Estates Flashcards
1
Q
Estate planning
A
- Divestment of Assets
- Transfer to Trust (separate legal entity)
- Transfer to Company - Donations
- To spouse or kids
- s7, par 68-72 of 8th schedule
- Limited interest
- Exemption from donations tax
- Annual exemption
- CGT on disposal - Marriage and family partnership
- s4m limited interest
- s4q leave to spouse (roll over tax) - Deductible bequests to certain entities estate Duty deductions:
- s4h (no estate duty if left to PBO, government or exempt institution)
To reduce potential estate duty liability
- Leave assets exceeding 4 500 000 to his spouse. The property will then be excluded from the dutiable value of the estate
- Consider pledging proceeds of an insurance policy to a spouse in terms of a postnuptial contract. The policy will then be excluded from deemed property
- Donation of assets might not be efficient because of donations tax and transfer duty
- Rather sold to trust at MV on an interest-bearing loan basis. Interest should be market rate
- Saves donations tax but CGT and transfer duty are applicable
- Possible savings in income tax and estate duty by utilisation of trust must be weighed up against transfer duty and CGT
- Could donate usufruct to wife and bare dominium to kids. Donation to wife free of donation tax. Income still received and taxed in your hands (disadvantage)
- Any future growth in the value of shares will be taxable in the event that the trust sells the shares
- Distributions of capital gain are taxable in the beneficiaries hands
2
Q
Estate planning general notes
A
- Consider wealth of individual
- Consider needs of dependents
- Discuss pros or cons of various options
- Use benefits provided by Tax Act
- Consider all taxes
3
Q
How to create liquidity
A
- Life insurance policies
- Investment: fixed deposits, shares , tax free investment
4
Q
Estate Duty
A
Under property
- Annuity ( value of property* 12%* x%* age next birthday value factor)
- Include inherited foreign property (at current MV and rate)
- Include cash
- Assets at MV at DoD
- Assets sold include at sold amount not mv at DoD
- Loan to trust, even if it is interest free
- Include 50% of asset if owned by you and spouse
- Include balance on loan
- Include life policy left to spouse ( not in terms of ante or post nuptial)
- Life policy include ( deceased took out policy on behalf of spouse and deceased paid premiums; do not deduct premiums)
- Keyman policy (exclusion denied as left to family co)
- Include PUA at disposal cost
- Life policy is taken out by other business partners to enable them to acquire deceased shares and no premium is paid by deceased
- Foreign dividends (lower of spot or average rate)
- Lump-sum from pension fund exclude from property = 0
- Shares in listed companies include at liquidation cost
- Include foreign shares if always been a resident
- Shares in listed companies distributed to heirs (MV DoD)
- Shares in private company ( mv at DoD)
- Option to buy immovable property at 150 and 175 at DoD. Executor disposed at 20 include at 20 since no bought. If bought at 25
Deductions
- No s4e deduction on foreign property (as person to whom property is donated has always been a resident)
- Do not include foreign costs if person has always been a resident = 0
- s4(q) anything left to spouse
- Outstanding bond on the flat in Australia – The amount cannot be deducted as it has not been discharged from property included in the estate and the amount of the debts don’t exceed the value of any assets of Buzz outside the RSA and not so included – section 4(f).
- Deduct normal tax liability and CGT
- Deduct MV at DoD if other person made improvements
- Balance on loan
- Given to estate: proceeds on life insurance policy include (x)
-Abatement 3 500 000
-Value of Dutiable amount first at 20% then excess at 30% if it exceeds R30m eg: Dutiable value is 36 400 000
R30m * 20%
R6,4m * 25%
Estate duty payable xxxxxx
- Estate duty payable 20%
- Foreign duties rebate (xxx)
(if does not exceed attributable estate duty imposed on the property )
- This is the last tax done
- When heirs or legatees receive distribution it is capital in nature, only when they sell the assets do they have to pay tax
- It is a separate tax
- s4(m) applies if 4(q) did not apply
Rebates:
- Transfer duty s16(a))
- Foreign death duties and DTA (lesser of foreign death duties or estate duty)
- Foreign shares is estate duty calculation include at proceeds at lower of spot or average at DOD
- Don’t forget exemptions in terms of ante-nuptial or post-nuptial
- life expectancy if it cannot be ascertained age =50 years
- Include life policy in estate as property if wife is a beneficiary then deduct in terms of s4q
5
Q
Deceased Estate
(DoD-YE)
A
- Do not include distribution of interest as not incurred in production of income
- Exemptions as not apportioned
- Include interest (23800) and dividend and exemptions
- Deemed to acquire a loan to trust at MV at DoD
- No s6A and s6B
- When the loan is transferred to trust estate is deemed to dispose for P= MV at DoD
- Include exemptions (interest at 23800 and dividend)
- Retirement lump sum deemed to accrue to individual =0
- Include bad debts recovered
- Capital loss is disregarded par 39&56
CGT
- CGT: Deemed disposal of all capital assets in terms of s 9HA
- Disposal of the donated asset ( portfolio of shares) would result in attributions in terms of par 69 and par 72 of the Eighth Schedule.
