Category Archives: Estate planning

The benefits of creating
a trust

B2Trusts are well-known to facilitate effective estate planning and continuity planning strategies. That said, setting up a trust – whether an inter vivos (between the living) or a testamentary (created in a will) − should be carefully considered and not just implemented blindly.

The difference between testamentary and inter vivos trusts

  1. A testamentary trust is established when a person (the founder) makes provision for establishing a trust in their will. The trust does not come into existence until the founder dies.
  2. An inter vivos trust is set up between the living. In other words, property is transferred before death to the trust by its founder and managed by the trustees for the benefit of another person or persons.

The death benefits of creating an inter vivos trust exceeds the cost – both in time and money. According to The Estate Duty Act, upon death, a duty is levied against your estate known as estate duty. The nett value of any estate will be determined by deducting all liabilities from your assets of your estate, both real and deemed.

Should you create a testamentary trust, upon death the assets are in your name and will need to be transferred to the trust posthumously, meaning all assets are taken into account when assessing the duty payable.

Advantages

Taking the above into account, here are some benefits you could experience from creating a trust:

  1. Reducing estate duty: Inter vivos trusts can be used to minimise estate duty. No estate duty should be payable on assets owned by the trust as a trust does not die.
  2. Protection against creditors: As the trust’s assets are not owned by the beneficiaries, creditors do not have a claim on the assets. This advantage is especially important for people who could be exposed to potential liability. Companies as well as individuals are able to transfer assets into trusts.
  3. Efficient succession: Since trusts never die, beneficiaries will be able to continue enjoying the assets if one beneficiary were to pass away.

Disadvantages

Despite the advantages, there are also some disadvantages of having a trust. They include the following:

  1. Costs: The costs of setting up a trust can be high. If assets are transferred into the trust, then transfer duty needs to also be paid.
  2. Duties of trustees: Trustees could find themselves personally liable for losses suffered by the trust if it can be proven that they did not act with care, diligence and skill according to Section 9 of the Trust Property Control Act.

References:

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)

SHOULD I PLAN MY ESTATE AS A YOUNG ADULT?

A1bIt is very important for you to plan your estate, which could include a living will, a last will and a living trust. This can help families prepare for difficult times when you are no longer around to assist or advise them. Our lives get busier and more complicated by the day, so estate planning for young and old becomes increasingly important. Young people should consider preparing certain estate planning documents, and in particular financial powers of attorney and living wills.

At the age of 18 a young man or woman officially becomes an adult in the eyes of the world. This means that you are entitled to make important financial, legal or health decisions about your lives. But what if something happens and you are unable to make these decisions at a critical time? Such situations can range from a small inconvenience to a life-threatening crisis, but if your estate is in order, it can speak on your behalf.

Financial power of attorney

A financial power of attorney allows you to appoint someone you trust, like another family member, to make financial decisions on your behalf. This document can be activated when you are incapacitated or right after it has been signed, and it will remain effective until you can resume charge of your own decisions again.

A financial durable power of attorney will allow the appointed person to handle important legal and financial matters on behalf of the grantor. In the case of a business or financial situation which involves the young adult, such as a passport or car registration renewal, it is convenient for the power of attorney to act on his/her behalf if they cannot tend to the problem. This arrangement may come in handy when there is a legal situation which requires quick action and the young adult is unable to attend. Families with a disabled family member can also benefit from the security of a power of attorney.

Living will

A living will enables you to state specific medical wishes if you are alive, but unable to communicate them. Artificial life support in the case of a coma or terminal illness is an issue often discussed in such a document. Preferences regarding administering of pain medication, artificial nutrition and other treatments can be dictated in this document.

The Terry Shaivo case shows what can happen if this document is not in place. The legal battle between her husband, family and state of Florida lasted for years before she was granted her wish and taken off life support.

