Estate Planning 101: Tax exemptions and your last will and testament

09 February 2021,  Johnny Davis 425

The taxman will always come knocking during your lifetime, but he is not always as unreasonable as society implies. The mighty Income Tax Act and all other tax related pieces of legislation do allow for certain exemptions, which all young individuals should take note of. Each exemption can justify a lengthy conversation but for purposes of this blog, I would like to shortly address some important exemptions to keep in mind.  

1. Donations tax exemption – As discussed in my previous blog post, trusts can be an effective vehicle for estate planning purposes. If you choose to move assets into a trust to save estate duty, you may donate R100,000 per person per annum to such a trust without attracting any donations tax. Effectively, a couple could donate R200,000 per annum and over five years, you will have removed R1,000,000, plus any growth, from your joint estate. This would be a net saving of donations tax in excess of R200,000 (as donations tax is levied at 20 %).

2. Estate duty exemption - In estate planning terms, estates worth less than R3.5m attract no estate duty. So as you accumulate wealth during your lifetime, try and use corporate vehicles such as trusts or companies to ensure that your personal estate does not exceed R3.5m.

3. Donations between spouses - That is, persons who are married to each other may freely donate assets or money to each other (or for the benefit of each other), irrespective of the marital property regime that applies to them, without triggering donations tax.

4. Income tax deduction – Although not strictly exemptions, it is important to take note that various deductions are allowed for individuals on their annual income. These include charitable contributions, medical expenses and retirement fund contributions. These are certainly not the extent of the deduction allowed so I encourage all individuals to consult an expert in the field to ensure you do not pay the taxman more than he is owed.

Drafting a last will and testament

After getting all your estate planning in order and using some of the insights provided in this series, an important final step is the drafting of a last will and testament. This aspect becomes more and more important later on in life should you perhaps get married and have little ones running around.

A last will and testament states what will happen to your assets after death. This includes, but is not limited to, your estate, property, possessions, money and children. The consequences of not having a will are quite serious. Not only does a last will and testament take a lot of pressure of your bereaved family, it also give you an opportunity to further avoid the taxman. For example, all bequests assets bequeathed to a surviving spouse is not subject to estate duty in the hands of the first dying spouse. 


*Click below for previous blogs in this series:

Estate Planning 101: Starting young and ending strong

Estate Planning 101: Invest in a Tax Free Savings Account and/or a Retirement Annuity

Estate Planning 101: Life insurance and inter vivos trusts


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