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Trusts and Estate Planning

Last week, I wrote how a trust saves tax for property investors. The same applies to entrepreneurs.

You’re building your business, and you hope that some day it will provide for your retirement or that you will be able to sell it and invest the money for retirement income.

And instead, you die. Damn!

You may recall that the two taxes on death are –

  • Capital Gains Tax (CGT) at about 18%
  • Estate Duty at 20%

 Capital Gains Tax (CGT)

You are deemed to have sold your assets to your deceased estate at the moment of death at market value. In the example, that means you sold R40m worth of shares whose cost was R100, so you are deemed to have made a capital gain of R40m.


CGT is about 18% (sometimes less, sometimes more) and 18% of R40m is R7,2m

Estate Duty

Then there’s Estate duty on your assets (after deducting the CGT) at 20%. 20% of R32,8m is R6,6m

Total tax* on death**

So the total tax is R13,8m.

* I ignore the allowances which are there to protect your personal assets like your home, your cars etc.

** Actually, if you and your spouse bequeath everything to each other, it’s when the 2nd of you dies.

But where is the money coming from?

Hopefully, the company is cash flush and can afford to pay a dividend to its shareholder, your deceased estate (see diagram). That being the case, it will have to deduct 20% Dividends Withholding Tax. That’s another R3,4m.


So now your beneficiaries are down the tube for a total of R17,2m on an asset the was worth just R40m. That’s 43%.

The solution is a Trust

If the shares were held in a trust, then when you die the trust does not die, so there’s zero tax on death.

It’s a no-brainer and the sooner the better, because there will be some cost when the shares are transferred from you to the trust and the lower the value of the shares, the less those costs will be.



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Looking for even more informative content? Check out the books I have written which have proved to be very popular.

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