Health care power of attorney

With this type of power of attorney, you give someone else the power to make health decisions on your behalf. These decisions regarding serious health and emotional crises will be made based on instructions which you have given to your power of attorney beforehand. Sometimes a living will is combined with a health care power of attorney, because both of these can be revoked, i.e. it can be cancelled at any time by destroying it, communicating your wishes to your doctor, writing a letter regarding the cancellation or by creating a new living will and health care power of attorney, indicating that the new will revokes all the previous ones.

Start the conversation

Every family’s legal needs are different, so perhaps you should take the first step in being prepared for the worst. Remember that every time your family composition changes, like when a child is born, you need to adapt your will to include them. Start the process and be prepared.

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)

MANAGING DISPUTES OVER A DECEASED RELATIVE’S ESTATE

If someone leaves a sizeable estate behind, it may cause conflict among the possible heirs. The help of an attorney, when settling an estate after a death, can avoid unnecessary troubles.

The Administration of Estates Act, 1965, determines what must happen with an estate after a person’s death. There are certain steps that should be taken to ensure the process is legal. However, if the estate is worth a lot of money or the deceased has children, then it is a good idea to seek the assistance of an attorney, as family disputes and debts of the deceased can be confusing. In order to this an executor will be appointed to act on behalf of the estate.

Finding the will of a deceased relative

If the deceased person left a will the first thing to do is find it. If they did not tell you beforehand where their will was, you can try calling the probate court in their district or the office of the master of the High Court to check if they have a copy of the will. Other places to call would be the deceased’s life insurance company, bank or lawyer. Otherwise, they might have left a copy of it somewhere secure in their home.

Who is the executor?

An executor is the person appointed to handle the process of settling the estate. The executor will either be mentioned in the will of the deceased or appointed by the master of the High Court. The master will ultimately decide who will take the role of executor. If the chosen executor doesn’t know how to handle the estate or is unfamiliar with the legal procedure, he or she can go to a lawyer for help. Once the executor has been chosen, the master will give them “Letters of Executorship”, which will give only them the authority to handle the estate.

What does the executor need to do?

The executor has several responsibilities such as arranging the valuation of the estate’s property and assets. They will also be responsible for contacting and dealing with all the beneficiaries.

Some other responsibilities of the executor include:

  1. Arranging provisional payments for the family’s immediate needs.
  2. Opening a bank account for the estate and depositing the estates money in it.
  3. Paying all the necessary estate duties.

It’s important that any person who wants to act on behalf of the deceased person’s estate have the Letters of Executorship. If not, their actions would be considered illegal. This also applies to the spouse of the deceased person. This eliminates the possibility of several different family members trying to influence the estate’s dealings. The executor will also decide how the assets will be divided between the heirs and if any or all assets need to be sold. If a will is in place the executor will base his/her decisions on it.

Eventually, the executor will prepare a liquidation and distribution account. This would include what will they intend to do with all the assets left after expenses. This account would be delivered to the master, who will check to see if the executor’s actions reflect the will of the deceased and that all legal requirements have been fulfilled.

Important things to keep in mind?

The master of the High Court should be notified of the deceased person’s estate not later than 14 days after the death. According to the Department of Justice a death of anyone who owned property in South Africa must be reported to the master, whether or not they died in the country.

All estates that exceed R50 000 should be reported to the master of the High Court directly because magistrate’s offices have limited jurisdiction. If reported to the magistrate’s office, estates would usually be referred to the master.

References:

  • The Department of Justice and Constitutional Development. 2012. “Reporting the estate of the deceased”. Accessed from: http://www.justice.gov.za/services/report-estate.html/ on 11/05/2016.
  • Administration of Estates Act 66 of 1965. Accessed from: http://www.justice.gov.za/ on 11/05/2016.

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)

WHAT IS THE COST OF MY ESTATE DUTY?

a1bIn terms of the stipulations of section 4 of the Estate Duty Act No 45 of 1955 certain deductions from the value of an estate are allowed in order to determine the final value of the estate which will be subject to estate duty.

