Implications of estate duty

Estate duty is charged on the dutiable value of the estate in terms of the Estate Duty Act. The general rule is that if the taxpayer is ordinarily resident in South Africa at the time of death, all of his/her assets (including deemed property), wherever they are situated, will be included in the gross value of his/her estate for the determination of duty payable thereon.

The current estate duty rate is 20% of the dutiable value of the estate. Foreigners/non-residents also pay estate duty on their South African property.

To minimise the effects of estate duty you need to understand the calculation thereof. The following provisions apply in determining your liability:

  1. Which property is to be included.
  2. Which property constitutes “deemed property”.
  3. Allowable deductions: the possible deductions that are allowed when calculating estate duty.

Property includes all property, or any right to property, including immovable or movable, corporeal or incorporeal – registered in the deceased’s name at the time of his/her death. It also includes certain types of annuities, and options to purchase land or shares, goodwill, and intellectual property.

Deemed property

  1. Insurance policies
  • Includes proceeds of domestic insurance policies (payable in South Africa in South African currency [ZAR]), taken out on the life of the deceased, irrespective of who the owner (beneficiary) is.
  • The proceeds of such a policy are subject to estate duty, however this can be reduced by the amount of the premiums, plus interest at 6% per annum, to the extent that the premiums were paid by a third person (the beneficiary) entitled to the proceeds of the policy. Premiums paid by the deceased himself/herself are not deductible from the proceeds for estate duty purposes.
  • If the proceeds of a policy are payable to the surviving spouse or a child of the deceased in terms of a properly registered antenuptial contract (i.e. registered with the Deeds Office) the policy will be totally exempt from estate duty.
  • Where a policy is taken out on each other’s lives by business partners, and certain criteria are met, the proceeds are exempt from estate duty.

      2. Donations at date of death

Donations where the donee will not benefit until the death of the donor and where the donation only materialises if the donor dies, are not subject to donations tax. These have to be included as an asset in the deceased estate and are subject to estate duty.

      3. Claims in terms of the Matrimonial Property Act (accrual claim)

An accrual claim that the estate of a deceased has against the surviving spouse is property deemed to be property in the deceased estate.

     4. Property that the deceased was competent to dispose of immediately prior to his/her death (Section 3(3)(d) of the Estate Duty Act), like donating an asset to a trust, may be included as deemed property.

Deductions

Some of the most important allowable deductions are:

  1. The cost of funeral, tombstone and deathbed expenses.
  2. Debts due at date of death to persons who have their ordinary residence in South Africa.
  3. The extent to which these debts are to be settled from property included in the estate. This includes the deceased’s income tax liability (which includes capital gains tax) for the period up to the date of death.
  4. Foreign assets and rights:
  • The general rule is that foreign assets and rights of a South African resident, wherever situated, are included in his/her estate as assets.
  • However, the value thereof can be deducted for estate duty purposes where such foreign property was acquired before the deceased became ordinarily resident in South Africa for the first time, or was acquired by way of donation or inheritance from a non-resident, after the donee became ordinarily resident in South Africa for the first time (provided that the donor or testator was not ordinarily resident in South Africa at the time of the donation or death). The amount of any profits or proceeds of any such property is also deductible.
  • Debts and liabilities due to non-residents:

5. Debts and liabilities due to non-residents are deductible but only to the                      extent that such debts exceed the value of the deceased’s assets situated                outside South Africa which have not been included in the dutiable estate.

  1. Bequests to certain public benefit organisations:
  • Where property is bequeathed to a public benefit organisation or public welfare organisation which is exempt from income tax, or to the State or any local authority within South Africa, the value of such property will be able to be deducted for estate duty purposes
  1. Property accruing to a surviving spouse [Section 4(q)]:
  • This includes that much of the value of any property included in the estate that has not already been allowed as a deduction and accrues to a surviving spouse.
  • Note that proceeds of a policy payable to the surviving spouse are required to be included in the estate for estate duty purposes (as deemed property), but that this is deductible in terms of Section 4(q).
  • Section 4(q) deductions will not be granted where the property inherited is subject to a bequest price.
  • Section 4(q) deductions will not be granted where the bequest is to a trust established by the deceased for the benefit of the surviving spouse, if the trustee(s) has/have discretion to allocate such property or any income out of it to any person other than the surviving spouse (a discretionary trust). Where the trustee(s) has/have no discretion as regards both the income and capital of the trust, the Section 4(q) deduction may be granted (a vested trust).

Portable R3.5 million deduction between spouses

The Act allows for the R3.5 million deduction from estate duty to roll over from the deceased to a surviving spouse so that the surviving spouse can use a R7 million deduction amount on his/her death.

Life assurance for estate duty

Estate duty will also normally be leviable on these assurance proceeds.

Source: Moore Stephens’ Estate Planning Guide.

Why is the transfer of my property taking so long?

