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Cape Town - There is sometimes confusion as to what will actually constitute your estate after your death, for the purposes of estate duty, according to David Knott of Private Client Trust, the fiduciary services division of Private Client Holdings, and a member of the Fiduciary Institute of South Africa.
How estate duty is calculated (and on what amount), and how quickly after your death must this tax be settled are questions that often cause uncertainty.
Knott says that the Estate Duty Act is extremely complex and cannot be summarised in a short article, but the broad concepts can certainly be explained.
Knott advises that how one is married influences the calculation. For the purposes of this article it is assumed that the person is married out of community of property with the matrimonial property regime excluded. It is important to remember that the advice below will be different for those individuals married in community of property, those that are divorced and those that are not married at all.
“All property that the deceased was competent to dispose of, whether in South Africa or abroad, will need to be taken into account. This includes fixed property, movable property such as motor vehicles, furniture, and artwork, investments such as stocks and shares, interests in private companies, loan accounts, cash in the bank, unpaid salaries and leave pay," explains Knott.
"The proceeds of any life assurances, whether payable to the estate or to third parties, also needs to be identified as well as the surrender value of any life policy owned by the deceased on the life of another. Any usufructary, fiduciary or like interest will also need to be valued as will any goodwill, royalties, copyrights and trademarks enjoyed by the deceased at the time of his death.”
From this, an asset total will be deducted from all legitimate claims against the estate. For example, outstanding bonds, hire purchase agreements, credit card balances, overdraft amounts, last illness expenses, funeral costs, household expenses and the costs of administration of the estate and suchlike are taken into account when arriving at the net estate.
From the net estate figure, one is allowed to deduct various rebates to come to the dutiable estate position.
According to Knott, these rebates include a primary of R3.5m applicable in all instances, plus any amount accruing to a surviving spouse, either in terms of the will or as maintenance claim. The value of any property abroad acquired by the deceased, either before he became resident there for the first time or that he inherited from a non-resident, the value of any bequest to a government or municipal body or to an exempt public benefit organisation should also be taken into account when arriving at the dutiable estate.
“The dutiable estate will attract estate duty at the rate of 20%. This must be settled with the Commissioner for Inland Revenue by the first anniversary of death. It could be that a portion of the estate duty must be borne by others such as the beneficiaries of a life assurance policy payable direct to them for example. Nonetheless the estate remains liable for the full estate duty amount but has the right to recover the pro rata portion from the policy beneficiaries.”
Jeremy Burman, a director of Private Client Financial Services, says that it should be further noted that on death, a person is deemed to have disposed of all their assets, for the purposes of calculating whether there will be any capital gains tax liabilities. “Assets left to a surviving spouse will be exempt, but all other assets may attract an additional tax on death.”
Both Burman and Knott advise that one needs to be aware as to what the capital gains tax and the estate duty liabilities are likely to be so as to ensure that the estate has adequate liquidity to avoid the forced sale of assets.
