hris glur wrote:-
Sorry, I missed these valuable answers, which I recovered from google.
FACTS:-
A will/share-transfer scheme which minimises death taxes as follows
was attempted:
* The shares are sold to the 'will beneficiaries' against loans
(at no interest).
* Each year $X is allowed to be subtracted from the loans by way
of 'donation', free of donation tax.
* The will absolves the 'beneficiaries' of the debt of the loan(s)
on the death of the testator/share-transferor.
This scheme hopes to acheive:
1. fixing the share 'value' at some earlier pre-inflation price,
McGyver wrote:
The value of the shares at time of sale was whatever it was. That value is
not established by the sale unless the sale was an arms-length deal and
there is no other indication of value, such as a market price. If it was a
disguized gift, I doubt sale will be considered to have established
anything. In any case, death taxes are assessed at the time of death, based
on property in the testator's possession at that time. The stock was not in
the testator's possession at the time of death if it had been transferred.
So the proper analysis for death taxes purposes is to determine the value of
the note. All of that is assuming that enough time passed between the
transfer and the death to avoid the implications of any "gift in
anticipation of death" rules.
I can't see if you disagree with my interpretation:
under SA law the share 'value' (the lowest that the tax authorities won't
query - for non-quoted=no 'market' value) is transformed to a loan
account, which may be substantially less than the share 'value' at death.
Additionally, some donation is allowed to be subtracted for the loan
each year until death taxes are due.
2. reduce the death tax by the amount of donation tax exemption
for each year until death.
In a specific case the following happened:------
1. A lawyer's letter dated 21 June 1999 reads:
"prior to signing the wills make sure that the shares have been
transfered accordingly". This relateds to the common law:
"Lemo pros Jurit" i.e.
" you cannot absolve a debt which does not yet exist".
That advice might be valid in the UK or South Africa. I wouldn't know. In
the U.S. the timing of the signing of the will in relation to the transfer
of stock is not important. More below.
Why would a company be involved in the transfer of it's shares? In the U.S.
the shareholder may transfer the shares without the participation of the
company.
OK, I omittted an essential piece of information: this is a closely held
'family' company. But your query raises in interesting point for, me: I
must be carefull not to confuse the PTY Ltd Co. and the shareholder(s).
But you are right share transfer does not require the company.
Thanks for raising that point, which prompted me to check:
" 3. RESOLVED THAT Mr xxxx and Mrs xxxx shall remain as Directors...
4. RESOLVED THAT the Loan Accounts in the Company of Mr xxxx ...".
So the "...Minutes of meeting of the members of the company..."
does (also) relate to matters of the company (apart from share holding),
and hence by local company law, the backdating is an offence.
But his apparently won't effect my main point: "the share-wills scheme
failed" because 'can't absolve a debt which doesn't exist '.
Joe Morris wrote:
"McGyver" <Greyprof@msn.com> writes:
That's typically the case for publicly-traded stock, but in the
case of privatly-issued shares there may be conditions which
must be satisfied before they can be sold.
One requirement that might attach to the shares would be one that
requires that the intent to sell them must be announced -x- days
prior to the sale, possibly with a requirement that the company
or other existing shareholders be given an opportunity to match
the prospective purchaser's offer.
Additionally, even for publicly-traded shares there may be situations (for
example, where poison-pill bylaws have been implemented) in which the
purchase of shares may trigger certain events unless approved by the BOD.
OK, but apparently non of these possibilities applied.
McGyver continued
The company has some administrative things to do after the fact.
changing it's records, etc. Those company actions might be shortly after
the transfer, or a long time after, but they don't affect the date of the
transfer. Things might be done differently in South Africa.
So are you agreeing that (other than for tax purposes) the transfer
cannot be backdated ? Eg. for the purpose of comparing it with the will
sign date - which you say it is not irrelevant.
If the transfer and promissory note were done in 1998 and the company got
around to doing it's administrative things in 1999, that's perfectly ok.
Ok in what sense ? Is the transfer implemented in 1998 or 1999 ?
Remember in this case it's BACK dated, NOT the delay of 'getting
around to do'.
-------------------
I say NO !! The transfer may have been effective for tax purposes in Feb.,
but for the 'meaning' of " you cannot absolve a debt which does not
yet exist" the debt which was absolved by the will did NOT exist
on the 23 June 1999.
Q1: has the 'transfer before will' sequence been acheived ?
The transfer of stock, as between the testator and the beneficiary, may have
happened before or after the signing of the will. It doesn't matter because
