Walkers Attorneys

My February Newsletter to clients and the article on my Website headed “Tax Heaven” referred to a number of important Estate Planning issues that were dealt with in the Budget and in particular the substantial increases in deductions for Estate Duty purposes which are critical to take advantage of.

 

The general deduction for Estate Duty under Section 4A has been increased from R1.5 to R2.5m.  This means that no one should have to pay the 20% Estate Duty except to the extent that the value of their Estate exceeds R2.5m.  The problem in this regard however is that many Wills have been badly drawn (often for free by Financial Institutions) which provide that the surviving spouse inherits everything.  The simple effect of this is that the Estate of the  first dying loses the deduction of R2.5m and the Estate of the  surviving spouse (when he/she dies) is only entitled to one deduction i.e. an additional payment therefore to SARS of some R500 000-00.  To claim the deduction in each Estate,  R2.5m of assets have to be bequeathed to a person other than the surviving spouse because all assets left to a surviving spouse are exempt from Estate Duty and therefore nothing can be deducted and the saving is lost.

I generally provide for a Trust to be created in the Will to which the R2.5m assets can be left for the support and maintenance of the surviving spouse and children and which terminates on the death of the surviving spouse with the assets being divided equally between the children or kept in the Trust for future Estate Planning purposes. There are no drawbacks to this arrangement and of course the benefit is substantial.

Another way of dealing with this is to leave the R2.5m assets directly to the children but with a usufruct in favour of the surviving spouse.  I do not recommend this method because with CGT it becomes a very complex matter to determine the values of the various assets and in particular the base cost of the bare dominium (ownership excluding the right of use) of an asset can cause later problems.

It is therefore critical to ensure that your Will is updated and checked against the legislation as it presently exists to ensure the maximum deductions and payment of the least possible Estate Duty and Capital Gains Tax.