The following two rebates are the most well-known:

  • Section 4(q) – This is the total value of all the benefits bequeathed to the surviving spouse. The value of a usufruct also qualifies as an Article 4(q) rebate; and
  • Section 4A – This is the value of the rebate applied to all estates, which is currently R3.5 million.

Given the value of the section 4A rebate you can rest assured that your estate will not be accountable for estate duty if the net value (assets minus liabilities) is less than R3.5 million. The amount with which your estate exceeds R3.5 million will, however, be taxable for estate duty at 20%.

The Taxation Laws Amendment Act, 2010, amended the section 4A rebate by allowing the part of the R3.5 million rebate not used by the estate of the first deceased spouse to be carried over to the estate of the surviving spouse. This amendment applies to the estates of individuals passing away after 1 January 2010.

The carried over rebate between spouses can be illustrated with the following example:

  • Mr A, who is married to Mrs A, passes away. The net value of his estate is R800 000 after the rebate according to Article 4(q) has been calculated.
  • This amount is bequeathed to his children and therefore not deductible for estate duty.
  • There is no accountability for estate duty as Mr A’s estate only used R800 000 of the section 4A rebate of R3.5 million.
  • At Mrs A’s passing the net value of her estate is R8 million. The following rebate is applicable to her estate: Section 4A rebate to the value of R7 million minus the R800 000 deduction already utilised in the estate of Mr A.
  • Mrs A’s estate will therefore pay estate duty on R1.8 million (R8 million minus R6.2 million).
  • R1.8 million @ 20% = R360 000.

We have to put the utmost stress on the importance of estate planning and a will which gives you the best benefits regarding the composition of your assets and liabilities should the net value of your estate exceed R3.5 million. This does not mean that the use of trusts becomes obsolete in estate planning due to the larger rebate in the surviving spouse’s estate. There are still valid reasons why the bequeathment of a trust by the first deceased is an excellent option, even though it does not initially effect a saving in estate duty. In case of such a trust the assets can be managed by the trustees to the benefit of the surviving spouse and children. A small effort today for much peace of mind tomorrow!

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)

SHOULD I PLAN MY ESTATE AS A YOUNG ADULT?

a2_bIt is very important for you to plan your estate, which could include a living Will, a last Will and a living trust. This can help families prepare for difficult times when you are no longer around to assist or advise them. Our lives get busier and more complicated by the day, so estate planning for young and old becomes increasingly important. Young people should consider preparing certain estate planning documents, and in particular financial powers of attorney and living Wills.

At the age of 18 a young man or woman officially becomes an adult in the eyes of the world. This means that you are entitled to make important financial, legal or health decisions about your lives. But what if something happens and you are unable to make these decisions at a critical time? Such situations can range from a small inconvenience to a life-threatening crisis, but if your estate is in order, it can speak on your behalf.

Financial power of attorney

A financial power of attorney allows you to appoint someone you trust, like another family member, to make financial decisions on your behalf. This document can be activated when you are incapacitated or right after it has been signed, and it will remain effective until you can resume charge of your own decisions again.

A financial durable power of attorney will allow the appointed person to handle important legal and financial matters on behalf of the grantor. In the case of a business or financial situation which involves the young adult, such as a passport or car registration renewal, it is convenient for the power of attorney to act on his/her behalf if they cannot tend to the problem. This arrangement may come in handy when there is a legal situation which requires quick action and the young adult is unable to attend. Families with a disabled family member can also benefit from the security of a power of attorney.

Living Will

A living Will enables you to state specific medical wishes if you are alive, but unable to communicate them. Artificial life support in the case of a coma or terminal illness is an issue often discussed in such a document. Preferences regarding administering of pain medication, artificial nutrition and other treatments can be dictated in this document.

The Terry Shaivo case shows what can happen if this document is not in place. The legal battle between her husband, family and state of Florida lasted for years before she was granted her wish and taken off life support.

