to have all your assets and your properties in a trust, as the trust survives your death; any beneficiary may benefit and access assets immediately. Also bear in mind that property administered by your appointed Trustees will accrue at a much better rate than the interest earned in the Guardians Fund.
Saving of costs on death, in establishing a trust a host of costs can be saved as the entity continues in perpetuity.
Donations tax: This is another one of SARS anti avoidance mechanisms; you are not even allowed to give your assets away, other than to your spouse, and certain tax exempt institutions. You are limited to donations of R 100k per annum, this places you in an invidious position, if you wish to give assets or cash to children or parents or family or dependents, if you do you will face a taxation of 20% on any amount over 100k, this can be resolved by making these persons beneficiaries of your trust, a trust is exempt from donations made in pursuance of the trust.
Important: There is no necessity for a trust to terminate, a trust does not die and can therefore continue in perpetuity. This allows for the continuation of the assets which allows for future generations to benefit from your labour, no costs, no transfer, no cancellation of bonds, there is no Estate Duty, CGT or executors fees.
On the death of any individual, their estate is frozen, this is necessary in order for the Executor to wind up the estate, i.e. collect assets, pay debts, taxes, and only after that to make over bequests then distribute benefits to the beneficiaries and Heirs. All the while Spouse and dependants of the deceased have no access to any monies or assets; complex estates could take numerous years between 2-5 years to wind up.
As a Trust holds the assets and cash, they are immediately accessible versus the situation where an individual dies and takes it 2-5 years to wind up, causing unnecessary and untold hardship to the spouse and dependants.
As a professional graduate / practitioner / businessperson / entrepreneur have you seriously considered the following issues?
1. What events could result in jeopardising my financial position in my personal capacity or affect my business?
2. Could a change in legislation affect my business? E.g. Pharmacists and Medical practitioners should seriously consider this one.
3. How do I conduct or carry on my business or practise? Is the business correctly structured? Is the business set up in the most tax efficient manner? Is the business secure? Are the business assets secure?
4. Where are my profits and or dividends flowing?
5. Could my business affect my personal financial status?
6. Could one or more of my businesses affect each other?
7. What is my marital status? Could my spouse’s insolvency affect me or my business or have an impact on my or our assets?
8. Could a change in my marital status affect my financial position or affect my business?
9. Could my spouse’s insolvency result in me being able to practise my profession or take on a position on the board of directors or act as a trustee?
10. Could one or more of my partners, death, divorce or insolvency affect our business and in turn my personal financial position?
11. Are my personal assets secure? Are my business assets secure? Can I continue to carry on or conduct my business or practice with out these assets?
12. Could my staff / personnel affect the future of the business as a result of a claim against the business or as a result of their negligence or acts committed or omitted?
13. In my personal capacity, do I have any creditors?
14. Who or what could be construed or classified as a creditor? A spouse in a divorce action? My bank for unpaid loans, overdrafts, credit cards, home mortgage, store cards, claim from a domestic employee, damages claims, suretyships which could be acted on, If so what would transpire if I could not meet my obligations?
15. Who or what are my business creditors? My clients, customers, patients, suppliers, creditors, financiers, personnel, SARS, landlords, professional regulatory bodies, partners? You will soon realize the list is quite lengthy.
16. What do I stand to lose if a creditor were to make a claim on my assets or business assets?
17. If a partner / shareholder joins or leaves the business or practice, through death, disability or through purchasing or sale, what are the tax consequences?
18. Am I or we in the case of partnership adequately protected and do we have the liquidity or cashflow to deal with any consequences that may flow from an event arising as set out in 13 above?
19. What are the tax consequences of introducing new capital to the business or practice through the introduction of a new partner?
20. Who owns my business? Who controls my business?
21. If I am only a shareholder do I have limited liability? Can SARS or creditors attach my assets even though I am only a shareholder /member of a Close Corporation?
22. Can a creditor or SARS attach or claim assets in a trust?
23. What is my liability or rights in an insolvency or liquidation?
24. Can the business continue with out me or key personnel? Are there solutions to address the latter if the business can not continue?
25. Do I have a succession plan to ensure continuity of the business or practice?
26. Do I know what my estate is worth? Do I have sufficient liquidity in my estate to deal with estate duties, capital gains taxes and executors fees? How can I best minimise if not avoid all the duties, taxes and charges on death to ensure that my spouse, partner, ascendants or descendents get what I intended them to?
27. Do I have a proper estate plan in place? Do I have a will?
28. Are my minor children adequately catered for on the event of my death?
29. What is my total exposure to creditors? What am I really worth?
30. Is my home protected? Should I really retain my home in my name and what are the ramifications if keep the home in name or not?
31. Have I correctly planned for my retirement? Do I have sufficient liquidity and cash flow?
32. How do I exit from my business or practice? What are the tax consequences?
33. Could I be held liable for any claims or taxes even after I sold my shares or portion / percentage of the business or practice?
