Tips to minimize the size of your estate & liabilities upon death.

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The determination of taxes payable can be uncertain, and subject to interpretation.

In this article we explore some of the legal options, available to taxpayers, to minimise estate duty and capital gains tax, at death.


It is important to understand that your deceased estate is a separate and new legal persona, that comes into existence at death.

 You are thus liable for Incomes Taxes, Capital Gains Tax and any other taxes up to the date of your death.

Thereafter, your estate is liable for income tax on any income earned and capital gains tax on assets sold or distributed.

 However, the taxes paid by you, up to the date of death, have the effect of reducing your dutiable estate, for estate duty purposes:

  1. Income tax owed by the deceased person up to date of death qualifies under section 4(b)
  2. CGT on the sale of assets by the executor qualifies under section 4(c)
  3. Income tax on the sale of trading stock, livestock and produce may also qualify under section 4(c), and
  4. Income tax on income derived by the estate in the form of dividends, interest and rent, among others (‘fruit from the tree’), does not qualify under s 4(c).


The first R3.5mil of your net assets at death is exempt from estate duty. So, why not plan and structure your estate so that it’s net asset value is less than R3.5mil at death?

If you can achieve this, then the unused portion of your R3.5mil transfers to your surviving spouse and he/she receives up to R7mil abatement at death.

Bequests to your surviving spouse are exempt from estate duty and will reduce the value of your estate, leaving more of the R3.5mil abatement over for your surviving spouse.

Estate duty should not just be passed on to your survivors.

TRUSTS to freeze asset values

Trusts can be used to great benefit and effect, to reduce the value of your estate at death, to below R3.5mil and in so doing reduce estate duty payable.

If you plan or intend great abundance in life then the very best time to establish a trust is in your 20’s whilst you own nothing. For the rest of us more skeptical souls who rather wait and see, the next best time is before your net asset value passes the R3.5mil mark.

It is never too late to use a trust, as long as you understand the costs involved at any stage. There are running costs and tax implications when transferring assets to a trust, which is why sooner is better.

Finding a reliable, responsible, experienced and knowledgeable advisor in this regard is invaluable and priceless.

COMPANIES to freeze asset values

From a tax efficiency perspective, is better to transfer assets into companies as opposed to trusts, to reduce estate values, simply because the tax rate in a company is fixed at 28% versus 45% in a trust and the savings on CGT is thus much greater, if assets are ever sold out of the company. Income tax is also assessed at the lower rate of 28% in companies vs 45% in trusts.

A trust remains relevant in this picture however, because the trust can now own the ordinary shares in the company and in so doing a further benefit is achieved in terms of protection of assets against attack from creditors.

Section 7C of the Income Tax Act remains a challenge if the assets are paid for with a loan account or preference shares. There is philosophical debate as to whether preference shares represent debt or equity, which might avoid a Section 7C challenge, but this requires careful consideration and advice from an expert in the field of tax and law.


Donations of R100 000 per year can be used to reduce the value of your estate to below R3.5million and such donations are exempt from Donations Tax.

However, when you reduce a debt owed by a trust or a company or a person, to you or your estate, then these donations reduce the base cost of the asset that was transferred and ultimately attract more CGT if and when the asset is sold in future. This is because the base cost is reduced by the donations made, which increases the taxable Capital Gain.

So, despite wanting to reduce the value of your estate, consider the CGT aspects carefully and if possible, do not transfer assets to trusts that might eventually be sold. It will be cheaper to pay CGT in your own hands.

Conversely, if your estate value is high, the Estate Duty savings might be greater than any eventual CGT payable and then it makes sense to transfer the asset and donate the debt owed.

Any debt outstanding at death, not yet donated by annual R100K donations, can be donated in full at death but will attract both Donations Tax and CGT.

CGT and it’s resultant effect on the value of your estate, is mentioned below.

RETIREMENT FUNDS reduce Estate Duty

Retirement funds such as pension funds, provident funds and retirement annuity funds are excluded from your estate value at death and are not subject to ESTATE DUTY [ED].

Furthermore, contributions to such funds are tax deductible, free of donations tax, do not attract CGT or transfer duty and provide income at retirement. So, why not consider judicious contributions to these funds in addition to donations to reduce the value of your dutiable estate?

You can invest as much as 27.5% of income up to R350 000 per year in this way, which creates an effective R450 000 reduction of your estate annually if used together with donations.

In addition you are now creating a very good retirement nest egg for yourself and your family, resulting in a positive legacy.


Combining donations with limited rights in estate planning is very powerful but complex and can be used to good effect if done properly with the assistance of an experienced professional.

Limited rights are for example the granting of a right to only the income or only the use of an asset. You may have heard of USUFRUCTS and FIDUCIARY RIGHTS. These would be limited rights.

Donations made over your lifetime reduce the value of your dutiable estate resulting estate duty because you have paid donations tax already and are only taxed once thereon in a lifetime.

It is possible to minimise estate duty by knowing exactly when to donate and when to create usufructs. This is achieved by regularly and frequently reviewing your estate plan and evaluating all possibilities and scenarios with every review.


Here’s a compelling reason to think about death at an early age. Insurance policies are deemed assets in your estate, irrespective of whether they pay out to you or your estate or your specified beneficiaries.

HOWEVER, if you specify in your antenuptial contract that the proceeds of any policy are recoverable by your surviving spouse or any one or more of your children, then these proceeds are exempt from estate duty.

It is not necessary for the policy to exist at the time of signing the antenuptial. The contract must merely specify that this must happen. So, given that the proceeds of life insurance are for the benefit of your survivors, isn’t this the best way to deal with life insurance? It also concurs with all my reasons for saying that you should plan and put in place whilst you have nothing.

Unfortunately, to the best of my knowledge, it is not possible to revise or amend an antenuptial contract, and so, if you have a “badly” drafted antenuptial contract, then this benefit will not be available to you.


If you have set up company[s] and/or trust[s] to hold family and personal assets, you can borrow these assets from the company or trust. This creates a debt in your personal estate, which reduces the value of your estate for estate duty purposes because you owe this loan back to the company or trust at some point, no later than death usually.

Loans by a company or trust to you do not have to carry interest, unless the loan is funded out of debt in the company or trust.

This differs from the converse where you loan to the trust or company, which incurs interest by default under Section 7C of the Income Tax Act.


A combination of the abovementioned options creates a solution for freezing the value of your estate but still retaining full use and benefit of the assets transferred to a company or trust.

You can sell your assets to a company or trust and then leaseback the assets from the company or trust, In this way the 2 debts cancel each other out. As you donate annually to reduce the loan that the trust owes you, you can repay the lease to the company or trust and in so doing your net asset value remains zero.

As we stated above, it is better to use companies to house assets than trusts but a combination of the two is best.

This article was written by an industry colleague Stephan de Wet published in The Big Formula LinkedIn blog. (1) Death & Taxes – Minimising the Liability at Death | LinkedIn

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