If you run your affairs in your own Personal Name 20% of your assets in excess of R3 500 000 would attract Estate Duty.
If you plan your Estate correctly and have a spouse this amount would increase to R7 000 000 before Estate Duty becomes payable.
All the assets belonging to the Trust with the exception of Life Assurance (A Deemed assets on your Personal Estate) will not attract Estate Duty on the Future Growth of those Assets.
For example, if you were married with 3 children and had R30 000 000 worth of Assets in your own Personal Name including R10 000 000 worth of Life Assurance at the time of your death and you left it all to your spouse, no Estate Duty would be payable in terms of Section 4 Q of the Estate Duty Act.
However if you left your Estate of R30 000 000 to your spouse and on her death 7 years later the assets had grown to R58 000 000 at 10% Estate Duty Capital Gains Tax (CGT) and Executors Fees would be payable as follows. Base Rate for Capital Gains Tax R5 000 000 in 2001
|Asset Value||R58 000 000|
|Less||R2 314 000||Executor Fees|
|Less||R3 500 000||Section 4A abatement on death of First spouse|
|Less||R3 500 000||Section 4A abatement on death of Second spouse|
|Less||R7 049 000||Capital Gains Tax|
|R44 636 000||Dutiable Estate|
|R8 327 000||Estate Duty payable at 20%|
|Net||R40 310 000||Left to the Children|
Your Children would have to pay R17 690 000 or 30.5% of the Value of the Estate away in Death Bed Expenses.
If these assets had been owned by a Trust, on the death of the First spouse Estate Duty would only have been paid on the Death Value of the Life Assurance of R10 000 000. i.e R10 000 000 less R3 500 000 = R6 500 000 X 20% or R1 300 000 Estate Duty.
From a Capital Gains Tax point of view Death is considered a Capital Gains Tax event. Thus in addition to Estate Duty CGT is also payable.
For example, assuming the assets in this example were worth R5 000 000 in 2001 and your spouse died in 2030 with her Estate being valued at R58 000 000. The amount of CGT payable would be R7 155 000. No Capital Gains Tax is payable when your Assets are bequeathed to a Spouse. It would only become payable when it is eventually paid to the Children.
This would mean that the Receiver of Revenue would be paid a total of R15 482 000 ( I have excluded certain abatement for this example) excluding the R2 314 000 in Executors Fees
Your Children would then have R13 436 000 each while the Receiver of Revenue would have been paid R15 482 000
If these assets were in a Trust R1 300 000 Estate Duty would become payable on the Death of the First Spouse as a result of the Life Assurance and assuming One Third of the Assets were sold on the Death of the second Spouse of which 50% was kept in the Trust and 50% paid to the Beneficiaries. Approximately R3 533 000 Capital Gains Tax would become payable or a total of R4 833 000 with Estate Duty as opposed to approximately R17 690 000 in your own Personal name.
Please note the above example takes into account many variables and is only an assumption. However one can still clearly see the benefits of running one’s afairs in a Trust as opposed to running your affairs in your own Personal Name.