If you have concerns about any of the above questions and scenarios, you should seriously consider proper personal and corporate structuring to minimize your risk.
www.iprotect.co.za
Property owners need to bite the bullet
Property owners need to bite the bullet
We certainly find ourselves in some very dynamic times! We have a new president in our country, and despite the flutter in the financial markets following the resignation of our Finance Minister Trevor Manual, the impact on the country and the property market is not expected to be substantial.
As John Loos of FNB puts it "This market has far bigger fish to fry!" He refers to the re-emergence of the sub-prime crisis and the economic forces in the country that will have a far bigger impact on the market.
Perhaps the lack of reaction to the political upheaval has got to some extent to do with the fact that South Africans are too busy trying to survive these tough economic times to be concerned with the political bickering.
Payment defaults by debtors have been escalating sharply for almost two years, and there appeared to be no let-up in this trend, according to Luke Doig, senior economist at Credit Guarantee. "The 17.6% year-on-year increase in July liquidations to 320 was exactly in line with expectations of a 20% increase."
Fred Steffers, managing director of the Consumer Profile Bureau, also confirmed that there had been a substantial increase in adverse credit judgements. "We have seen a steady rise over the past 18 months in both insolvencies and adverse judgements which confirms that consumer debt is busy catching up with consumers."
Property owners need to bite the bullet for just a little longer. Things will soon start looking up as inflation is expected to decrease later this year, the interest rate cycle is expected to turn in April, and real disposable income is expected to increase early next year. However, until then, property owners need to take very tight control of their financial affairs.
Don't wait until the situation becomes critical before you take the necessary steps to ensure you can survive this tough time, especially now when the end is already in sight. Speak to your creditors to make alternative payments arrangements and if need be, get assistance from a debt councilor.
Bond repayments are often the biggest expenses, but don't assume that selling is your only option. In fact, now is not the best time to sell and it may be a far better option to hold on to the property. Your bond originator can assist you to restructure your repayments.
If you have capacity in your budget, and you are thinking of expanding your property portfolio, there has not been a better time to buy for several years. Don't miss Module 2 of our Property Ownership Coach course that provides an insightful look at how to buy the right property.
The Property Ownership Coach team
www.propertyownershipcoach.co.za
Tel: (011) 979 0315
Fax: (011) 979 0123
Email: info@propertyownershipcoach.co.za
30 Villa Valencia, Cnr Monument and Anemoon Str, Glen Marais,
Kempton Park
PO Box 12316, Aston Manor, 1630
We certainly find ourselves in some very dynamic times! We have a new president in our country, and despite the flutter in the financial markets following the resignation of our Finance Minister Trevor Manual, the impact on the country and the property market is not expected to be substantial.
As John Loos of FNB puts it "This market has far bigger fish to fry!" He refers to the re-emergence of the sub-prime crisis and the economic forces in the country that will have a far bigger impact on the market.
Perhaps the lack of reaction to the political upheaval has got to some extent to do with the fact that South Africans are too busy trying to survive these tough economic times to be concerned with the political bickering.
Payment defaults by debtors have been escalating sharply for almost two years, and there appeared to be no let-up in this trend, according to Luke Doig, senior economist at Credit Guarantee. "The 17.6% year-on-year increase in July liquidations to 320 was exactly in line with expectations of a 20% increase."
Fred Steffers, managing director of the Consumer Profile Bureau, also confirmed that there had been a substantial increase in adverse credit judgements. "We have seen a steady rise over the past 18 months in both insolvencies and adverse judgements which confirms that consumer debt is busy catching up with consumers."
Property owners need to bite the bullet for just a little longer. Things will soon start looking up as inflation is expected to decrease later this year, the interest rate cycle is expected to turn in April, and real disposable income is expected to increase early next year. However, until then, property owners need to take very tight control of their financial affairs.
Don't wait until the situation becomes critical before you take the necessary steps to ensure you can survive this tough time, especially now when the end is already in sight. Speak to your creditors to make alternative payments arrangements and if need be, get assistance from a debt councilor.
Bond repayments are often the biggest expenses, but don't assume that selling is your only option. In fact, now is not the best time to sell and it may be a far better option to hold on to the property. Your bond originator can assist you to restructure your repayments.
If you have capacity in your budget, and you are thinking of expanding your property portfolio, there has not been a better time to buy for several years. Don't miss Module 2 of our Property Ownership Coach course that provides an insightful look at how to buy the right property.
The Property Ownership Coach team
www.propertyownershipcoach.co.za
Tel: (011) 979 0315
Fax: (011) 979 0123
Email: info@propertyownershipcoach.co.za
30 Villa Valencia, Cnr Monument and Anemoon Str, Glen Marais,
Kempton Park
PO Box 12316, Aston Manor, 1630
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