After signing a deed of sale, the purchasers often want to move into the property with great excitement and as soon as possible. When they are informed of the process involved prior to the property being transferred this may place a damper on their excitement. Coupled with this there may even be delays in the transaction.In order to avoid unnecessary frustration it is vital that parties to the transaction understand the processes involved and that delays are sometimes inevitable. Besides possible delays there are a number of processes that need to be followed before a house can be registered in a purchaser’s name.

At the outset, it must be determined if the deed of sale is valid and binding between the parties. If not, a valid and binding contract will first have to be concluded between the parties.

The deed of sale will normally be the starting point in a transaction for a conveyancer who has been instructed to attend to the transfer. This conveyancer is also known as the transferring attorney and is normally the main link between the other attorneys involved the transfer transaction. Other attorneys involved are normally a bond attorney and/or bond cancellation attorney.

A major role of the transferring attorney is informing any mortgagees, for example banks, about the transfer so that any notice periods for the cancellation of bonds can start running. The notice period is normally up to 90 days. If the bond is cancelled before then, there could be penalties payable. The transfer may therefore be delayed as a result of the notice period.

If the purchaser will be registering a new mortgage bond to finance the transaction, a bond attorney will be appointed. Since the transferring attorney will not normally be aware of whom the instructed bond attorney is, the bank will usually inform the bond attorney of who is attending to the transfer. The bond attorney will then first make contact with the transferring attorney.

Obtaining the various certificates, receipts and consents applicable to the transaction in question also takes time. Examples of these are rates clearance certificate, transfer duty receipt, homeowners association’s consent to the transfer, levy clearance certificate, electrical compliance certificate and plumbing certificate.

The transfer duty receipt is obtained from the Receiver of Revenue and should be lodged with all property transactions, even if no transfer duty is payable to the Receiver of Revenue. During 2013 it took approximately seven working days from the submission of the request, until the transfer duty receipt was issued.

The rates clearance certificate is obtained from the local municipality in the area where the property in question is located. The transferring attorney will first request the municipality to inform him of the amount they require in order to issue the certificate. After receipt thereof the amount can be paid and the transferring attorney will then await the issued certificate. The time this takes differs from municipality to municipality. In the City of Cape Town, during 2013, figures were mostly issued on the same day they were requested and the receipt was issued within approximately five working days after payment. This time frame is largely affected by whether or not the municipality works on an electronic system.

If the property is located in an area where a homeowners’ association is established, there will normally be a title deed condition in terms of which the consent of the homeowners’ association must be obtained prior to the transfer. The time it takes for obtaining this certificate differs from one homeowners’ association to the other.

After an inspection by a plumber or electrician it may be found that certain work needs to be carried out before the certificates will be issued. If the work that must be carried out is extensive this can cause major delays with the transaction.

If the property is being sold by an executor of a deceased estate, the consent of the Master of the High Court must first be obtained before the property can be transferred. Major delays can be experienced if the Master of the High Court refuses to give such consent until certain requirements have been met.

Once the transferring attorney is satisfied that all relevant documents are in place he will arrange simultaneous lodgement at the Deeds Office by all attorneys involved in the transaction. It is therefore vital that the bond attorney has by this time obtained the required approval to lodge from the mortgagee and that the bond cancellation attorney has the required consents in place to cancel the existing bond/s on the property.

Once all the documents are lodged at the Deeds Office, an internal process is followed, which has different time frames in the various Deeds Offices. This time frame can also vary in a particular Deeds Office. It is best to enquire from your conveyancer what the Deeds Office time frame is at any given stage.

The list of possible delays in a transaction varies from one transaction to the other and the possibilities are endless. It is advisable to contact your conveyancer for an explanation should you feel that the process is taking too long.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

 

The Living Will

Most people are familiar with a will or testament and understand the importance of having this legal declaration drafted, by which the testator nominates an executor to manage his or her estate and provide for the distribution of his or her property to beneficiaries when he or she dies.

But how many people have considered drafting a living will?

A living will does not deal with assets, heirs and beneficiaries, but with the philosophy of death and dying, and should be considered carefully and drafted by a professional.

A living will is a legal document expressing a person’s wishes regarding life-prolonging medical treatment when that person can no longer voice his or her wishes. It is also referred to as an advance medical directive.

A typical clause in a living will would read as follows:

If the time comes when I can no longer take part in decisions for my own future, let this declaration stand as my directive.

If I suffer from physical illness or impairment expected to cause me severe distress, rendering me incapable of rational existence, from which there is no reasonable prospect of recovery, I withhold my consent to be kept alive by artificial means and do not give my consent to any form of tube-feeding when I am dying; and I request that I receive whatever quantity of drugs and intravenous fluids as may be required to keep me comfortable and free from pain even if the moment of death is hastened. I withhold my consent to any attempt at resuscitation, should my heart and breathing stop and my prognosis is hopeless.

The living will tells the doctor and family that the patient does not consent to being kept alive artificially. It speaks for the patient at a time when the patient may be unable to communicate.

