Question:
What are the best legal ways to minimize death taxes? I am a 70-year-old widow with one child as the only beneficiary and would like to make sure he does get most of what I own.

Answer:
The grim reaper strips you of your earthly existence and then you get taxed because of it — talk about a double whammy! However, before one shudders at the thought of this cheek, it should first be ascertained as to whether one in fact has a tax liability.

This form of tax is known as Estate Duty and is levied at a rate of 20 percent upon a deceased’s dutiable estate. One should take special note of the term 'dutiable estate' as this sheds light on the fact that SARS allows for various exclusions, deductions and abatements to be made before taking his piece of the pie. Some may argue that these concessions are generous enough to exclude many estates from paying any form estate duty whatsoever.

Therefore, before looking at any extravagant ways of minimising this type of tax, it would probably be prudent to first explore what is included in an estate for calculation purpose and gauge whether there is any potential liability.

The basic structure of an estate duty calculation is as follows:

1. Establish gross estate by adding one’s property and 'deemed' property

2. Subtract allowable deductions to arrive at the net estate

3. Subtract Section 4A abatement of R3.5-million to arrive at dutiable estate

4. Multiply dutiable estate by 20 percent to get potential tax liability

The Estate Duty Act of 1955 contains the full and accurate definitions and guidelines upon which an exact calculation can be made, but for the purposes of the question let’s explore the broad guidelines contained in the act.

Property

According to the Act, "Property means any right in or to property, movable or immovable, corporeal or incorporeal" . This may include any fiduciary, usufructuary or other like interest in property. In essence, what this refers to is all assets such as homes, cars, businesses, investments, etc.

Deemed Property

Other property that is 'deemed' to be property most commonly refers to domestic policies such as life insurance that becomes due and recoverable upon death as well as any accrual claim acquired by the estate (if applicable). This type of accrual applies to persons married by means of an antenuptual contract with accrual .

One of the most notable amendments in the Estate Duty Act of late was the removal of 'retirement funds' from the definition of deemed property. This was promulgated at the beginning of the year as part of the Revenue Laws Amendment Act 2009 and means that investments in Retirement Annuities (RAs), Pension Funds, Provident Funds and Individual Living Annuities are all disregarded when calculating one’s estate. Considering that, for many people, a retirement fund could well be the largest asset they own, this move may well have saved many from any Estate Duty liability.

Permissible deductions and abatements on page two...

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