Real Estate Investor Magazine South Africa April/ May 2020 | Page 56

INVESTOR STRATEGIES
SERIES PART 4
Dying is expensive, don’t
let it catch you off-guard
How trusts can help you with estate planning
JACO GROBBELAAR
A
ccording to director at Wealth As-
sociates, Theoniel McDonald CFP®,
trusts remain a valuable estate plan-
ning tool. Acquiring shares or assets in
trusts will effectively separate ownership
of these assets from your personal estate
resulting in very little disruption at your
death as these assets then don’t form
part of your estate and won’t be included
for estate duty, capital gains tax, transfer
fees and executor’s fees purposes. Even
though this saving could amount to mil-
lions of Rands, it is important to also un-
derstand that the structure does result in
additional administrative fees during your
life which you have to be aware off.
Anybody who has ever lost a loved
one knows that it is not just an emotional
strain, but a financial strain as well. Dying
is expensive! Very expensive. Beneficiaries
often expect an inheritance only to find out
about a lot of costs and taxes that they were
not aware of.
When your assets are in your own name,
the costs of death can be enormous. Some
of these costs include estate duty, capital
gains tax, executor’s fees and transfer fees.
Let’s go into some more details about these
costs.
Estate duty
Estate duty is payable on every estate of a
deceased person whose net estate exceeds
R3.5 million. This rate is charged at 20% for
the first R30 million and 25% above R30
million. It is levied on the property of South
Africans residents and non-residents minus
allowable deductions.
Capital gains tax
Capital gains tax (CGT) is not a separate tax but forms part
of income tax according to SARS. A capital gain arises when
you dispose of an asset for proceeds that exceed its base
cost. Capital gains are taxed at a lower effective tax rate than
ordinary income. The annual exclusion on death for a natural
person is R300,000.
Capital gains tax is calculated by multiplying a net capital
gain for the current year of assessment by the inclusion rate
applicable to the person to arrive at the taxable capital gain.
This amount is then multiplied by the applicable tax rate to
calculate the tax payable.
Executor’s fee
Currently the statutory executor's fees are 3.5% plus VAT. At
15%, this equals 4.025% of a person’s gross assets.
In our previous articles, we discussed trusts and companies and
determined why it is important to hold all assets in companies
owned by trusts or directly in trusts. I believe this is one of the
greatest ways you can build a lasting legacy as the wealth and
assets that you build up over your lifetime remain when you
pass away.
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APRIL/MAY 2020 SA Real Estate Investor Magazine
Transfer fees
Transfer fees have to be paid as all properties, in the deceased
estate, have to be transferred to the beneficiaries.
Look at the example below. For someone with a significant
estate, a quarter to a third of the person’s wealth will be wiped
out at death. Now imagine not having to pay any of these costs
because you have built up assets and shares of companies in
trusts!
If the assets, are in your own name and you are under the
impression that whatever you’ve stated in your will is what will
get done when you die – think again! And while your will plays
an important role in dealing with the admin after you pass
away, including distributing money to your family or passing
on heirlooms or assets, there are many parties waiting to
take their slice of your estate. The following duties need to be
fulfilled by an executor, just to name a few:
Reporting the deceased's estate at the relevant
Master's Office and hand in all required documents,
specifically the original will.
Obtaining an Executors Letter.
Advertising in terms of Section 29 of the Administration
of Estates Act 66 of 1965 for all creditors to lodge their
claims against the estate (30 days).
Contacting all relevant certificate of balances from the
financial institutions.
Obtaining valuation certificates for all your assets.
Starting to draft a Liquidation and Distribution
Account.
Collating enough cash to pay your debts and
processing specific legacies, bequests, and
inheritances to beneficiaries.
Submitting the Liquidation and Distribution Account
to the Master’s Office and SARS for approval.
Advertising the Liquidation and Distribution Account,
in terms of Section 35 of the Administration of Estates
Act 66 of 1965, to lay open for inspection (21 days).
If no objection was made against the aforementioned
account, the executor may proceed to distribute
and transfer assets to heirs, in accordance with the
Liquidation and Distribution Account.
In lieu of the aforementioned it is also clear that this is
process could take quite some time to finalise. And that’s why
it’s so important to understand how trusts can help you with
your estate planning.
SOURCE Prosperity Entreprises
SA Real Estate Investor Magazine APRIL/MAY 2020
55