-A lump-sum from a pension fund (Disregard in terms of par 54)
-P (What executor sold or for)
-BC ( MV at DoD)
- All assets disposed to beneficiaries 0 CGT
- Only have CGT if sell to third parties
- Proceeds = MV at DoD
Base cost = MV at DoD
- Loan waiver P =0, BC =MV @DOD
- PUA excluded par 53
- Cash is not an asset
- Life insurance excluded par 55
- Exclusion R40 000
- s45 Annual exclusion 2000000
- Tax per tax tables
6
Q
Estates general notes
A
- In terms of determining annual and lifetime exempt portions of amounts received or accrued in terms of tax-free investment (deceased and deceased estate deemed to be same person)
- NR only taxed on property in SA
Estate Duty general notes:
- 5(1)(a) requires the sales value if disposed of be in a bona fide transaction
- Shares in(a private and unlisted company) must be included in the property at its value at the date of death and not its proceeds (s 5(1)(f)(bis))
- The fixed property in Spain should be included in the estate, because Timothy was always a resident of South Africa and purchased the property with his own funds, the estate will not qualify for a deduction
- The deceased has always been a resident and cannot claim a deduction (section 4(e)).
- Section 4(h) only allows for deductions to PBO’s
- Foreign death duty rebate: Since foreign death duties was paid in Spain and is not refundable and the property is subject to estate duty in SA, the estate will qualify for an estate duty rebate (s 16(c)).
7
Q
Deceased individual (1 March - DoD)
A
- Insurance premiums = 0
( short term insurance policy and premiums not in the production of income. Reduction of premiums prohibited s23r) - Unpaid amount ( bad debt) s11(i)
- Include medical expenses even after death
- Do not apportion exemption
- rebates s6A and s6B (n/365)
- Dividend received is grossed up
- Interest on loan to trust *%*x/365
* interest exemption - A bonus is taxed separately as a severance benefit (possibly)
- s23(m) not earning mainly commission = 0 (not getting a deduction for allowances given eg cellphone)
- Reimbursement = 0
- Life benefit policy s23r if against death= 0
- UIF contribution (not a FB) = 0
- No deduction UIF s23(r)
- Entertainment used by employees =0
- Capital gains (s9HA)
* Deemed disposal of all assets at DoD
*At MV
* No deemed disposal on assets left to spouse - If left something to spouse BC=BC
- CGT: Deemed disposal of all capital assets in terms of s 9HA
- Disposal of the donated asset ( portfolio of shares) would result in attributions in terms of par 69 and par 72 of the Eighth Schedule.
-A lump-sum from a pension fund (Disregard in terms of par 54)
-Proceeds = MV at DoD
- BC if inherited included at MV at DoD of donor
- Primary residence exclusion par 45
- Do not include cash as it is not an asset
-No gain or loss on loan to the trust
- PUA exclude par 53
- No deemed disposal on pension, provident fund disregard par 54
- Life insurance policy excluded= 0
The annual exclusion is 300 000 at 40%
8
Q
- Bad debts recovered
- Interest in company left to an heir
A
Deceased Estate
- s25 determines who will be taxed. Executor received amount which would have been income for deceased had he lived
- They would acquire interest at the same value used above for proceeds which would be the amount of expenditure incurred
- s25(3) N/A as asset itself not disposed
- Annual exclusion 40k, rate 40%
- No rebates s6A and s6B
Deceased
- The amount did not accrue to them before death and cannot be included in his last tax return
- Interest would be valued as at DoD at MV and this value would be proceeds for CGT, annual exclusion 300 000
Heir
- Not attributed to them as cannot be entitled to recovery of an amount they never wrote off
- par 12A N/A no CGT implications as it is income in nature therefore include there - Cash, not an asset so no further CGT
9
Q
Domestic policy is taken out by ex-spouse on deceased’s life and spouse paid premiums and spouse is the beneficiary
A
- It is deemed property and included under domestic policy upon life of deceased
- No exclusion as amount received not recoverable in ante or postnuptial contract
- Proceeds paid to the person who was wholly or partly dependent for spouse maintenance upon deceased
- Value is amount recoverable less premiums paid by beneficiary plus 6%
- s4(q) NA not longer a spouse
- Spouse is liable for payment of any attributable estate duty
10
Q
Annuity charged upon property 5(1)(c)
A
- Leave something to the beneficiary and ask that they give it to a sibling for example
- Fixed amount, repetitive and as long as they live upon the property
- To whom is annuity going to? Eg friend
- Use friends life expectancy to calculate limited interest or lesser of years
- If it doesn’t go to anyone it reverts back to the owner (use life expectancy)
11
Q
Annuity not charged upon property
A
- It will cease at DoD no value in estate duty.
- If leaving it to someone use their life expectancy or lesser of years
12
Q
Who is liable for Estate duty
A
-The executor of any other property unless
*Donation Mortis causa
- Donee
* Fiduciary, usufruct or like interest
- Person to whom advantage accrues or owner
* Right to an annuity
- Succeeding annuitant
*Donation of domestic policy
-Person entitled to the amount
13
Q
What did the person do well and what did they do badly for planning purposes
A
Good
- Created a trust that resulted in the all the assets not being subject to estate duty.
- The assets in the trust allowed the asset to grow without being divided and benefit all the beneficiaries.
- Took out a life insurance policy to ensure enough cash is created on his death so that the executor does not have to sell assets to pay the expenditure and taxes
- Left assets to his spouse that reduced the CGT on death as well as the Estate duty - due to the roll over
- Loan the PUA to the government of the Republic under a notional deed for a period of thirty years or more, and die during that period, he will qualify for the section 4(o) deduction and hence the dutiable value of the collection will be nil
Bad
- Donating the assets to the trust the assets were still subject to CGT
- By donating the assets to the trust the assets were still subject to Donations tax - either immediately of annually in the case of an interest-free loan or a low interest loan.
- Donated and disposed of the assets to the trust resulted in the application of the attribution rules in terms of s 7 and the CGT attributions.
- Loan account of X with the trust still forms part of the estate duty calculation. X should have tried to use the general exemption of R100 000 tax free donations every year
