Newsletter 78 (Nov 2023)
As unbelievable as it may seem, the summer holidays are barely a few weeks away! As we see the beautiful awakening in nature all around us, it sparks a renewed energy within, knowing that a time to relax is in the not-too-distant future. Let us thus press on to achieve as much as we can in the remaining stretch of this year. Time has a way of moving quickly, so endure, persist, and strive to accomplish those goals that you have yet to achieve for 2023!
ONLINE WILLS DRAFTING SERVICE
Legatus Trust is pleased to announce that an online Wills drafting service is now available for the drafting of standard
Wills, should you wish to make use of this service to draft a simple Will yourself. The process for the drafting of more complicated or complex Wills has not changed and must be submitted to your Wills drafter as usual. Should you prefer that your Wills drafter continue to draft all your Wills, that option remains available to you.
The online Wills drafting service can be accessed via our website, www.legatus.co.za
. Please contact your consultant, should you need any additional information regarding this service.
LEGTUS TRUST CARES
The Legatus Trust Team proudly supported the effort to raise awareness about breast cancer in October. We stand together again in November to raise awareness about men’s health issues through “Movember”.
“Movember” is an annual event where men grow their moustaches during the entire month to raise awareness about men’s health issues, such as prostate and testicular cancer, mental health, and suicide prevention.
Thank you joining us in supporting these initiatives. Together we can make a difference!
Legatus Trust’s offices will close for the festive season at 12h00 on Friday, 15 December 2023, and will re-open at 08h00 on Wednesday, 03 January 2024.
CELEBRATING THE FESTIVE SEASON
In the next edition
Many people find it difficult to navigate the complexities of estate obligation legislation. With the recent announcement of revisions to the estate duty legislation in South Africa, it is more critical than ever to understand the consequences of these changes and how they may affect estate planning.
A practical example of an estate duty calculation could look something like this
What is estate duty?
Estate duty is the duty levied on the dutiable amount of an estate of a deceased person under the Estate Duty Act 45 of 1955. In Newsletter 65 of August 2022, we explained what the dutiable part of an estate is but will include a practical example in this article again.
Estate duty is taxation imposed on the assets and property of a deceased person upon their passing. It is levied on worldwide property and deemed property of the deceased who was a South African resident at the time of their passing. If the deceased was a non-South African resident, estate duty will be levied on their South African property only.
How is estate duty calculated?
The calculation of estate duty begins with determining the gross value of the estate. This is done by identifying what the estate property (assets) and deemed property are. Deemed property is any benefit received because of the death of a deceased. An example is the proceeds of a life policy, which would then form part of the estate. Many executors find it difficult to determine whether property that the deceased owned fits the Act's definition of property. Thus, the definition of property should be carefully considered. Property, as defined in the Estate Duty Act, includes any right in or to movable or immovable property, both corporeal and incorporeal.
To determine the net value of an estate, various deductions are allowed under Section 4 of the Estate Duty Act. A significant deduction is the exemption threshold, which determines the value of an estate below which no tax is levied. Estates falling below this threshold, typically, do not incur any estate duty liability, whereas those exceeding it may be subject to taxation on the portion that exceeds the threshold. The current value of the Section 4A abatement is R3.5 million. It should be noted that there are no exemptions from estate duty, just exclusions of specific property (assets) from an estate.
Some other deductions allowed to reduce the gross value of an estate include funeral expenses, debts owed in South Africa, administration and liquidation charges, and bequests to certain organisations.
Another significant consideration that affects the calculation of estate duty is the matrimonial property regime of the deceased. In terms of Section 4A of the Estate Duty Act, the first spouse to pass away can leave assets to any other person up to the value of R3.5 million without incurring estate duty. Upon the death of the second spouse, they can make use of any unused portion of the estate duty exemption to offset any estate duty that their estate may attract. This abatement can thus add up to a total of R7 million (if the second spouse who passed away was the only beneficiary in the estate of the first spouse who passed away). Alternatively, they can make use of any unused portion of the estate duty exemption to offset estate duty that their estate may attract.
Section 4(q) of the Estate Duty Act stipulates that the value of all property bequeathed to the surviving spouse, either in respect of a Will or by intestate succession, is deductible from the gross estate of the deceased.
