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What Are The Benefits Of Leaving Assets To A Trust Fund?

When a person passes away, all their assets are placed into an estate administered by an Executor. These assets can include both moveable and immoveable property. Immoveable property relates to assets such as residential and commercial property. Moveable assets can be money in the bank, cars, furniture, jewellery, etc. The Executor will finalise all the administration needed to process the estate, pay the relevant taxes and Estate Duty and distribute the remaining assets to the beneficiaries.

What Is Estate Duty?

Estate Duty is a tax levied on the assets of a South African resident or on South African assets of a non-resident if the estate is valued above R3,500,00. Section 4 of the Estate Duty Act, 1995 specifies the various deductions that are allowed to determine the net value of the estate.

What Deductions Are Allowed Under The Estate Duty Act?

A tax exemption of R3.5 million is allowed on the entire estate before Estate Duties are calculated. Estate Duty is then payable on the remaining value of the estate at a rate of 20% on the first R30 million and 25% on the balance of the value over R30 million. If the estate’s value is under R3.5 million, SARS must still be notified of the deceased’s death.

What Happens to Assets Accrued After A Person’s Death?

Any income accrued up until the date of a person’s death is taxable. After their death, the Deceased Estate is formed. Any assets are held here until the liquidation and distribution have been finalised as per Section 35(12) of the Administration of Estates Act. Income that accrues after the date of death but before any assets being distributed to the beneficiaries is dealt with slightly differently under Section 25 of the Income Tax Act.

When Must Estate Duty Be Paid?

Estate Duty must be paid within 12 months of the date of death or 30 days from the assessment date – if the assessment has been issued within 12 months of the date of death. Late payments currently attract an interest of 6% per annum.

Who Is Liable To Pay Estate Duty?

As the estate administrator, the Executor is usually liable to pay the relevant Estate Duties. However, in some cases, estate duties may be payable by the beneficiary. This is particularly relevant when a policy is paid out to a beneficiary.

Who Can Establish A Trust Fund?

All South African citizens over the age of 18 may establish a trust. However, they need to be fully aware of its impacts and potential challenges. Many people feel that trusts are only for the wealthy, but there are still a number of benefits from property owners placing their immovable assets into a trust for their family:

  • As part of a trust, the property is not subject to inheritance tax as it no longer makes up part of the deceased’s estate.
  • A trust does not require an Executor, who may charge up to 3.5% of the estate’s value for their services.
  • A trust will provide for remaining dependants and minors.
  • The trustees administer the trust’s assets until the minor dependants come of age, or according to the trust deed’s specifications on the termination of the trust.

However, trusts are not without complications, and serious consideration of high tax rates, trustees and several other issues will have to be considered and thoroughly discussed with an attorney before setting up one. When a property is transferred into a trust, it is important to be aware of the fact that this property is now out of the owner’s control. Here are some thoughts to consider:

  • Many issues surrounding the setting up of a trust occur when the relationship between the founder of the trust and the trustee/s disintegrates. This can happen in the case of a relationship breakdown, so it is crucial to choose the trustee/s very carefully.
  • There are costs involved when initially setting up a trust.
  • If the beneficiaries need to use the trust to secure finance, it is worth noting that banks rate trusts as a higher risk than an individual.
  • Any future changes to legislation involving trusts are always possible and may limit the benefits they currently provide.
  • Any rebate an individual may have falls away when the asset is in the trust. For example, capital gains rebate on a primary residence.

Through AED Attorneys, proper estate planning helps to legally ensure that assets provide for family and loved ones, rather than the taxman. Here are some recommendations from AED Attorneys, but are by no means exhaustive:

  1. Set up an Inter Vivos Trust

This is a living trust, created whilst an individual is still alive. It allows the trust owner to access their assets, which may be property, investments or cash while they are still alive. On their passing, the designated beneficiaries of the trust are granted access to the remaining assets and the trust is managed by a successor trustee.

  • Invest in a Retirement Annuity (RA)

RA’s are attractive from both an investment and estate planning perspective. The contributions are tax-deductible; they enjoy a tax-free grow on their value and are excluded from the deceased’s estate.

  • Buy Life Insurance

Life insurance can effectively fund any taxes due on the estate after death.

  • Leave R3.5m To The Trust

As mentioned earlier, estates worth less than R3.5m will not attract estate duty. Also, any amounts left to a spouse are free of estate duty and capital gains tax until the spouse sells the asset. Therefore, leaving R3.5m to the trust allows children to benefit from the estate duty exemption of both parents. Recent changes to the law have reduced this need, but leaving money to a trust should still be considered for growth assets.

While it is worth being informed about estate planning, it can get quite complicated. AED Attorneys helps clients set up Wills and Trusts to make provision for dependants and minimise estate duties legally.

