Limit your estate duties
TAX TIPS: HOW TO MAKE SURE YOUR HEIRS DON’T OVERPAY THE TAXMAN AFTER YOU DIE
It is imperative to consult a qualified professional to ensure your estate is distributed efficiently and is cost-effective.
Death is a certainty, taxes a lot less so, especially if you don’t plan for the proper winding up of your estate. To spare your loved ones any additional grief it is imperative to consult with a qualified professional to ensure your estate is distributed efficiently, is cost-effective and is wound up with as little delay as possible.
Here are some estate planning tips:
Investing in a retirement annuity (RA) will firstly provide you with a tax deduction on your annual tax liability within the year it was made.
Secondly, you enjoy tax-free growth on the value of the investments in the RA.
Thirdly, it is excluded from your estate on death, if you nominate a beneficiary.
A final benefit is that when you die, any contributions for which you have not yet received a deduction are not taxed in the hands of your beneficiaries.
For estate planning purposes, it is usually more cost-effective to buy or keep life assurance for the purpose of using it to fund the taxes incurred on your death. The insurance amount can be adjusted to compensate for additional estate duty and executor’s fees that will be incurred when the amount is paid to the estate.
Investments created for grandchildren or minor children are best kept in their own names as it will then be excluded from your own estate. You can always be the third-party debit order payer in this instance.
In the event of a substantial sized estate and where assets such as a holiday house or farm are included, which become more valuable over time, one can set up an inter vivos trust to avoid having to transfer the assets on death and incurring costly transfer costs etc.
Creating a trust may not be applicable to all estates and must be reviewed on a case-by-case basis due to the tax implications for a trust being much higher than individual tax rates.
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, levied at 20%.
Where minor or persons with a mental incapacity are involved, a testamentary trust can be created upon death and one can stipulate that the trust must terminate when the beneficiaries reached the age of 18, therefore ensuring minimal tax liability within the trust. This is also to ensure that any cash inheritance due to a minor is not paid into the Guardian’s Fund (a government-run fund), which will be released as they reach the age of 18.
Estates worth less than R3.5 million attract no estate duty. In addition, amounts left to a spouse are also free of estate duty under Section 4q of the Estate Duty Act and any capital gains tax is deferred until the surviving spouse sells the asset.
The laws and tax structures are complicated and all-embracing, so attend to estate planning early and with a trained professional to make sure you don’t overpay the taxman if you don’t have to.
This content was prepared in collaboration with Brenthurst Wealth fiduciary expert Malissa Anthony.
Suzean Haumann is a certified financial planner at Brenthurst Wealth