ESTATE PLANNING CHAPTER 11
CHAPTER 11
ESTATE PLANNING
Learning Outcomes
When you have completed this chapter you will be able to
briefly explain the meaning of some of the more commonly used
definitions found in the South African Estate Duty Act;
list and briefly describe the property and deemed property of an
individual that will form part of his estate;
list and briefly describe some of the more common deductions
allowed against the value of an estate when determining an estate
duty liability;
explain the importance of having a valid will;
list and describe the formalities required in the execution of a will;
explain the effects of a divorce on a will;
explain who is competent to be involved in the execution of a will;
explain the procedure that will be followed in distributing the estate
of a person who died intestate;
explain the implications on an estate of the Maintenance of
Surviving Spouses Act;
list and explain the use of some estate pegging instruments.
RSK3701 LI Page 238
Ver 31072011
,ESTATE PLANNING CHAPTER 11
Definition
Estate planning is defined as the arrangement, management and securement
and disposition of a person’s estate so that he, his family and other
beneficiaries may enjoy and continue to enjoy the maximum from his estate
and his assets during his lifetime and after his death, no matter when death
may occur.
The estate of a person is the net worth of a person at any time. It is the sum of a person at
any time. It is the sum of a person’s assets less all liabilities at a given time.
Assets include:
legal rights;
interests; and
entitlement to property of any kind.
The purpose of estate planning is to ensure the distribution of a person’s property at the time
of death is done in terms of the client’s wishes and that the person’s beneficiaries receive
their portion of the estate in the most cost effective way by minimising taxation implications
as far as possible.
Effective estate planning requires knowledge of:
estate duty;
Capital Gains Tax;
donations tax;
matrimonial regimes; and
laws relating to wills and trusts.
In addition to providing financial security, estate planning also encourages individuals to
make important decisions such as:
appointing a guardian for minor children;
preferred healthcare practices; and
securing funeral arrangements.
RSK3701 LI Page 239
Ver 31072011
, ESTATE PLANNING CHAPTER 11
11.1 ESTATE DUTY
Whenever an individual dies, it becomes the responsibility of the person that winds up his
estate, known as the executor, to settle any outstanding debts that may have been left by the
deceased.
Once these debts have been settled, there is a final tax that is levied upon the estate, and
once this has been paid the executor can pay the balance of the estate to the beneficiaries in
terms of the will of the deceased. There are, however, certain special deductions and an
abatement allowed before the amount of estate duty needs to be determined. In the process
of working through this chapter, we will be able to establish on which of the worldly goods of
the deceased, the executor will need to levy the estate duty.
The Estate Duty Act (no. 45 of 1955) (as amended) was promulgated with the express
purpose of imposing a final tax (known as estate duty) on the estate of a deceased person.
Estate duty is levied at a flat rate of 20% on the dutiable amount of any deceased person's
estate. The calculation of the dutiable amount is done as follows:
Determine gross estate by valuing all the property and deemed property of the
deceased
less S4q residue
less S4A reduction
equals dutiable estate
Property includes all assets, whether movable, or immovable, including insurance policies
on the life of another person, fiduciary and usufructuary rights enjoyed prior to death and
annuities which the deceased was receiving and which now pass on to someone else.
Deemed property includes policies of life insurance payable to the estate but excluding
policies payable to a child or spouse in terms of an ante-nuptial or post-nuptial contract,
policies taken out for buy / sell insurance purposes where validly set up and policies taken
out by persons other than the deceased and under which the proceeds are not payable to
the estate or to the family of the deceased. It also includes lump sum benefits from
retirement funds, donations, claims from an accrual marriage contract and some other less
common items.
Annuities from retirement funds to which the deceased belonged, which became payable as
a result of the deceased's death, are not included.
A set procedure for valuing annuities and usufructuary interest is laid down.