If partners are not married, they may not fall within the definition of ‘spouse’ and this could impact the intended inheritance. The term ‘spouse’, however, came under scrutiny and testate law would probably be expanded to include life partners in a relationship intended to be permanent (based on the court case of Bwanya v. Master of the High Court in 2020).
Failure to understand the impact of the marital property regime on a person’s estate can result in financial problems, such as the forced sale of assets, and the inability to pay taxes and debts. This could render the estate unable to provide sufficiently for the surviving spouse.
Estate duty is charged at a rate of 20% on the dutiable amount of an estate which is less than R30 million, and a rate of 25% on the dutiable amount of an estate which exceeds R30 million. Estate duty is calculated by determining the gross value of an estate, then subtracting allowable deductions and expenses, and then applying the appropriate rate of duty (20% or 25%) depending on the dutiable amount of the estate.
All property of the deceased at the date of death
Property deemed to be property at the date of death
Gross value of the deceased estate
Less: Allowable deductions
Net value of the deceased estate
Less: Abatement amount
3 500 000
Estate duty calculated on the dutiable amount @ 20% or 25%
Who is responsible for paying the estate duty?
The executor of the deceased’s estate is responsible for paying the estate duty. The executor must pay the estate duty within one year of the date of death or within a further extended period as approved by the Commissioner of the South African Revenue Service (SARS).
Estate duty is one of the reasons why proper estate planning is imperative and your advice as a financial advisor to your clients in their unique circumstances is invaluable.
By carefully structuring finances and assets, estate taxes can be minimised. Provision can be made so that there is enough cash on hand to pay the estate's debts, and, ultimately, ensure that inheritances are distributed according to the testator’s wishes or preserved for vulnerable and/or minor beneficiaries.
Source: Based on an article by Johann van Vuuren, Legatus Trust Estate Manager (as amended)
ADMINISTRATION PROCESS CHALLEGES
To fully understand the unmanageable aspects of the administration of deceased estates, Legatus Trust would like to point out the most common challenges that we face:
Master’s Office: The situation at the Master’s Office is dire. Even though we make use of specially dedicated correspondents who visit the Master’ Office regularly, our visits are frequently met with staff being on leave, missing files, systems being offline for days, or even closed doors.
Financial institutions: The current turnaround time for banks to respond to any given instruction exceeds 90 days. Delays in receiving Certificates of Balance and closing of accounts affect our ability to wind up estates, and to finalise liquidation and distribution accounts.
Lack of liquidity: We encounter more and more that people do not plan for sufficient cash or liquid assets, like savings accounts or investments in the estate that can easily be converted to cash to cover immediate expenses. This commonly results in estates with cash-flow issues, which could compel us to liquidate some of the deceased’s assets, such as properties, shares, or other moveable assets, to generate enough cash to pay debts, taxes, and administration expenses.
Beneficiary disputes: Disputes among beneficiaries regarding the distribution of assets where there is no Will, or a Will that has not been properly updated lead to family conflicts and legal battles. This affects the normal progress of an estate’s administration.
Locating and identifying assets: We sometimes find it challenging to locate and to identify assets. In other cases, notification of assets is only received when the estate has almost been finalised.
Predeceased spouse’s estate: We frequently encounter that a newly-reported estate cannot be handled because the predeceased spouse’s estate was never reported and thus not dealt with. This means that the estate of the first spouse who passed away must be reported and dealt with first, before the estate of the second spouse who passed away can be finalised. This leads to time delays and can also incur additional expenses, placing an even greater burden on the beneficiaries.
Tax/SARS: When a deceased’s tax affairs are not in order, there will be tax implications, including estate duty, capital gains tax, and a liability on the deceased’s personal income tax. In cases where the deceased was a member of a closed corporation or held shares in a company, it can be challenging when no records exist or books were kept, and the beneficiaries cannot provide information regarding the bookkeepers or auditors.
The above represents, in a nutshell, the most common challenges that we face and which you should take note of as any of the above will affect the usual process of estate administration.
You deserve efficient service and, despite all of the challenges that we must deal with, we always endeavour to provide you with the best possible service.
Until next time!
“The Legatus Times” Team