Category Archives: Estate

Implications of estate duty

A4Implications of estate duty

Estate duty is charged on the dutiable value of the estate in terms of the Estate Duty Act. The general rule is that if the taxpayer is ordinarily resident in South Africa at the time of death, all of his/her assets (including deemed property), wherever they are situated, will be included in the gross value of his/her estate for the determination of duty payable thereon.

The current estate duty rate is 20% of the dutiable value of the estate. Foreigners/non-residents also pay estate duty on their South African property.

To minimise the effects of estate duty you need to understand the calculation thereof. The following provisions apply in determining your liability:

  1. Which property is to be included.
  2. Which property constitutes “deemed property”.
  3. Allowable deductions: the possible deductions that are allowed when calculating estate duty. 

Property includes all property, or any right to property, including immovable or movable, corporeal or incorporeal – registered in the deceased’s name at the time of his/her death. It also includes certain types of annuities, and options to purchase land or shares, goodwill, and intellectual property. 

Deemed property

A.  Insurance policies

i)       Includes proceeds of domestic insurance policies (payable in South Africa in South African currency [ZAR]), taken out on the life of the deceased, irrespective of who the owner (beneficiary) is.

ii)      The proceeds of such a policy are subject to estate duty, however this can be reduced by the amount of the premiums, plus interest at 6% per annum, to the extent that the premiums were paid by a third person (the beneficiary) entitled to the proceeds of the policy. Premiums paid by the deceased himself/herself are not deductible from the proceeds for estate duty purposes.

iii)     If the proceeds of a policy are payable to the surviving spouse or a child of the deceased in terms of a properly registered antenuptial contract (i.e. registered with the Deeds Office) the policy will be totally exempt from estate duty.

iv)    Where a policy is taken out on each other’s lives by business partners, and certain criteria are met, the proceeds are exempt from estate duty.

B.  Benefits payable by pension and other funds by or as a result of the death of the deceased

Payments by such funds (pension, retirement annuity, provident funds) usually consist of two components – a lump sum payment on death and an annuity afterwards. The lump sum component used to be subject to estate duty. However as from 1 January 2009, no amount received from such a fund is included in the estate of the deceased for estate duty purposes.

C.  Donations at date of death

Donations where the donee will not benefit until the death of the donor and where the donation only materialises if the donor dies, are not subject to donations tax. These have to be included as an asset in the deceased estate and are subject to estate duty.

D.  Claims in terms of the Matrimonial Property Act (accrual claim)

An accrual claim that the estate of a deceased has against the surviving spouse is property deemed to be property in the deceased estate.

E.  Property that the deceased was competent to dispose of immediately prior to his/her death (Section 3(3)(d) of the Estate Duty Act),  like donating an asset to a trust, may be included as deemed property. 

Deductions

Some of the most important allowable deductions are:

  1. The cost of funeral, tombstone and deathbed expenses.
  2. Debts due at date of death to persons who have their ordinary residence in South Africa.
  3. The extent to which these debts are to be settled from property included in the estate. This includes the deceased’s income tax liability (which includes capital gains tax) for the period up to the date of death.
  4. Foreign assets and rights:
    1. The general rule is that foreign assets and rights of a South African resident, wherever situated, are included in his/her estate as assets.
    2. However, the value thereof can be deducted for estate duty purposes where such foreign property was acquired before the deceased became ordinarily resident in South Africa for the first time, or was acquired by way of donation or inheritance from a non-resident, after the donee became ordinarily resident in South Africa for the first time (provided that the donor or testator was not ordinarily resident in South Africa at the time of the donation or death). The amount of any profits or proceeds of any such property is also deductible.
  5. Debts and liabilities due to non-residents:
    • Debts and liabilities due to non-residents are deductible but only to the extent that such debts exceed the value of the deceased’s assets situated outside South Africa which have not been included in the dutiable estate.
  6. Bequests to certain public benefit organisations:
    • Where property is bequeathed to a public benefit organisation or public welfare organisation which is exempt from income tax, or to the State or any local authority within South Africa, the value of such property will be able to be deducted for estate duty purposes.
  7. Property accruing to a surviving spouse [Section 4(q)]:
    1. This includes that much of the value of any property included in the estate that has not already been allowed as a deduction and accrues to a surviving spouse.
    2. Note that proceeds of a policy payable to the surviving spouse are required to be included in the estate for estate duty purposes (as deemed property), but that this is deductible in terms of Section 4(q).
    3. Section 4(q) deductions will not be granted where the property inherited is subject to a bequest price.
    4. Section 4(q) deductions will not be granted where the bequest is to a trust established by the deceased for the benefit of the surviving spouse, if the trustee(s) has/have discretion to allocate such property or any income out of it to any person other than the surviving spouse (a discretionary trust). Where the trustee(s) has/have no discretion as regards both the income and capital of the trust, the Section 4(q) deduction may be granted (a vested trust).

