The only certain things in life, as we know, are death and taxes. Even in death we are taxable. One of the taxes that we pay after death, is estate duty.
Fortunately the Estate Duty Act was written in such a way that there are ways in which estate duty can be reduced or avoided. It is important to do estate planning when you write your will. Rather consult with a professional person to help you with this, because it can be an expensive excercise if your will does not make provision to either avoid estate duty or otherwise provide for estate duty that will be paid. You cannot fix this problem in death so the time to do it right is now.
Estate duty is calculated by adding and subtracting certain items. Broadly, estate duty is calculated as follows:
All property and deemed property of the deceased. This will give a gross value of the estate of the deceased.
The following can be deducted from the property and deemed property, namely:
Funeral costs and deathbed expenses; debts of the deceased; administration expenses; valuation fees; certain foreign property; usuftruct or fideicommissum; bequests to public benefit organisations; improvements to property; maintenance claims; items/amounts that are inherited by a surviving spouse. Full list and explanantions of Estate Duty Deductions
The balance that remains is the net value of the estate of the deceased.
An abatement of R3,500,000 (Three Comma Five Million Rand) can be deducted from the net value of the estate in terms of Section 4A of the Estate Duty Act. (It is an abatement that is afforded all deceased persons to reduce the value of their estates after death.)
The balance that remains is the dutiable estate for estate duty purposes.
(In other words the balance here is what you will pay estate duty on.)
Estate duty is calculated at 20% of the dutiable estate.
For example, if John’s dutiable estate is R1million, the calculation is 20% times R1million. That is R200 000.
It is clear from the above why it is important that you do estate planning before you draft your will. If for example your estate is worth R10 million after the abatement, imagine that your estate will be liable for estate duty of R2 million, when it could have been completely avoided by good estate planning.
Read our article on trusts and learn how you can use your trust to reduce the value of your estate.
Contact us or your financial planner to assist you with this – it is too important to do it right.
This article written by Nanika Prinsloo of Prinsloo & Associates Attorneys.
cell: 072 8558 106