Health care power of attorney

With this type of power of attorney, you give someone else the power to make health decisions on your behalf. These decisions regarding serious health and emotional crises will be made based on instructions which you have given to your power of attorney beforehand. Sometimes a living Will is combined with a health care power of attorney, because both of these can be revoked, i.e. it can be cancelled at any time by destroying it, communicating your wishes to your doctor, writing a letter regarding the cancellation or by creating a new living Will and health care power of attorney, indicating that the new Will revokes all the previous ones.

Start the conversation

Every family’s legal needs are different, so perhaps you should take the first step in being prepared for the worst. Remember that every time your family composition changes, like when a child is born, you need to adapt your will to include them. Start the process and be prepared.

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)

HOW IS A DECEASED’S ESTATE ADMINISTERED?

a1_bThe administering of a deceased estate is regulated by the Administration of Estates Act No 66 of 1965 (as amended) and divided according to a valid will or the Intestate Succession Act No 81 of 1987 (as amended) or a combination of both acts.

Various other acts and regulations may, however, also be applicable, like those applicable to income tax (with due allowance for VAT and CGT), Estate duty and Donations tax, and support of surviving spouse.

After a death

When someone dies, his/her estate must be reported to the Master of the High Court as soon as possible, and certain report documents, together with the original will, where applicable, should be delivered to the Master.

In the case of estates with a gross value of less than R250 000 the Master may dispense with an official appointment of an Executor to execute the required administering process. In all other cases, an Executor will be appointed by the Master, who will issue an Executor’s letter to the appointed Executor.

The Executor

As soon as the Executor’s letter has been issued the formal administering of the estate, which the Executor has to follow, will commence. One of the Executor’s first tasks would be to announce to the creditors, acquire details regarding estate assets and have it valued if necessary, and recover certain assets. Known and filed liabilities should be investigated and attention must be paid to income tax.

The Executor is now compelled to submit a liquidation and distribution account (statement of assets and liabilities) to the Master of the High Court within six months after being issued with the Executor’s letter, or ask for a formal postponement. This estate account will indicate all assets and liabilities, distribution of heirs and details of assets outside the estate which are directly payable to beneficiaries.

The Master will check the estate account and then issue a questionnaire to the Executor. As soon as the Master has granted approval the Executor may proceed to announce the account as being open for inspection for 21 days at the Master and the nearest Magistrate’s Office.

Should any written challenges be submitted, it should be dealt with according to the regulations in the Administration of Estates Act. Should there be no challenges, or when the Executor has disposed of all challenges, the Executor may proceed to make payments to heirs and carry over any other assets to the beneficiaries.

Administering obstacles

In most cases the administering process should not be complicated, therefore it would be possible to finalise within a fair period of time (approximately six to nine months). There are, however, many obstacles which may slow down this process and even bring the administering process to a virtual standstill. Some of the most well-known and general obstacles are poor service from government and private institutions, invalid and unpractical wills, shortage of cash, quarrels and disputes among family members and beneficiaries, lack of information, disorder in the tax and other affairs of the deceased, lawsuits before and after death, and legal post-mortems in case of an unnatural death, which may sometimes be required before policies can be paid out.

Conclusion

The administering of an estate is a specialised environment which should be left to capable people with knowledge of the Administration of Estates Act and years of experience. Ignorance regarding the run of events as well as errors of judgement may eventually cost you dearly if you don’t make use of the available expertise.

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)

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.

5. Debts and liabilities due to non-residents:

  • 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.

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)

SOME POINTERS FOR PLANNING YOUR ESTATE

The main aim of planning your estate is to ensure that as much of the accumulated wealth is utilised for your own benefit and for the maximum utilisation of dependents on your death.

“Estate planning” has been defined as the process of creating and managing a programme that is designed to:

  1. Preserve, increase and protect your assets during your lifetime;
  1. Ensure the most effective and beneficial distribution thereof to succeeding generations.

It is a common misconception that it revolves solely around the making of a Last Will and Testament, or the structuring of affairs so as to reduce estate duty.

Each person’s estate is unique and should be structured according to his/her own unique set of circumstances, goals and objectives.

