Don’t forget about estate duty when doing estate planning

When clients are confronted with the death of a loved one, for many this is unfamiliar territory. Suddenly, deaths have to be reported, executors appointed, documents hunted for, and paperwork completed. Yet, probably the most unforeseen for so many clients is the estate duty payable on the estate of the deceased.

But what is estate duty and are there exceptions or deductions possible?

Estate duty refers to the tax that is levied on the estate of a deceased person in accordance with the 
provisions of the Estate Duty Act (the “Act”). Estate duty is levied on the value of the estate at a rate of 20% on the first R30 million and 25% on the value of the estate above R30 million. Estate duty is levied on the worldwide property and deemed property of a person who is ordinarily resident in South Africa and on property in South Africa owned by non-residents.

The good news is that there are allowable deductions in terms of section 4 of the Act that will reduce the net value of the estate, and by implication the extent of estate duty payable. It is an important part of your estate planning to know what these deductions are and how your estate should be structured to afford you the most efficient planning for your estate.

A few deductions that can be listed are:

  • Funeral costs, where the fair and reasonable costs of the funeral, tombstone and death-bed expenses are allowed.
  • Debts due by a deceased to persons ordinarily resident in South Africa may qualify as a deduction. Included here could also be a maintenance claim for a minor child or a surviving spouse.
  • Administration costs allowed by the Master of the High Court. Examples of such costs are the transfer cost of properties to beneficiaries, executors’ fees, Master’s fees, accounting fees, payments of rates clearances to enable the transfer of the properties, cost for the advertisements cost to evaluate assets in the estate, etc.
  • Bequests to public benefit organisations.
  • Claims in terms of the Matrimonial Property Act, such as where the deceased was married out of community of property with the accrual system, the surviving spouse will have a claim against the estate if the estate had the greater accrual.
  • Bequests to surviving spouse. This is a useful provision as it allows for the deduction of any property included in the estate of the deceased which accrues to the surviving spouse. Examples can include a legacy, a residue award or deemed property like a usufruct or life policy of which the spouse is the beneficiary.
  • Deduction in terms of section 4A of the Act, which determines that the dutiable amount of any estate shall be determined by deducting from the net value of the estate an amount of R3.5 million. If this amount was not utilised in the estate of the first dying, the amount will roll over and a deduction of R7 million will be allowable in the estate of the surviving spouse.
What should be clear from this above is that estate duty is unavoidable, but that with some foresight, proper estate planning and appropriate estate administration expertise, the estate duty implications for your surviving loved ones can be reduced with the allowable deductions. 

Make a point of discussing estate duty with your estate planning advisor as death and taxes will always be a certainty.

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 has been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s).
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