Estate Duty Planning

Estate duty is payable on the estate of every person who dies and whose net estate is in excess of R3.5 million. Estate duty is charged at a rate of 20%. For those individuals with estates over the value of R30 million estate duty was recently changed to 25%.

Estate Duty comprises the total of all the property (fixed property, business interest and investments) and deemed property (life insurance policies) of an individual less certain deductions.

Below is a basic illustration of an Estate Duty calculation:

Property + Deemed Property – Deductions = Dutiable Estate * 20%

The most common deductions are a Section 4A abatement and the Section 4(q) deduction.

The Section 4A abatement allows for an amount of R3.5 million to be deducted from the net estate of a deceased person.

The Section 4(q) deduction provides that any property that accrues to a spouse is deductible from the Estate Duty calculation. Most spouses typically leave their estates to their spouse. This creates a largely inflated estate for the surviving spouse and merely postpones the tax for when the surviving spouse passes away.

Momentum have introduced a Last survivor death benefit where the two lives are assured at the outset of the policy. Upon the death of the first assured life the future premiums are waived. Once the second life assured passes away the benefit is paid into the estate.

The advantage of this type of a policy is that it provides for liquidity in the deceased’s estate and allows for the beneficiaries to not have to sell assets to pay the tax liability.

The Last survivor death benefit is typically a quarter of the price of traditional life insurance, so this is an excellent way to mitigate against the cost of death taxes.

For more information regarding the Last survivor death benefit you can contact Kevin or Greg on 0027 41 373 0601.

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