Understanding your estate, estate duty and taxes

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(Shutterstock)
(Shutterstock)

Cape Town - There is sometimes confusion as to what will actually constitute your estate for estate duty purposes after your death.

How and on what amount will estate duty be calculated and how quickly after your death must this tax on capital be settled?

David Knott of Private Client Trust, the fiduciary services division of Private Client Holdings, and a member of the Fiduciary Institute of South Africa, says the Estate Duty Act is complex, but the broad concepts can be explained.

Knott points out that how one is married influences the calculation, so for the purposes of this article it is assumed that the person is married out of community of property with the matrimonial property regime excluded.

“All property that the deceased was competent to dispose of, whether in South Africa or abroad, will need to be brought to account. This includes fixed property, movable property such as motor vehicles, furniture, artwork, investments such as stocks and shares, interests in private companies, loan accounts, cash in the bank, unpaid salary and leave pay," said Knott.

"The proceeds of any life assurances, whether payable to the estate or to third parties, also needs to be identified as well as the surrender value of any life policy owned by the deceased on the life of another.”

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Any usufructary, fiduciary or like interest will also need to be valued as will any goodwill, royalties, copyrights and trademarks enjoyed by the deceased at the time of his death.

From this asset total will be deducted all legitimate claims against the estate - for example outstanding bonds, hire purchase agreements, credit cards, overdrafts, last illness expenses, funeral costs, household expenses, the costs of administration of the estate and suchlike to arrive at the net estate.

From the net estate figure, one is allowed to deduct various rebates to arrive at the dutiable estate position.

According to Knott these rebates include a primary of R3.5m applicable in all instances, plus any amount accruing to a surviving spouse, either in terms of the will or as a maintenance claim, the value of any property abroad acquired by the deceased either before he became resident here for the first time or that he inherited from a non-resident, the value of any bequest to a government or municipal body or to an exempt public benefit organisation to arrive at the dutiable estate.

“The dutiable estate will attract estate duty at the rate of 20% and must be settled with the Commissioner for Inland Revenue by the anniversary of death but within 30 days of assessment if assessed earlier," said Knott.

"It could be that portion of the estate duty must be borne by others, for example the beneficiaries of a life assurance policy payable direct to them, but nevertheless the estate remains liable for the full estate duty amount but has the right to recover the pro rata portion from the policy beneficiaries.”

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Jeremy Burman, a director of private client financial services, says it should be further noted that on death, a person is deemed to have disposed of all their assets for the purposes of calculating whether there will be any capital gains tax liabilities.

“Assets left to a surviving spouse will be exempt, but all other assets may attract an additional tax on death,” said Burman.
 
Burman and Knott advise that one needs to be aware what the capital gains tax and the estate duty liabilities are likely to be to ensure the estate has adequate liquidity to avoid the forced sale of assets.

“Consult with a professional adviser,” says Knott.

ALSO READ: Guaranteed annuity vs living annuity explained

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