What is Estate Planning?
An Estate comprises of assets and liabilities that an individual accumulates during his/her lifetime and wish to leave to their heirs.
Estate planning is a process of creating and managing a plan that is designed to increase and preserve assets during client’s lifetime, ensure effective and beneficial distribution thereof to succeeding generation. It also helps to ensure that nothing of importance (such as your insurance policies or other assets) is omitted or ‘gets lost’ in the administration process. Having to play detective is an incredibly stressful undertaking for a grieving loved one. Proper estate planning removes any instances of painful guesswork.
Who needs it?
Many think that they should be old or wealthy to start the process but that is far from the truth. Any person from age 18, no matter how small their estate is, it is advisable that they start the process
One may be single, married, widowed, divorced, or separated with or without minor children. As well may be having children from previous relationship. It protects minors from greedy relatives that want to steal their inheritance thereby offering dependents and heirs adequate financial security at every stage of their lives.
Any person with an assets with strong growth potential. You can provide for loved ones in the specific ways that are ideal to you – no matter how complex your family structure may be. If you die without a will, you leave it up to the state to decide how your assets will be divided between your family, which may not be entirely according to your own wishes.
Taxes Applicable?
When someone passes away it is important to remember that there are four types of taxes that come into play when dealing with the Estate:
Income Tax for the deceased individual (Personal Taxes): The Executor of the Estate has a duty to make sure that all tax returns of the deceased are up to date with the South African Revenue Services (SARS).
The Estate will be charged Income Tax on any and all income, whether it is for dividends received, rental income or interest accrued during the Estate Administration process.
Capital Gains Tax: When someone passes away, the deceased individual is deemed to have disposed of their assets. This is because there has been a “change of ownership” as the assets will now be inherited by the heir/s in the Estate.
Estate Duty Tax: Each individual is granted a rebate of R3.5 million and Estate Duty is therefore only taxed on the value of the Estate over R3.5 million. Estate Duty is levied at 20% on the first R30 million and then 25% on the value above R30 million.
Donations Tax (if applicable to the specific Estate)
Donations Tax calculation is done separately on each occasion that a donation is made and is not levied on an individual’s income but on the capital transferred which is usually in the form of assets.
Donations taking into account certain exemptions are subject to donations tax levied at a rate of 20% on the value of the donation and applicable to donations made on or after 1 October 2001.