     

Portable R3.5 million deduction between spouses

The Act allows for the R3.5 million deduction from estate duty to roll over from the deceased to a surviving spouse so that the surviving spouse can use a R7 million deduction amount on his/her death. The portability of the deduction will only apply when the entire value of the estate of the first dying spouse is left to the surviving spouse. 

Life assurance for estate duty

Estate duty will also normally be leviable on these assurance proceeds.

Source: Moore Stephens’ Estate Planning Guide.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

The importance of the independent trustee

A1A well-known court case, Land Bank of South Africa vs JL Parker and Two Others (the Parker case) irrevocably changed the requirements for independent trustees to be appointed and placed renewed focus on the duties and responsibilities of all trustees.

As a result of the Parker case, most Masters of the High Court now require an independent trustee to be appointed in addition to the trustees who are beneficiaries of the trust, and therefore will not issue a Letter of Appointment without at least one independent trustee being appointed. An independent trustee will be a person who is not related to the founder, the other trustees or the beneficiaries.

This independent trustee does not necessarily have to be a professional person but it must be someone who fully realises the responsibilities he or she is accepting when agreeing to act as a trustee, and is qualified in the view of the Master of the High Court to act as a trustee.

All trustees (independent or not) are charged with the responsibility to ensure that the trust functions properly to the greatest benefit of the beneficiaries. These responsibilities include, but are not limited to:

  1. ensuring compliance with the provisions of the trust deed;
  2. ensuring compliance with all statutory requirements;
  3. conducting of proper trustee meetings;
  4. recording of proper minutes of all meetings and decisions by the trustees;
  5. proper maintenance and safekeeping of minute books. 

It is clear that a person who is appointed as an independent trustee must have the necessary experience and expertise to properly execute these duties as well as to add value to the trust. In many cases, the trustees who are not independent do not have sufficient knowledge of and experience in the proper administration of trusts. Furthermore, they might also lack expertise in utilising the vehicle of the trust in order to maximise the benefit for the beneficiaries.

This expertise includes negotiating and entering into business contracts, holistic tax and succession planning, and ensuring the optimal growth of the trust assets. It is in the best interest of the trust that this person also has sufficient knowledge of the impact of statutory requirements, such as compliance with relevant tax law and the effect of changes in legislation on the trust.

All trustees assume significant responsibility when accepting an appointment as a trustee and careful consideration must be given before accepting such an appointment. Any breach of fiduciary duties by any trustee, including the independent trustee, will result in significant exposure for the trustees. Furthermore, any action taken by the trustees on behalf of the trust while the proper number of trustees is not appointed by the Master of the High Court will be null and void.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

What happens to my bank accounts when I die?

A1In previous articles we suggested that the best way to ensure that your assets are distributed as you want them to be distributed, is to draw up and maintain a will. Should you die without a valid will, your assets will be distributed in terms of the Intestate Succession Act . This may result in unpractical distribution of assets and may lead to someone inheriting whom you did not want to inherit.

In your will you have the choice to determine what should be done with your assets. You should also appoint an Executor who will distribute your assets and manage the administrative tasks in order to fulfil the stipulations of the will and finalise the administering of your will.

As mentioned in previous articles, the death must first be reported to the Master of the High Court and the original will (or the lack of relevant required documentation) must be sent to him. The Master will then formally appoint the Executor by sending him an Executor’s letter and allocating a unique estate number to the estate. This estate number wil then be used in all future correspondence with and enquiries from the Master’s Office.

