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Question:
What can I do to reduce the size of my estate?

I have been advised to buy a living annuity and list my heirs as beneficiaries. Are there other ways?

Answer:
I can only assume that your desire to reduce your estate is in response to the potential estate duty liability that may await you upon death.

Estate Duty 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 its 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 purposes 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, 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.

In response to your specific query regarding Living Annuities, one needs to establish how this type of asset is viewed in the eyes of SARS when calculating one?s estate.

The Revenue Laws Amendment Act that came into effect March 2009 and saw all retirement funds now being disregarded for purposes of Estate Duty. This includes retirement annuities, pension and provident funds (as well as their respective preservation funds) and Living Annuities. However, considering that Living Annuities may only accept funds from other compulsory funds (e.g. pension or RA) which are already excluded as per the above, there seems to be no estate reducing benefit to this type of move.

Still have an estate duty problem? All is not lost and there are a number of strategies and techniques one may adopt in order to maximise one?s estate structure. These may include anything from setting up an intervivos trust, making allowable donations and even taking out life cover to ensure one?s dependants enjoy the full benefit of your legacy. Of course, not exploring the intricacies of these as well as a host of other alternatives in this format would be nothing short of negligent. Not only because of the complex nature of some of the mechanisms, but also because such strategies will be highly dependant on the individual?s specific circumstances.

For this reason it would be strongly advisable to seek out the professional opinion of a Certified Financial Planner that specialises in estate planning to guide you through the decision making process and arrive at a strategy that suits your needs and wishes.

acsis Limited is an authorised financial services provider. The response to the question covers some of the issues in a general and factual manner and does not constitute advice. It is important to consult with a financial planner who, after an analysis of the individuals? personal needs, goals and circumstances, will be able to provide comprehensive and appropriate advice.

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