There are numerous deductions, the most important of which are:
assets which accrue to a living spouse (by means of a will), funeral and deathbed
expenses;
an accrual claim due to a surviving spouse;
property situated outside of the country if acquired from a non South African source;
RSK3701 LI Page 240
Ver 31072011
CHAPTER 11
ESTATE PLANNING
Learning Outcomes
When you have completed this chapter you will be able to
briefly explain the meaning of some of the more commonly used
definitions found in the South African Estate Duty Act;
list and briefly describe the property and deemed property of an
individual that will form part of his estate;
list and briefly describe some of the more common deductions
allowed against the value of an estate when determining an estate
duty liability;
explain the importance of having a valid will;
list and describe the formalities required in the execution of a will;
explain the effects of a divorce on a will;
explain who is competent to be involved in the execution of a will;
explain the procedure that will be followed in distributing the estate
of a person who died intestate;
explain the implications on an estate of the Maintenance of
Surviving Spouses Act;
list and explain the use of some estate pegging instruments.
RSK3701 LI Page 238
Ver 31072011
,ESTATE PLANNING CHAPTER 11
Definition
Estate planning is defined as the arrangement, management and securement
and disposition of a person’s estate so that he, his family and other
beneficiaries may enjoy and continue to enjoy the maximum from his estate
and his assets during his lifetime and after his death, no matter when death
may occur.
The estate of a person is the net worth of a person at any time. It is the sum of a person at
any time. It is the sum of a person’s assets less all liabilities at a given time.
Assets include:
legal rights;
interests; and
entitlement to property of any kind.
The purpose of estate planning is to ensure the distribution of a person’s property at the time
of death is done in terms of the client’s wishes and that the person’s beneficiaries receive
their portion of the estate in the most cost effective way by minimising taxation implications
as far as possible.
Effective estate planning requires knowledge of:
estate duty;
Capital Gains Tax;
donations tax;
matrimonial regimes; and
laws relating to wills and trusts.
In addition to providing financial security, estate planning also encourages individuals to
make important decisions such as:
appointing a guardian for minor children;
preferred healthcare practices; and
securing funeral arrangements.
RSK3701 LI Page 239
Ver 31072011
, ESTATE PLANNING CHAPTER 11
11.1 ESTATE DUTY
Whenever an individual dies, it becomes the responsibility of the person that winds up his
estate, known as the executor, to settle any outstanding debts that may have been left by the
deceased.
Once these debts have been settled, there is a final tax that is levied upon the estate, and
once this has been paid the executor can pay the balance of the estate to the beneficiaries in
terms of the will of the deceased. There are, however, certain special deductions and an
abatement allowed before the amount of estate duty needs to be determined. In the process
of working through this chapter, we will be able to establish on which of the worldly goods of
the deceased, the executor will need to levy the estate duty.
The Estate Duty Act (no. 45 of 1955) (as amended) was promulgated with the express
purpose of imposing a final tax (known as estate duty) on the estate of a deceased person.
Estate duty is levied at a flat rate of 20% on the dutiable amount of any deceased person's
estate. The calculation of the dutiable amount is done as follows:
Determine gross estate by valuing all the property and deemed property of the
deceased
less S4q residue
less S4A reduction
equals dutiable estate
Property includes all assets, whether movable, or immovable, including insurance policies
on the life of another person, fiduciary and usufructuary rights enjoyed prior to death and
annuities which the deceased was receiving and which now pass on to someone else.
Deemed property includes policies of life insurance payable to the estate but excluding
policies payable to a child or spouse in terms of an ante-nuptial or post-nuptial contract,
policies taken out for buy / sell insurance purposes where validly set up and policies taken
out by persons other than the deceased and under which the proceeds are not payable to
the estate or to the family of the deceased. It also includes lump sum benefits from
retirement funds, donations, claims from an accrual marriage contract and some other less
common items.
Annuities from retirement funds to which the deceased belonged, which became payable as
a result of the deceased's death, are not included.
A set procedure for valuing annuities and usufructuary interest is laid down.
There are numerous deductions, the most important of which are:
assets which accrue to a living spouse (by means of a will), funeral and deathbed
expenses;
an accrual claim due to a surviving spouse;
property situated outside of the country if acquired from a non South African source;
RSK3701 LI Page 240
Ver 31072011
