Practical insights for protecting your family, preserving value and making a difficult time easier.
Every Wills Week, the same question tends to surface: Do you have a valid will? It is an important question, but perhaps not the most important one.
A will records what you would like to happen to your assets when you die. A good estate plan asks a much broader set of questions: Will there be enough cash to settle the estate? What tax will be triggered? Could valuable assets have to be sold to pay estate duty, capital gains tax or other costs? Are your business interests properly catered for? And will the people you intended to protect actually inherit in the way you envisaged?
In other words, signing a will is not the end of estate planning. It is the starting point.
This Wills Week, rather than simply dusting off the document in the bottom drawer, it may be worth taking a closer look at the bigger picture – your assets, liabilities, family circumstances, business interests, trusts, tax exposure and, importantly, the liquidity your estate will need when the time comes.
What is a will?
A will allows you to decide who should inherit, who should administer your estate and how beneficiaries’ interests should be protected. Without a valid will, your estate is distributed under the Intestate Succession Act. The result may be legally correct, but very different from what you intended.
A properly drafted will can:
- Nominate an executor with the appropriate experience and who will act in your best interests.
- Identify specific bequests without leaving the family to assume your intentions.
- If there are minor children or family with disabilities the will can also create a testamentary trust. A testamentary trust can also be used if you did not wish an heir to receive a large amount of capital until they reach a certain age.
- Nominate a guardian for minor children.
- Coordinate the transfer of business interests, loan accounts, farms, investment assets and immovable property.
- Reduce family conflict and the risk that assets must be sold simply to provide cash for tax, debt and administration costs.
South African law has procedural requirements on how formal signing and witnessing of a Will must be conducted. In broad terms, the testator must sign the will in the presence of two witnesses who are present together, and the witnesses must sign in the required manner. A beneficiary, or the spouse of a beneficiary, should not act as a witness. The signed original should be stored safely and its location made known to the nominated executor or a trusted family member.
A will should be reviewed after marriage, divorce, the birth of a child, a death in the family, a major acquisition or sale, retirement, emigration, a change in tax residence or a material change in business ownership.
Where can a trust help?
A trust is a legal arrangement under which trustees are given authority to look after and administer assets for beneficiaries. They are bound by the trust deed or will. It can be highly effective in certain instances as it provides continuity of one’s estate to beneficiaries without it, if structured correctly, going through your estate. There is also no deemed disposal of your assets on death as they are housed within the trust structure deferring the capital gains tax to when there is an actual sale event. It also provides protection of those assets as to claims against you as a person so if you are standing suretyship for business debt or have other personal claims risks then a trust can protect assets.
There are two main forms of trusts:
Testamentary trust
A testamentary trust is created by the will and comes into existence after death. It is often useful where children are minors, where a beneficiary has special needs, or where assets should be managed and not immediately released to a beneficiary (due to age or financial maturity).
Because the trust is created only after death, the assets first pass through the deceased estate. The trust therefore does not, by itself, remove those assets from estate duty or prevent the deemed CGT disposal at death. Its primary value is the controlled administration of the inheritance after death.
Inter-vivos trust
An inter vivos trust is created during a person’s lifetime. Where it is properly formed, funded and administered, future growth on assets owned by the trust may occur outside the founder’s personal estate. It may also provide continuity and a degree of asset separation.
However, moving assets into a trust can trigger donations tax, CGT, transfer duty and funding consequences. If assets are sold to the trust on loan account, the outstanding loan remains an asset in the lender’s estate. Trusts also carry their own tax, beneficial-ownership, accounting and governance obligations. Ordinary trusts are taxed at high rates, and trustees must exercise genuine, independent judgment.
How is Estate Duty calculated?
For a person who was ordinarily resident in South Africa at the date of death, South African estate duty is generally levied on the person’s worldwide estate. This includes South African and foreign immovable property, investments, cash, shares and other movable or incorporeal assets.
For a person who was not ordinarily resident in South Africa at the date of death, South African estate duty is generally limited to assets situated in South Africa. These may include South African immovable property, movable assets physically situated in South Africa, South African bank accounts and investments, shares whose transfer must be registered in South Africa, and certain other rights enforceable in South Africa. Foreign-situs assets are generally excluded.
How estate duty is calculated
| Estate-duty calculation | Illustrative amount |
| Property and deemed property | R12,000,000 |
| Less: debts, administration costs and other deductions | (R1,000,000) |
| Less: qualifying property accruing to surviving spouse | (R3,000,000) |
| Net value | R8,000,000 |
| Less: section 4A abatement | (R3,500,000) |
| Dutiable amount | R4,500,000 |
| Estate duty at 20% | R900,000 |
The current abatement is R3.5 million. Estate duty is charged at 20% on the first R30 million of dutiable value and 25% above R30 million. The unused portion of a predeceased spouse’s R3.5 million abatement may generally be transferred to the surviving spouse’s estate, potentially providing a combined abatement of up to R7 million, subject to the statutory requirements and supporting records.
Relief for assets left to a surviving spouse
Property that accrues to a surviving spouse generally qualifies for a deduction under section 4(q) of the Estate Duty Act. This can reduce or eliminate estate duty on the first death. The relief is often described as a roll-over because the tax exposure may be deferred until the surviving spouse later dies.
The deduction is not unlimited planning magic. The wording of the will must ensure that the relevant property genuinely accrues to the spouse. Leaving everything to a spouse can also concentrate the full estate-duty and liquidity burden in the survivor’s estate, so the first and second estates should be modelled together.