South African law and most religions accepts the validity of the living will, but none of the main religions accept euthanasia.

Euthanasia is against the law. Sean Davison, the respected UWC professor who helped his 85-year-old terminally ill mother, Patricia Ferguson, die in New Zealand by preparing a lethal dose of morphine, was arrested in New Zealand in September 2010 on an attempted murder charge.

It is important to have a properly drafted, legal living will to avoid far reaching and traumatic consequences for the loved ones that stay behind.

Many lawyers who practice in the area of estate planning include a living will and a health care power of attorney in their package of estate planning documents.

The advantages of a living will

  1. The directives respect the patient’s human rights, and in particular his or her right to reject medical treatment.
  2. It encourages full discussion about end-of-life decisions.
  3. It also means that the medical staff and caregivers are aware of the patient’s wishes, and knowing what the patient wants means that doctors are more likely to give appropriate treatment.
  4. It will avoid the situation where the patient’s family and friends have to take the difficult decisions.

Disadvantages of a living will

  1. Drafting this document can be very depressing.
  2. The person may still be healthy and not in a position to actually imagine that he or she could ever be in the position where they would voluntarily give up living.
  3. When the time comes to act on the living will the patient might have changed his or her mind and it is then often difficult to amend the document.

Important points to consider

  1. The living will should not be incorporated or attached to the last will and testament, which is only acted upon after death.
  2. A living will does not become effective unless the patient becomes incapacitated; until then the patient will be able to choose appropriate treatment.
  3. A certificate by the patient’s doctor and another independent doctor certifying that the patient is either suffering from a terminal illness or permanently unconscious, is required before the living will becomes effective. In the case of a heart attack, the living will does not take effect. A living will is only executed when ultimate recovery is hopeless.
  4. You have to notify your doctor and family of your living will and preferably have copies of the document available for the doctor, hospital and family.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

The Traffic Officer confiscates your cellphone: What you should know!

Since 2011 the City of Cape Town: Traffic By-Law, 2011 has made it possible for an authorised officer to confiscate your cellular device if you are caught using it in your car while driving. If you end up getting caught red-handed, these are a few things you should know to make sure that all the correct procedures are followed when your cellular device gets confiscated.The City of Cape Town: Traffic By-Law, 2011 (hereinafter “the By-Law”) prohibits driving a motor vehicle on a public road, firstly, while holding a cellular or mobile telephone or any communications device with any part of the body and, secondly, while using or operating a cellular or mobile telephone or other communication device unless it is affixed to the vehicle (like a handsfree kit).

According to the By-Law an authorised officer may, in the interest of public safety, confiscate a handheld communication device if he informs the owner of such device of the reasons for doing so. He must issue a receipt to the owner, stating the place at which such device may be claimed, and he must follow all procedures contained in any policy of the city dealing with the confiscation and impoundment of property. The policy applicable in the City of Cape Town is called the Standard Operating Procedure on the Impoundment of Goods and Animals, 2012.

An authorised official exercising authority in terms of any By-Law of the City to impound goods, shall issue to the offending party a receipt for any property removed and impounded. This receipt must indicate:

a) A list of the property to be removed and impounded;

b) the physical condition of the goods (to ensure that they are returned in the same physical condition that they were in when impounded);

c) the address where the impounded goods will be kept;

d) the hours during which the goods may be collected;

e) the maximum period for storage of goods before they are disposed of;

f) the conditions for the release of the impounded goods;

g) the name and office number of a council official to whom any representation regarding the impoundment may be made;

h) the date and time by when representation must be made;

i) the terms and conditions relating to the sale of unclaimed goods, by public auction, where no claim (and/or representation) is received.

The City may sell any cellular device that hasn’t been claimed within ninety days after the date of impoundment through public auction which shall be advertised in local newspapers. Municipal officials and councillors, their spouses, relatives and acquaintances are prohibited from purchasing any of these impounded goods. Fees may be levied for the storage of the cellular device and any other expense incurred by the Council during impoundment. Said fees shall be determined by Council and may be adjusted from time to time. Fees and fines shall be paid at the Council cash office between the hours of 08:00 and 16:00 on Mondays to Fridays.

Goods may be returned to the owner, or his or her representative, upon presentation of proof of payment of all fees related to the impounding and storage of the goods and any fines imposed prior to and/or during impoundment. Owners or their representatives can collect their goods during the hours and at the venue indicated in the impoundment notice served on the offender.

Officials of the City must take reasonable steps to prevent any damage to impounded goods; however, it will not be responsible for any damage caused to goods where a reasonable duty of care was exercised. Digital photographs shall be taken of all impounded goods.

A person who contravenes a provision of this By-Law commits an offence and a person who commits such an offence is, on conviction, liable for a fine or a term of imprisonment not exceeding 3 years, or both.

Reference List

  • The Standard Operating Procedure on the Impoundment of Goods and Animals, 2012
  • The City of Cape Town: Traffic By-Law, 2011

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)