The lack of liquidity on the date of death may cause for the deceased’s family members and dependents to suffer hardship, as certain assets might be sold by the executor to generate the cash needed.

Liquidity means that there should be enough cash funds to provide for:

  1. Paying estate duty;
  1. Settling estate liabilities and administration costs;
  1. Providing for other taxation liabilities that may arise at death, such as capital gains tax.

Technically the estate is frozen until such time as the Master of the High Court has issued Letters of Executorship.

Dying without executing a valid Last Will and Testament, your estate will be dealt with as an intestate estate, and the laws relating to intestate succession will apply. The Intestate Succession Act determines that the surviving spouse will inherit the greater of R250 000 or a child’s share. A child’s share is determined by dividing the total value of the estate by the number of the children and the surviving spouse. If the spouses were married in community of property, one-half of the estate goes to the surviving spouse as a consequence of the marriage, and the other half devolves according to the rules of intestate succession. If there is no surviving spouse or dependents, the estate is divided between the parents and/or siblings. In the absence of parents or siblings, the estate is divided between the nearest blood relatives.

An executor is entitled to the following remuneration:

  1. Remuneration fixed by the deceased in the Last Will and Testament; or
  1. 3.5% of gross assets plus 6% of income accrued and collected from date of death.

Executor’s remuneration is subject to VAT where the executor is registered as a vendor.

Where the value of the estate exceeds R3.5 million, estate duty will become payable on the balance in excess of R3.5 million, with the exception of the property bequeathed to a surviving spouse, which are exempt from estate duty and/or capital gains tax.

Section 3 of the Subdivision of Agricultural Land Act prevents the subdivision of agricultural land, and such land being registered in undivided shares in more than one person’s name is subject to Ministerial approval.

A minor child is a person under the age of 18 years of age, and any funds bequeathed to a minor child will be held by the Guardian’s Fund, which falls under the administration of the Master of the High Court. These funds are not freely accessible, and are usually invested at below market interest rates. It is thus advisable to provide for minors by means of a trust.

The Close Corporations Act provides that, subject to the association agreement, where an heir is to inherit a member’s interest (in terms of the deceased’s Will), the consent of the remaining members (if any) must be obtained. If no consent is given within 28 days after it was requested by the executor, then the executor is forced to sell the members interest.

Section 3(3)(d) of Estate Duty Act determines that where an asset is transferred to a trust during an estate planner’s lifetime, yet the estate planner, as trustee of the trust retains such power as would allow him to dispose of the trust asset(s) unilaterally for his own or his beneficiaries; benefit during his lifetime, then such asset(s) may be deemed to be property of the estate planner and included in his estate for estate duty purposes.

Where the parties are married in community of property, the surviving spouse will have a claim for 50% of the value of the combined estate, thus reducing the actual value of the estate by 50%. The estate is divided after all the debts have been settled in a deceased estate (not including burial costs and estate duty, as these are the sole obligations of the deceased and not the joint estate). Only half of any assets can be bequeathed.

The proceeds from life insurance policies can be used to:

  1. Generate income to maintain dependents while the estate is dealt with;
  1. Pay estate expenses: funeral, income tax, estate administration, estate duty.

All proceeds of South African “domestic” policies taken out on the estate planner’s life, where there is no beneficiary nominated on the policy, will fall into his estate on his death.

Where a beneficiary is nominated on the policy, the proceeds will be deemed property for estate duty purposes, even and although they are paid directly to the beneficiary (subject to partial exemptions based on policy premiums).

Policies which are exempted from inclusion for estate duty purposes are buy and sell, key man policies, and those policies ceded to a spouse or child in terms of an antenuptial contract.

Certain assets in a deceased estate are excluded from Capital Gains Tax:

  1. Assets for personal use (with certain exceptions);
  2. Assets that accrue to the surviving spouse;
  3. Assets bequeathed to approved public benefit organisations;
  4. The first R2 million in respect of a primary residence;
  5. Up to R1.8 million in respect of small business assets;
  6. Currency, excluding gold and platinum coins.

