DANIEL BAINES: Giving to charity can save estate duty
If you wish to give to charity on your death by including a specific bequest in your will, this may have the added benefit of reducing your estate duty.
All South African taxpayers are liable for the payment of estate duty upon their death if the value of assets held in their name exceeds R3.5-million (after applicable deductions have been considered).
Estate duty is a form of tax that is payable at the rate of 20% on the value of assets in excess of R3.5-million on a person's death. Assets in this case include deemed assets such as life insurance policies.
As an example, if you hold assets to the value of R4-million upon your death, you will be liable for estate duty as follows:
R4-million minus R3.5-million (the R3.5-million is known as the abatement)
R500000 x 20%
= R100000 estate duty
In such an instance, the estate duty payable by your estate will be R100000.
Having to pay estate duty may cause cash-flow problems for your estate because other assets left to your heirs may need to be sold in order to pay the estate duty.
There are, however, ways of reducing the estate duty that is payable on your death. The most benevolent method is by leaving money to a charity.
In order for the donation to count as a deduction in your estate, it must be left to a public-benefit organisation which is exempt from tax in terms of the Income Tax Act. It is recommended that you check this with your charity of choice before placing them in your will. Alternatively, the money may be left to the state.
The benefit of doing this is as follows:
R4-million value of estate
Less donation to charity: R200000
R3.8-million minus R3.5-million (the abatement)
R300000 x 20%
= R60000 estate duty
By leaving R200000 to a charity in your will, you have reduced the estate duty by R40000 and you will have helped a charity.
If you leave your assets to a surviving spouse, this can also reduce the estate duty, although the liability to pay estate duty may just pass to your spouse on their death.
However, married couples have a combined abatement of R7-million if the one predeceases the other. In other words, if one spouse dies and leaves R3.5-million worth of assets to the surviving spouse, the surviving spouse should have an abatement of R7-million on their subsequent death (if the first to die did not use any of their abatement). So, if the surviving spouse later dies with assets worth R5-million, their estate should not be subject to estate duty.
• Baines is the author of 'How to get a SARS Refund'