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Death and taxes are still very much a certainty. Estate duty is a form of tax that is levied on the deceased estate. Estate planning is one of the most crucial areas of financial planning.  Too often we see clients pass away leaving loved-ones in a state of disarray having to deal with issues when they are enduring the worst time of their lives.

What is a deceased Estate

A deceased estate comes into existence when a person dies leaving property or a document which is a will or purports to be a will. Such estate must then be administered and distributed in terms of the deceased’s will. If there is no valid will, the estate will be distributed in terms of the Intestate Succession Act, 81 of 1987.

Which taxes apply when someone dies?

Two separate taxes are levied on a deceased estate:

Estate Duty

Estate Duty taxes the transfer of wealth (assets) from the deceased’s estate to the beneficiaries.

This tax is paid on the ‘dutiable estate’ of a deceased individual. It is charged at a rate of 20% on the first R30 million of the dutiable estate, and 25% on anything above R30 million.

Dutiable amount of a deceased estate =

Sum of all property (assets and liabilities) of the deceased.

+ Property which is deemed to be property of the deceased as at date of death.

– All deductions.

Capital Gains Tax

Capital gains tax is applicable to a deceased estate in the same manner as it is applicable to individuals, with one exception to the general rule. The exception is that death is regarded as a deemed disposal of assets that is subject to capital gains tax, such as immovable property, shares, unit trust, etc. Exclusions would include an R2 million capital gain exclusion on a primary residence and an R300 000 death exemption.

What about foreign property?

Estate duty is levied on the assets of deceased individuals who resided in South Africa at the time of their death (irrespective of their citizenship), and on the South African assets of deceased individuals who lived abroad.

Foreign property is considered in the calculation of the dutiable estate of an individual who resided in South Africa at the time of their death.

What deductions are allowed?

Allowable deductions which influence Estate Duty calculations include debts, funeral and death-bed expenses, administration costs, property transferred to a surviving spouse, and the first R3.5 million of the value of the estate.

The first R3.5 million of the value of an estate is not subject to Estate Duty. This allowance may be added to the allowance granted to the surviving spouse of a deceased person which amounts to a total of R7 million which is not subject to Estate Duty, upon the death of the second spouse.

Deductions are also allowed for liabilities, bequests made to qualifying public benefit organisations, and assets that are inherited by the surviving spouse.

How does life insurance impact Estate Duty?

When a life insurance policy is paid out, the value of the pay-out is included in the value of the deceased’s estate and it could, therefore, impact the amount on which the estate duty is levied.

There are certain exemptions, such as:

• When the policy falls outside of the estate in terms of an antenuptial contract.
• If the policy had been implemented and paid for by a business partner and the proceeds are then paid to the business partner on the death of the individual whose life had been insured.
• When the policy was not taken out by the deceased individual and will not be used to benefit a family member or business associate of the deceased.

It is important to note that endowment policies (local and offshore) that do not pay out on the death of a life assured, but that are owned or part-owned by a deceased policyholder, will be subject to estate duty.

Effective Estate Planning

To spare your loved ones any additional grief, it is imperative to consult with a qualified professional. This ensures your estate is distributed efficiently, is cost-effective and is wound up with as little delay as possible.

Drawing up a valid will is much more than just nominating heirs and appointing an executor to administer your estate. Provision should be made for the settling of debts, taxes and other related costs, and to secure your family’s financial future. Sufficient estate planning makes the process a lot less stressful.  

By seeking the best possible professional assistance you will be able to identify problem areas, investigate solutions and achieve the peace of mind. You will know that you have done everything possible to streamline your financial affairs. A professional will ensure that your will is a sound tax-efficient document and expresses your wishes as intended.

 

Our Professional Financial Advisers are here to help you.

Schedule an introduction meeting over Microsoft Teams to get to know them:

Ronnie Els CFP®

About Ronnie: See Ronnie’s LinkedIn Profile

Schedule a Meeting: https://calendly.com/ronnie-tvc/introduction-meeting

 

Justin Els FSA™

About Justin: See Justin’s LinkedIn Profile

Schedule a Meeting: https://calendly.com/justin-tvc/introduction-meeting