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)

DEALING WITH MARRIAGE AND ESTATE PLANNING

A3_bIt is important to understand the legal implications of the marital property regime, especially when drafting a Last Will and Testament and also when entering into a marriage, as the regime chosen by the estate planner is going to affect his/her assets.

The most important forms of marriage are: marriage in community of property, marriage out of community of property (without accrual), and marriage out of community of property (with accrual).

Marriage in community of property

  1. There is no prior contractual arrangement, apart from getting married;
  2. Spouses do not have two distinct estates;
  3. There is a joint estate, with each spouse having a 50% share in each and every asset in the estate (no matter in whose name it is registered);
  4. Applies to assets acquired before the marriage and during the marriage;
  5. Should one spouse incur debts in his own name it will automatically bind his/her spouse, who will also become liable for the debt;
  6. If a sequestration takes place (in the case of insolvency), the joint estate is sequestrated.

Marriage out of community of property without the accrual system

  1. An antenuptial contract (ANC) is drawn up by an attorney (who is registered as a notary), before the marriage;
  2. Where there is no contract, the marriage is automatically in community of property;
  3. The values of each spouse’s estate on going into the marriage are stipulated in the contract;
  4. A marriage by ANC means that all property owned by spouses before the date of the marriage will remain the sole property of each spouse;
  5. Each spouse controls his/her own estate exclusively without interference from the other spouse, although each has a duty to contribute to the household expenses according to his/her means;
  6. To allow for assets acquired by spouses during the marriage to remain the sole property of each spouse, the accrual system must be specifically excluded in the ANC.

Marriage out of community of property with the accrual system

  1. The accrual system automatically applies unless expressly excluded in the antenuptial contract;
  2. The accrual system addresses the question of the growth of each spouse’s estate after the date of marriage.

ESTATE PLANNING

Donations between spouses are exempt from donations tax and estate duty.

Marriage in community of property

  1. In the event of the death of one spouse, the surviving spouse will have a claim for 50% of the value of the combined estate, thus reducing the actual value of the estate by 50%. The estate is divided after all the debts have been settled in a deceased estate (not including burial costs and estate duty, as these are the sole obligations of the deceased and not the joint estate).
  2. When drafting a Last Will and Testament, spouses married in community of property need to be aware that it is only half of any asset that he or she is able to bequeath.
  3. Upon the death of one spouse, all banking accounts are frozen (even if they are in the name of one of the spouses), which could affect liquidity.
  4. Donations or bequests to someone married in community of property can be made to exclude the community of property; in other words, if the donor stipulates that the donation must not fall into the joint estate, then the donee can build up a separate estate. However, returns on such separate assets will go back to the joint estate.

Marriage out of community of property without the accrual system

Each estate planner (spouse) retains possession of assets owned prior to the marriage.

Marriage out of community of property with the accrual system

A donation from one spouse to the other spouse is excluded from the calculation of each spouse’s accrual; in other words, the recipient does not include it in his growth and the donor’s accrual is automatically reduced by the donation amount.

DIVORCE

In the event of divorce, the marriage will be dissolved by court decree, which will address such aspects as child maintenance, access, guardianship and custody, spousal maintenance, the division of assets, division of pension interests and so on.

COHABITATION AND DEFINITION OF “SPOUSE”

Cohabitation is defined as a stable, monogamous relationship where a couple who do not wish to or cannot get married, live together as spouses. The Taxation Laws Amendment Act has extended the definition of “spouses” to include “a same sex or heterosexual union which the Commissioner is satisfied is intended to be permanent”.

Many pieces of legislation, including the Pension Funds Amendment Act and the Taxation Laws Amendment Act, now define spouse to include a partner in a cohabitative relationship, the effects of which are that cohabitees will benefit from the Section 4(q) estate duty deduction in the Estate Duty Act, and the donations tax exemptions of the Income Tax Act.

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)