Allowable exclusions from your estate duty

28 August 2023 ,  Annelize van der Bank 1554
A question often asked by the heirs of a deceased when faced with the prospect of estate duty, is what exclusions are allowed in terms of the Estate Duty Act 45 of 1955. In this article, we highlight some of the main exclusions from estate duty.

In addition to allowable deductions and rebates in terms of the Estate Duty Act, there are also property exclusions from estate duty. For example, if a deceased person was ordinarily resident in South Africa, property acquired before becoming ordinarily resident may under certain circumstances be excluded from the estate. Also, if a deceased person was not ordinarily resident in South Africa, property situated outside South Africa will be excluded from the deceased estate in South Africa. However, where the deceased was ordinarily resident outside South Africa at the time of death but had assets in South Africa, the deceased will have a South African estate for estate duty purposes. 

Another exclusion is any benefit due and payable by an approved retirement annuity fund, as well as any benefit from a pension fund, pension preservation fund, provident fund or provident preservation fund, as defined in the Income Tax Act, accruing as a result of the death of the deceased. So too may policies taken out by a partner/co-shareholder of the deceased on the latter’s name, called buy-and-sell policies, also be excluded under certain circumstances. The purpose of such policies must be to enable the partner or co-shareholder to purchase the interest of the deceased partner. The proceeds of a key man policy where a company takes out an insurance policy on the life of a director and pays the premiums, will also be excluded. 

Where agricultural property is involved, the market value of agricultural land is reduced by 30 percent if awarded to a beneficiary and so reduces the value of the estate and thus the estate duty. However, this will only be allowed where the property is effectively used for farming in South Africa and the property is not sold by the estate. 

Lastly, it is worth noting that assets held in trust do not fall into the estate of the deceased and are therefore not susceptible to estate duty, another reason why the trust remains a useful estate planning tool.

When considering the impact of estate duty on your estate and therefore by implication on your heirs, should you pass, it is clear that there is value in proper estate planning where all of the allowed exclusions are considered in formulating a multi-generational estate plan for your estate. So, make sure to talk to an estate planning specialist and ensure you take the necessary steps to protect your legacy for your family.

Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy have been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken based on this content without further written confirmation by the author(s). 
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