What happens to my bank accounts?

The Administration of Estates Act determines that all bank accounts in the name of the deceased should be frozen and closed eventually, therefore it is extremely important that you make provision for your loved ones, so that they will have cash in hand when you pass away. Usually the accounts are frozen immediately after word of the passing has been received, so money can still be deposited, but no withdrawals will be allowed. As soon as the Executor has been appointed he/she should open a new bank account in the name of “Estate Late XYZ” according to the stipulations of the Administration of Estates Act. This is because you leave your assets to what forms your “estate”. A new bank account will be opened by the Executor and all monies of the deceased in any other bank accounts (as well as his/her spouse in the case of a marriage in community of property) will be transferred to the new bank account in the name of the estate. All estate funds will then be administrated in the estate’s bank account by the Executor until the Liquidation account (statement of assets and liabilities) is approved by the Master and has been open for inspection and remained unchallenged. The Executor will then be in a position to proceed with the distribution of estate assets and finalising of the administration of the estate.

Support to the next of kin

It may, however, take anything from 3 weeks to 3 months or longer for the Master of the High Court to formally appoint  the Executor. The fact that the Administration of Estates Act requires that all bank accounts be frozen as soon as possible after date of death may result in the next of kin or other financially dependent parties not being able to access the funds of the deceased while awaiting the appointment of the Executor. In case of a marriage in community of property the bank accounts in the name of the surviving spouse will also be frozen and closed, according to the stipulations of the Administration of Estates Act, which may have dramatic consequences. Once the Executor has been appointed, he/she may start administering the estate assets, and only then will he/she be in a position to consider interim advances against inheritance. We therefore urge you to make provision for the time following your passing, so that your next of kin have money available for their immediate needs.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

Hantering van die huwelik en boedelbeplanning

A1Dit is belangrik om die wetlike implikasies van die huweliksgoedere-bedeling te verstaan.

Dit is veral  belangrik tydens die opstel van testamente asook by die aangaan van ‘n huwelik, aangesien die bedeling wat ter sprake is, die bates sal beïnvloed.

Die belangrikste vorme van huweliksgoedere-bedeling is die huwelik binne gemeenskap van goedere, die huwelik buite gemeenskap van goedere met die uitsluiting van die aanwasbedeling, en die huwelik buite gemeenskap van goedere met die insluiting van die aanwasbedeling.

Huwelik binne gemeenskap van goedere

  1. Daar is geen vooraf kontraktuele ooreenkoms nie, afgesien van trou;
  2. Gades het nie twee afsonderlike boedels nie;
  3. Daar is ‘n gemeenskaplike boedel en elke gade het ‘n aandeel van 50% in elke bate in die boedel, ongeag in wie se naam dit geregistreer is;
  4. Dit geld vir die bates verkry voor die huwelik asook tydens die huwelik;
  5. Indien een gade skuld aangaan in sy/haar eie naam, sal sy/haar gade outomaties daardeur gebind word en ook aanspreeklik gehou word vir die skuld;
  6. Indien ‘n sekwestrasie plaasvind (in die geval van insolvensie), sal die gemeenskaplike boedel gesekwestreer word. 

Huwelik buite gemeenskap van goedere met die uitsluiting van die aanwasbedeling

  1. ‘n Notariële huweliksvoorwaardekontrak (HVK) word  voor die sluiting van die huwelik opgestel deur ‘n prokureur (wat geregistreer is as ‘n notaris);
  2. Indien daar geen kontrak bestaan nie, sal die huweliksbedeling outomaties binne gemeenskap van goedere wees;
  3. Die waardes van elke gade se boedel by huweliksluiting word in hierdie kontrak vervat;
  4. ‘n Huwelik met ‘n HVK beteken dat al die eiendom wat deur die gades besit word voor die datum van huweliksluiting, die eiendom van die betrokke gade sal bly;
  5. Elke gade het volle beskikkingsreg oor sy/haar eie bates (met ander woorde sonder vooraftoestemming van die ander), alhoewel daar ‘n plig rus op elke gade om volgens sy/haar vermoë by te dra tot die gesamentlike huishoudelike uitgawes;
  6. Bates verkry in die loop van die huwelik sal slegs die uitsluitlike eiendom van een gade bly indien die aanwasbedeling uitdruklik deur die gades uitgesluit word.

