QUESTION TWO

$[10]$

On advice from her previous advisor, Nandipha is considering transferring her flat to the Bester Family Trust. The trust is in the process of being formed. She was advised that the transfer of the flat would reduce her estate duty liability.

The sale of the flat is intended to be at its full market value. As the trust is newly formed Nandipha intends to provide the trust with a loan for the purchase price. The loan will attract interest at a rate of $3\mathrm{.}5\%$ per annum. $($Accept that the official rate of interest is $7\%$ per annum$).$

$2\mathrm{.}1$ Nandipha is surprised when you tell him that selling the holiday home to the trust will result in a substantial tax liability for her. Explain to Nandipha what taxes and how much tax will be payable as a result of the sale. Show basic calculations to assist in illustrating your point. $(4)$

EBFD$411-$ ASSIGNMENT $2024$

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$2\mathrm{.}2$ Other than to save future estate duty, provide Nandipha with two reasons why a trust can be useful to them in their estate planning.

As an alternative to selling the small holding to the Bester Family Trust, Nandipha is considering bequeathing the holiday home to Khwezi, subject to a lifelong usufruct in favour of her mother $($ANB $59).$

$2\mathrm{.}3$ Calculate the value of the usufruct and explain the estate duty implications for Nandipha, Khwezi and Bablwa $($Nandipha$\text{'}$s mother$).$ Also indicate whether this is a more suitable alternative to a family trust to ensure Nandipha's wishes and intentions of wealth succession and protection of her assets for her niece.