Don’t let a careless estate plan undo a lifetime of saving

Many South Africans are taking the opportunity to review their savings habits and behaviours. One aspect that’s often overlooked is that your hard-earned savings gains can easily be undone by failing to pay sufficient attention to estate planning.

Even if all your retirement goals fall into place as planned, the benefits can be easily eroded through a careless estate plan. An incorrectly worded will or incorrectly used estate planning structure may result in a substantial portion of your lifetime savings going towards paying estate duty and capital gains tax.

It is suggested that you follow four guidelines to keep your estate plan on track:

Avoid overly complex structures

A simple but properly drafted will is usually sufficient to ensure a speedy and cost-efficient transfer of assets to your heirs. Local and foreign trusts and companies can also be set up to house assets and make use of the benefits associated with these structures. Be aware, however, of the possible income tax and capital gains tax implications as well as associated costs of maintaining them in foreign jurisdictions – especially where fees are charged in a foreign currency – as this may quickly negate any savings on estate duty or tax.

Use tax concessions to your advantage

Both the Estate Duty Act and the Income Tax Act offer opportunities for relief.

The Estate Duty Act contains various provisions that can save or postpone the payment of estate duty if used correctly in a carefully drafted will:

  • Estate Duty is payable on the estate of every person who dies and whose nett estate is in excess of R3.5 million. It is charged at the rate of 20%.
  • The value of any bequest to a surviving spouse is not subject to estate duty.
  • Charitable bequests are deducted from the dutiable estate.

Trustees can award the gains in a trust to the beneficiaries of the trust, to ensure that the capital gains are taxed at the lower rates.

Much has been written about the Income Tax Act, which was introduced on March 1, 2017, such as that any distributions by trustees to beneficiaries should firstly be used to reduce any loan accounts owed to the individual.


Artificially creating an insolvent estate can have unintended consequences

Unfortunately, some think that estate duty can be avoided on death by artificially creating an insolvent estate. This is normally done by the individual making loans from a trust to the extent that his liabilities (that is, the loan owed to the trust) exceed the assets in his estate on death. However, be careful what you wish for. Unsuspecting trustees can be held personally liable by the beneficiaries if unsecured loans are not recoverable and losses are incurred in the trust.

Choose your executor carefully

Choosing the executor of your estate with care could result in substantial tax savings in the estate administration process. Selling estate assets during this process can result in a recoupment of tax if the deceased claimed a depreciation allowance on these assets.

Savings Month is a great opportunity to learn more about estate planning and to plan for a care-free tomorrow. Make sure you give careful thought to the tax implications associated with saving and investment, to ensure you don’t waste the benefit of all your disciplined savings over the years.

For more information on this or any other legal related queries please contact us at or 033 392 8000

By: Lindelani Masikane │ Candidate Attorney

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