Huwelik buite gemeenskap van goedere met die insluiting van die aanwasbedeling

  1. Die huwelik buite gemeenskap van goedere sluit outomaties die aanwasbedeling in, tensy dit uitdruklik deur die gades in die HVK uitgesluit word;
  2. Eers met ontbinding van die huwelik tree die aanwasbedeling in werking en moet groei van elke gade se boedel vasgestel word.

BOEDELBEPLANNING

Skenkings tussen gades is vrygestel van skenkingsbelasting asook boedelbelasting.

Huwelik binne gemeenskap van goedere

  1. In die geval van die dood van ‘n eggenoot het die langslewende gade ‘n eis vir 50% van die waarde van die gesamentlike boedel en word die werklike waarde van die boedel derhalwe  verminder met 50%. Die boedel word eers verdeel nadat al die skuld vereffen is (begrafniskoste en boedelbelasting word hierby uitgesluit, aangesien die oorledene en nie die gemeenskaplike boedel nie, hiervoor aanspreeklik is).
  2. By die opstel van ‘n testament is dit belangrik dat gades wat getroud is binne gemeenskap van goedere, bewus moet wees daarvan dat hy/sy slegs die helfte van ‘n bate bemaak.
  3. By die dood van ‘n eggenoot word alle bankrekenings gevries (selfs al is die rekenings slegs in een van die gades se naam). Dit kan ‘n invloed hê op likiditeit.
  4. Skenkings of erflatings aan iemand getroud binne gemeenskap van goedere kan ook uitgesluit  word van die gemeenskaplike boedel. Die skenker kan met ander woorde bepaal dat die skenking nie binne die gemeenskaplike boedel moet val nie. Die ontvanger daarvan sal dan ‘n afsonderlike    boedel kan opbou maar die opbrengs van sodanige afsonderlike bates sal weer binne die gesamentlike boedel val.

Huwelik buite gemeenskap van goedere met die uitsluiting van die aanwasbedeling

Elke boedelbeplanner (gade) behou besit van bates wat voor die huwelik verkry is.

Huwelik buite gemeenskap van goedere met die insluiting van die aanwasbedeling

‘n Skenking van een gade aan die ander gade word uitgesluit by die berekening van elke gade se aanwas. Die ontvanger van die geskenk kan dit met ander woorde nie in berekening bring wanneer die groei van sy/haar aanwas vasgestel word nie en die skenker se aanwas word outomaties verminder met die skenkingsbedrag.

EGSKEIDING

In die geval van egskeiding word die huwelik ontbind deur ‘n hofbeslissing en sal die hof dan aspekte soos onderhoud vir ‘n kind, kontak (toegang), voogdyskap en sorg (toesig), onderhoud vir die gade, die verdeling van bates, verdeling van pensioenbelange, ensovoorts bepaal. 

SAAMWOON EN DIE DEFINISIE VAN ‘GADE’

“Saamwoon” word gedefinieer as ‘n stabiele, vaste verhouding waar ‘n paartjie wat nie wil of kan trou nie, saamleef as gades. Die Wysigingswet op Belastingwet het die definisie van “gades” uitgebrei deur ook in te sluit “a same sex or heterosexual union which the Commissioner is satisfied is intended to be permanent”.

Verskeie stukke wetgewing soos die Wysigingswet op Pensioenfondse en Wysigingswet op die Belastingwet, definieer “gade” om ook ‘n lewensmaat in ‘n saamwoonverhouding, in te sluit. Die effek is  dat saamwoon-lewensmaats voordeel trek uit die artikel 4(q)-boedelbelastingaftrekking soos bepaal in die Boedelbelastingwet, en die skenkingsbelastingvrystelling van die Inkomstebelastingwet.

Hierdie is ‘n algemene inligtingstuk en moet gevolglik nie as regs- of ander professionele advies benut word nie. Geen aanspreeklikheid kan aanvaar word vir enige foute of weglatings of enige skade of verlies wat volg uit die gebruik van enige inligting hierin vervat nie. Kontak altyd u regsadviseur vir spesifieke en toegepaste advies.