Estate Tax Deductions To Be Amended

With acknowledgement to: Moneyweb Tax, Sep 2009

Some pleasing amendments to taxation laws, especially estate tax deductions, are on the cards.

An automatic deduction of R3.5 million is currently allowed from the net value of an estate in order to calculate the dutiable amount in terms of the Estate Duty Act. Each spouse receives the deduction in his or her own estate without a scope of transferring any unused amounts.

In order to maximise the automatic deduction, married couples currently create other structures, such as trusts, to ensure that R7 million of assets can be passed to their children free of estate duty.

Proposed change

The amendment envisaged in the draft Taxation Laws Amendment Bill of 2009 seeks to provide for portability of the automatic deduction in the case of simple wills. It is effective for any estate of a person who dies on or after January 1, 2010 and proposes that any unused portion of the abatement by the deceased spouse may be transferred to the surviving spouse. The motivation is to eliminate estate planning for simple estates with assets solely transferred to surviving spouses.

Flexibility on roll-over relief

The Standing Committee on Finance provided National Treasury and SARS with comments on the draft bill and proposed a relaxation on the roll-over relief by requiring all assets to be bequeathed solely to the surviving spouse.

Estates of the predeceased spouse often transfer assets to other parties and the suggestion was made for the rule to allow the estate of the predeceased spouse to freely bequeath assets with the unused portion of the abatement rolling-over to the estate of the surviving spouse.

The proposal was favourably considered and it is expected that the Taxation Laws Amendment Act of 2009 will allow the desired flexibility.

Deduction times two

It follows that the estate of the second deceased spouse will receive a double deduction less the portion previously utilised by the first deceased spouse. As a precondition, the executor of the estate of the second deceased spouse must provide the estate duty return associated with the predeceased spouse. This is required to ensure non-duplication of the same deduction.

Should you wish to receive more information on estate duty and how it effects your personal estate, contact Suzette van Niekerk (BCom LLB, CFP) at Exceed Private Client Services, tel. 021 852 0382 or 082 894 5947.