LAST WILL & TESTAMENT & ESTATE DUTY
Having a last will and testament is important even if you do not have many assets, because it can help you to:
- Decide who will take care of your minor children and pets, if you have any. You can appoint a guardian for them in your will, and avoid the possibility of a court deciding who will raise them.
- Facilitate the probate process, which is the legal procedure to settle your estate. A clear and valid will can reduce the time and cost of probate, and prevent disputes among your heirs.
- Minimize estate taxes, by making gifts and donations to your beneficiaries or charities. This can reduce the value of your taxable estate and benefit the causes you care about.
- Avoid legal challenges, by expressing your wishes clearly and explicitly. A will can prevent potential claims from disgruntled relatives or creditors who may try to contest your estate distribution.
- Make changes to your will as your circumstances change. You can always update your will to reflect changes in your life, such as marriage, divorce, birth of a child, or acquisition of new assets.
Therefore, having a will can give you peace of mind that your affairs will be handled according to your wishes, and that your loved ones will be taken care of after you pass away.
One can reduce late estate taxes in South Africa by paying the estate duty within the prescribed time limit, which is one year from the date of death or 30 days from the date of assessment, whichever is later. If the estate duty is not paid within this period, interest will be charged at 6% per annum on the outstanding amount.
Some ways to pay the estate duty on time are:
- Making sure that the executor of the estate files the required returns and documents with SARS as soon as possible after the death of the deceased.
- Having sufficient liquidity in the estate to cover the estate duty and other expenses, such as funeral costs, debts, and administration fees. This can be achieved by having life insurance policies, cash savings, or other assets that can be easily converted to cash.
- Planning ahead and taking advantage of the available exemptions and deductions for estate duty, such as the abatement of R3.5 million, the spousal bequest deduction, the inter-spousal rollover relief, and the donations to public benefit organizations. These can reduce the taxable value of the estate and lower the estate duty liability.
How is a crypto asset treated for tax purposes in the deceased estate? For estate duty purposes, the crypto asset must be included as property in the deceased estate and is valued at the fair market value at the date of death. For income tax purposes, depending on the facts and circumstances applicable, a crypto asset is regarded as a capital asset or trading stock for tax purposes. If the crypto asset is treated as trading stock, normal tax will apply and if it is treated as a capital asset, capital gains tax may apply. https://www.sars.gov.za/types-of-tax/estate-duty/
To calculate your estate duty liability, you can use the following formula:
- Add up the value of all your assets at the date of death. This includes your immovable property, movable property, cash, investments, life insurance policies, and any other property you own or have an interest in. This is the gross value of your estate.
- Subtract the allowable deductions and expenses from the gross value of your estate. These include funeral costs, debts, administration fees, bequests to public benefit organizations, and any other deductions allowed by the Estate Duty Act. This is the net value of your estate.
- Subtract the Section 4A rebate from the net value of your estate. This is a basic deduction of R3.5 million that every estate is entitled to. This is the dutiable amount of your estate.
- Apply the appropriate rate of duty to the dutiable amount of your estate. The rate is 20% for estates with a dutiable amount of R30 million or less, and 25% for estates with a dutiable amount above R30 million. This is the estate duty payable.
For example, if your estate has a gross value of R40 million, and you have R10 million in deductions and expenses, your net value is R30 million. If you subtract the Section 4A rebate of R3.5 million, your dutiable amount is R26.5 million. The rate of duty is 20%, so your estate duty payable is R5.3 million.
29 Oct 2023
Author Adrie Barnard