Capital gains tax at death
Death is generally treated as a disposal of assets at market value. The capital gain is calculated by comparing market value at death with the relevant base cost. The taxable capital gain forms part of the deceased person’s final income-tax calculation; it is not a separate tax charged at a flat rate.
For the 2027 tax year, the maximum effective CGT rate for an individual remains 18% (40% inclusion at a maximum 45% marginal tax rate). The annual CGT exclusion in the year of death is R440,000. The primary-residence exclusion is R3 million, while most personal-use assets, retirement benefits and qualifying payments under original long-term insurance policies are excluded from CGT.
Assets passing to a South African resident surviving spouse generally receive roll-over treatment: the deceased is treated as disposing of the asset at base cost and the spouse effectively steps into the deceased’s tax position. This defers the gain; it does not erase it. If the spouse is non-resident, or the asset falls outside the roll-over rules, the outcome may differ.
What happens when fixed property is inherited?
An heir does not ordinarily pay transfer duty through an estate so if a fixed property is left to an heir in terms of a Will there is generally no transfer duty payable, but a transfer-duty exemption must still be claimed. A conveyancer must also complete the required process and there would be conveyancers’ fees payable.
Transfer duty should not be confused with the other costs and taxes associated with property. The estate may still incur CGT at death, estate duty, municipal clearance charges, bond cancellation costs, conveyancing fees and executor’s remuneration so there remain a number of costs.
What assets fall outside the Estate-Duty or CGT net?
The treatment of an asset depends on which tax is being considered. An item may be outside the estate for one purpose but included for another.
| Item | General treatment |
| Retirement funds and retirement annuities | Qualifying retirement-fund benefits are generally excluded from estate duty and CGT. They are normally allocated under the fund rules and section 37C of the Pension Funds Act rather than simply following the will. A death-benefit lump sum may still be taxed under the retirement-fund lump-sum tables. |
| Personal-use assets | Most personal-use assets are excluded from CGT, but their value can still form part of the estate-duty calculation. |
| Primary residence | The R3 million exclusion reduces a qualifying capital gain for CGT. The home is not automatically excluded from estate duty. |
| Life policies | Qualifying policy proceeds may be excluded from CGT, but certain proceeds are deemed property for estate duty even when paid directly to a beneficiary. |
| Assets already owned by a trust | Genuine trust assets are not owned by the deceased. However, a loan account owed to the deceased by the trust is an estate asset, and anti-avoidance or alter-ego concerns may change the analysis. |
| Property accruing to a spouse or qualifying PBO | These amounts may qualify for estate-duty deductions, but they remain relevant to the gross estate and must meet the statutory requirements. |
Liquidity: a very important part of estate planning
An estate can be wealthy on paper yet still have insufficient cash to meet the liabilities arising on death. Before assets can be distributed to the heirs, the executor may need to settle estate duty, capital gains tax arising from the deemed disposal of assets at death, outstanding debts, administration expenses, executor’s remuneration, Master’s fees and the costs associated with transferring property or other assets.
This can create a serious liquidity problem where most of the estate’s value is tied up in illiquid assets, such as the family home, a farm, an investment property or shares in a private company. Although these assets may be valuable, they cannot necessarily be converted into cash quickly or without a significant loss in value. If the estate does not have sufficient liquidity, the executor may be forced to borrow money, sell an asset under unfavourable conditions or require the heirs to contribute cash before they can receive the assets bequeathed to them.
A sound estate plan should therefore include a detailed liquidity calculation. It is not sufficient merely to identify the assets and decide who should inherit them. The likely cash liabilities arising on death must also be estimated and compared with the cash, readily realisable investments and life assurance proceeds that will be available to the estate.
Considerable attention is often given to visible liabilities such as mortgage bonds, overdraft facilities and other loans. However, estate duty and capital gains tax can be substantially greater than these debts, particularly where property, investments or private-company shares have increased significantly in value over time. The calculation should also take account of whether life assurance proceeds will be paid into the estate or directly to nominated beneficiaries, as proceeds paid directly to beneficiaries may not provide the executor with the cash needed to settle the estate’s liabilities – even though they may still be taken into account for estate-duty purposes.
The person drafting the will should be fully aware of these anticipated costs and of the estate’s available liquidity. A will that leaves a particular property, farm or business to an heir may not achieve its intended purpose if the executor must sell that same asset to pay the estate’s liabilities. Effective estate planning therefore requires the will, the ownership structure, the tax consequences and the liquidity plan to be considered together.
Your Wills Week Checklist
- Confirm that you have an original, validly signed will and that the executor knows where it is held.
- Check that the will still reflects your family, dependents, assets, debts and business interests.
- Review beneficiary nominations on retirement funds, policies and investments; they do not all follow the will in the same way.
- Estimate estate duty, CGT, administration costs and the cash available to pay them.
- Review offshore assets, foreign wills and tax residence, especially where more than one country may tax the estate.
- Make sure your family can locate important records, passwords, title deeds, company documents and professional advisers.
How Galbraith Rushby can help
Galbraith Rushby can assist with the tax and financial side of estate planning, including estate-duty and CGT modelling, estate liquidity, trust and company structures, business succession, retirement-fund considerations and the administration of deceased estates. Our in-house legal team can also assist with the drafting and review of wills and related estate-planning documents.
