Estate planning tips

In a recent seminar, Prof Willie van der Westhuizen discussed errors that could lead to tax costs.

Estate planning tips
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In South Africa, a device called ‘massing’ is often used in wills to bequeath jointly-owned property to an heir. When an estate is massed, the portion belonging to the deceased and the portion belonging to the living spouse are bequeathed through the will. In order for massing to be valid in terms of the Administration of Estates Act, the surviving spouse has to receive some sort of compensation in the form of limited real rights, such as a usufruct.

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At a recent estate planning seminar in Sandton, Prof Willie van der Westhuizen of Millers Attorney cautioned that the Transfer Duty Act exempts from transfer duty any fixed property bequeathed by a will to an heir. In a massing situation, however, the heir has to pay transfer duty on the portion of fixed property he or she receives from the living spouse.

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In addition to this (unexpected) duty, donations tax might be levied on the value of the property the living spouse has massed and which passes to the heir, or at least, on the difference in value between any quid pro quo or value received by the living spouse and the value of fixed property massed by him or her.

Trusts and transfers
Van der Westhuizen went on to point out that the testamentary trust has potential tax benefits if the trust has at least one beneficiary who is a minor. Planners can make good use of this where income-producing assets are to be bequeathed.
Impediments still exist to the transfer of fixed property to multiple heirs in the case of agricultural property in the form of The Subdivision of Agricultural Land Act of 1970.

If distribution to multiple heirs is desired, it may be more suitable to bequeath the property to a company in which the heirs are all shareholders, or where a trust is shareholder, with the heirs as trust beneficiaries. Van der Westhuizen warned against the dangers of poorly drafted testamentary trusts. Such trusts should contain all possible clauses to confer upon the trustees the necessary powers to administer the trust properly.

Choosing trustees
Should a financial intermediary be a trustee? Such a person might well be a good choice, given the many excellent professionals in South Africa, but when it comes to the issuing of investment advice within the trust, it is likely that the intermediary could have legitimate financial interests that conflict with the duty a trustee’s duty to act impartially. It might be wise, therefore, to allow him or her to consult with the trust on a professional basis without being appointed as a trustee.

Gender and race
There are limitations to freedom of testation. When making bequests of bursaries and the like, it seems that it is not permissible to exclude a particular gender or race group. In addition, the practice of awarding the lion’s share of a farm property to a male offspring might not be unassailable, should a female heiress decide to try to change the status quo.
As from 1 January this year, the bequest of a loan account does not give rise to capital gains tax. This will make life a bit easier for many professional advisors.

Peter O’Halloran is head of tax at BDO, Gaborone. Contact him on 00267 390 2779 or at [email protected]. Please state ‘Tax’ in the subject line of your email.