AED Attorneys understands that every situation is unique. Although they strive to ensure that the information contained herein is accurate at the time of publishing, it cannot be guaranteed to be without errors or omissions. As a result, AED Attorneys, its employees, independent contractors, associates or third parties will under no circumstances accept liability or be held liable, for any innocent or negligent actions or omissions in this article, which may result in any harm or liability flowing from the use of or the inability to use the information provided.

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Surviving Spouses – What You Should Know About Tax and Estate Duties

When the definition of a “spouse” was introduced into the Income Tax Act No. 58 of 1962, the Estate Duty Act, and the Transfer Duty Act in 2001, it brought specific tax implications for spouses.

How does South African law define a spouse?

In terms of the definition of a “spouse” under South African law, it refers to a person who;

is the partner of another person in a marriage or customary union recognised by the laws of South Africa;

people in a partnership recognised as a marriage by any religion; and 

people of the same sex or in a heterosexual union which has satisfied the SARS Commissioner about its permanency.

What taxes become due when a spouse dies?

Spouses enjoy a certain amount of leniency from SARS when it comes to donations between them and property transfer duties. Should their marriage break-up or one of the spouses die, the remaining spouse will not be liable for transfer duty on any property they jointly owned.

Also, Section 4q of the Estate Duty Act (Act 45 of 1955) stipulates that the value of all property bequeathed to the surviving spouse, either in respect of a Will or by intestate succession, is deductible from the gross estate of the deceased.

What Capital Gains Tax must a spouse pay?

When one spouse passes away, estate duty is not payable on any asset left to the remaining spouse. Neither is Capital Gains Tax payable on an asset’s disposal from one spouse to another. This is because the spouse who is the recipient is considered to have acquired the asset at a base cost equal to that of the deceased spouse.

What happens if the surviving spouse has not been provided for in the Will?

In instances where the surviving spouse has not been sufficiently provided for, they are entitled to claim from the deceased estate in terms of the Maintenance of Surviving Spouses Act 27 (1990).

What happens to the surviving partner if the couple was not legally married?

However, it is important to realise that the above exemptions only apply to partners who fall under the legal definition of a spouse. The decision as to whether the remaining unmarried partner will receive any pension fund benefits (if applicable) leaves them at the mercy of the retirement fund trustees. As per the Pension Funds Act, trustees must identify the deceased member’s dependants so that the funds may be fairly distributed.

Increasingly, many people choose to rather co-habit instead of formalising their union in a legal marriage under South Africa’s laws. Although there may be clear indications that partners can be considered as spouses in terms of the legal definition, the administration will prove challenging under the Fiscal Acts when one partner dies.

Examples of this would be such as when two people have been living together for many years yet have no intention of marrying each other, and one of them dies. There is usually strong evidence to prove that they were spouses by the legal definition under these circumstances. If established, they may be entitled to some of the financial benefits when their co-habiting partner passes away.

Therefore, it would be advisable for partners living together to record a Co-habitation Agreement to avoid any disputes arising in the event of a break-up or a death. In addition, both parties should also draw up their own Will wherein it states what each partner is to inherit from the other upon one of them dying.

How to prove a Life Partnership when one co-habiting partner dies

If no Co-habitation Agreement exists when one partner passes away, then the onus will be on the surviving partner to qualify as a spouse in the eyes of the SARS Commissioner. Three affidavits will be required from different parties confirming that the relationship existed for some time. Besides the three affidavits, the following may also prove useful as supporting documentation to establish the life partnership:

  • Co-habitation Agreement
  • Legal Will
  • Proof of joint ownership of fixed property or other assets
  • Proof of medical aid with the partner registered as a dependant
  • Any policies mentioning the partner as a beneficiary
  • Joint bank account

What is the impact of the Intestate Succession Act, 1987 (Act 81 of 1987)

If a partner or spouse dies without a Will, the estate falls under the law of intestacy, which means that the Executor  [AD1] will divide the estate, according to a set formula, among any surviving children[AD2]  and spouse first. If there are no children, then the estate will be given to the legal spouse, and if there is no spouse, then it falls to the deceased’s parents[AD3] . In this case, the surviving partner will not be able to inherit as a spouse, unless he or she was married to the deceased.

Failure to leave a Will behind may leave the surviving spouse or partner in a predicament, should the parents or children seek to take possession of the deceased’s assets.

AED Attorneys provides professional advice and assistance with the drawing up of Wills or Co-habitation Agreements which will help prevent most disputes should a spouse or partner pass away.

AED Attorneys understands that every situation is unique, and although they strive to ensure that the information contained herein is accurate at the time of publishing, it cannot be guaranteed to be without errors or omissions. As a result, AED Attorneys, its employees, independent contractors, associates or third parties will under no circumstances accept liability or be held liable, for any innocent or negligent actions or omissions in this article, which may result in any harm or liability flowing from the use of or the inability to use the information provided.


 [AD1]executor

 [AD2] and spouse

 [AD3] add:  In this case a person that only lived with a partner will not be able to inherit as a spouse.

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