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Trusts and Estate Planning

There are two potential benefits – asset protection and estate planning

I’ve dealt with the first in another article, so what about estate planning?

Two taxes kick in on your death (or that of your spouse dying second if you have bequeathed everything to each other).

Estate Duty at 20% or 25% is taxed on you net assets at the time of death. There’s an allowance of R3,5m each and that is often enough to leave the house untaxed.

You are deemed to have sold your assets to your deceased estate at the moment of death at market value. Capital Gains Tax, at a maximum rate of 18%, is payable on that deemed sale after deducting the R300K allowance.

If the house is owned by a trust, there’s no tax on your death as, when you die, the trust does not die, so your death is not a tax event for the trust.

So, what will be taxed? Estate Duty will apply to the debt that the trust owes you in respect of the original sale of the house and any interest charged on that debt, but there will be no deemed sale and therefore no CGT arising from your death. Also, the 2 x R3,5m allowance will probably take care of the debt and eliminate the Estate Duty with the result that there will be no taxes against your estate.

From an estate planning point of view, then, it is probably beneficial to sell your house to a trust.

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