Estate Duty Tips for High Net worth Individuals
The higher a client’s net worth, the more important it is to create an estate plan that can withstand watchful inquiry from SARS. For wealthy clients, a solid estate plan can offer tax benefits via strategies that work to reduce estate value and shift future appreciation — between now and the second spouse’s death — out of the estate.
Tax consultants and attorneys are estate plans’ final architects, of course, but a financial planner’s recommendations can offer the tax consultant, attorney and client valuable input — and help estate and asset management plans work in conjunction.
Tax consultants thinks about tax planning first, which is their job, but estate plans need to happen within the framework of someone’s overall financial plan.
Preserve Portability
No matter what other strategies an estate plan employs, conserving the transferability of the estate duty exemption to the surviving spouse is often the simplest way to reap significant tax benefits. The exclusion amount for 2015 is R 3.5 million, and even though clients whose estates will amount to less than this will probably not owe estate taxes, many still need to file tax returns in order to conserve that transferability — a move that’s particularly important if the estate is expected to grow substantially.
If a spouse dies without using any part of his/her deduction, the surviving spouse can use this exemption in addition to his/her own, which amounts to R 7 million in total. If the surviving spouse re-marries and does not make use of his/her exemption there will be a roll-over effect to the new spouse.
Annual Donations Exclusion
To further decrease the estate value clients should also consider using the annual individual donation exclusion. Donations of R 100 000 are allowed per spouse without any donations tax implication. Donations between spouses are exempt from any donations tax, especially important with ANC marriage contracts.
Family Trusts
Trusts are also very useful estate and financial planning tools; they are popular as they allow for asset freezing, protection, easy management, succession and control of assets.
Assets expected to grow substantially in value and are acquired with the intention to keep on which their children would be the ultimate capital beneficiaries, can be transferred or acquired in an inter vivos discretionary trust. Any increase in the value of these assets transferred to the trust will be excluded from such person’s dutiable estate because growth takes place in the trust. It is however important to note that estate freezing are only applicable to discretionary trusts and not vested trusts. It is also important to note that the founders are not seen to directly or indirectly control the assets of the trust, thus there must always be an additional independent trustee to oversee the management of the trust. If the provisions are not adhered to the assets of the trust can fall back to the personal estate and estate duty and executors fees will be applied.
A trusts also provides asset protection, the trusts allows for the person/s to enjoy the fruits of an asset while not having ownership of that asset. This is particularly important for people who have exposure to potential liability claims arising from their business activities. A discretionary trust offers protection against creditors in the event of the founders’ or beneficiaries’ insolvency, subject to the normal insolvency rules. A loan account in the trust on the other hand could however be exposed to creditors, as the loan account will still be an asset in the hands of the founder. On insolvency the loan account could be called up by the creditors and if the trust is unable to repay the loan account, the creditors would be able to request the assets of the trust to be sold to settle the loan account.
A discretionary trust can provide for easy succession of interest in property, if a beneficiary dies, there will be little or no impact on the future enjoyment of the trust assets by the other beneficiaries.
Supplied by TeBazile Wealth Management