Smart planning: assets that don't attract estate duty

ONE of the key objectives of estate planning is to reduce estate duty liabilities, ensuring that more of your wealth is passed on to your loved ones.

- SHERRY TAPFUMA

In South Africa, estate duty is 20% on estates up to R30 million and 25% on anything above that.

However, the first R3.5m of your estate is tax-free (this is called the Section 4A abatement), and if you are married, anything left to your spouse is also exempt.

With this in mind, it’s important to know that certain assets, when properly structured, are exempt from estate duty, providing liquidity and financial security to beneficiaries. Here’s how you can use these mechanisms to maximise your legacy.

Retirement funds: a built-in tax advantage

Proceeds from compulsory retirement funds do not form part of a deceased estate and are therefore exempt from estate duty.

These funds fall under the Pension Funds Act, which governs their distribution through Section 37C.

While members can nominate beneficiaries, the final decision rests with the trustees, who must ensure that financial dependants, including spouses, children, and other dependants, are adequately provided for.

Because retirement fund benefits bypass the estate, they are not subject to executor’s fees or estate duty.

However, since the fund trustees decide on the allocation, you may need to consider additional liquidity sources to ensure immediate financial support for your loved ones after your passing.

Living annuities: direct payout to beneficiaries