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Article: estate planning in general

In this article, Trinette Burger, a FISA member and BoE fiduciary specialist , gives an overview of estate planning.


  1. 1.                 What is estate planning?

Estate planning is the process through which a person accumulates assets and manages his financial affairs in order to increase, preserve and protect those assets for the maximum benefit during his lifetime and to provide for the disposition and continued utilisation thereof after his death. It is therefore a continuous process which is aimed at ensuring that a person enjoys and continue to enjoy the maximum benefit from his estate during his lifetime and that his nominated beneficiaries can derive the maximum benefit after his death.

  1. 2.                 Objectives of estate planning

 The main idea behind estate planning is to structure your affairs in such a manner that you achieve some or all of the following objectives:

  • Minimisation of tax
  • Provision for liquidity
  • Provision of financial security
  • Harmony in the family
  • Provision for retirement
  • Protection of assets
  • Protection of business interests
  • Facilitation of the administration of the estate
  • Succession planning

3.                 Estate planning tools


There are many ways of achieving the abovementioned objectives. Two of the most common tools are Wills and Trusts


You can have a Will on its own representing an estate plan, but you cannot have an estate plan without a Will.

If you do not have a valid Will, your estate will be administered in terms of the provisions of the Intestate Succession Act (81 of 1987). This does not constitute proper planning and will have the following consequences:

–          You did not choose the heirs and beneficiaries and cannot prescribe the extent of entitlement or provide for any conditions upon which persons may benefit;

–          The principle of collatio will automatically apply. This means that any benefit received by a descendant during the lifetime of the deceased can be taken into account when calculating the value of the residue.

–          You did not nominate an executor. The difficult and time-consuming task of nominating an executor will be left to your family. This may give rise to unnecessary delays in the administrative process.

–          The Master of the High Court may request the executor to provide security as financial guarantee that the estate will be administered properly. This will constitute an unnecessary cost for the estate and a further delay in having to raise such security.

–          A minor beneficiary’s bequest will be held in the Guardian’s Fund until he/she reaches the age of majority


Trusts are very useful estate- and financial planning tools that combine fiscal benefits with the non-tax benefits of custodianship and asset protection. The main reasons for setting up a trust can be summarized as follows:


a)      Estate “pegging” or freezing of asset values

By transferring assets from your estate to an inter vivos trust, you peg the growth of those assets in your personal estate at the value at which the assets are transferred to the trust. Any future growth will take place in the trust and not in your own name.

b)                  Minor Children

Trusts can be used to hold or protect assets for minor children until they are old enough to handle their own financial affairs.

A testamentary trust that has been created solely for relatives of the testator, where the youngest beneficiary is, on the last day of a tax year, under the age of 21 qualifies as a special trust and will pay income tax at the same rates as a natural person.

c)                  Disabled beneficiary

If you have a family member (or know any other person) who suffers from a mental illness or a serious physical disability, who cannot earn sufficient income for self-maintenance, or cannot manage his/her own affairs, you can set up a special trust for the benefit of that person. This trust will pay both income tax and CGT at the same rates as a natural person.

d)                  Continuity/perpetual succession

A trust can continue for future generations and this creates continuity to the estate planning of the family. Because a trust is a separate vehicle it will not be affected by the death of the founder or a trustee. The beneficiaries will continue to receive income and don’t have to wait until the estate of a deceased is wound up. 

e)      Protection of assets

Trust assets that have not vested in a beneficiary do not form part of such beneficiary’s personal estate. Those assets will therefore be protected against creditors in the event of insolvency as well as against the dissipation of assets through inept administration or the spendthrift ways of beneficiaries.

f)       Tax planning:

  • Income tax


The general method of taxation of a trust, contained in section 25B of the Income Tax Act, is that any trust income earned, which is not paid over to a trust beneficiary in the year it is earned, is taxed in the hands of the trust (without the benefit of any rebates). If trust income is distributed to a trust beneficiary (in the year it was received by the trust), it retains its original identity and is taxed in the beneficiary’s hands and not in the hands of the trust. Income previously taxed in the trust, and which is subsequently paid to a trust beneficiary in another year, is not again subject to taxation.

Income from a trust can be split between spouses and further beneficiaries, thereby reducing tax liability. However, it is important to note that, under certain circumstances, section 7 deems the trust income to be the income of the donor. It should especially be noted that section 7(3) provides that income that accrues to a minor beneficiary, shall be deemed to have been the income of the parent of such minor child if the income so accrued is received by reason of a donation, settlement or other disposition made by the parent of that child. Paragraph 73 of the Eight Schedule provides that the total amount of income that is deemed to be the income of the minor child’s parent, shall not exceed the amount of the benefit derived from the donation, settlement or other disposition which was made by the parent.

Income tax savings should, however, not be the main motivating purpose for establishing a trust. Income tax savings should merely be incidental to the decision to use a trust.

  • Estate duty


Estate Duty can be saved by divesting oneself of ownership of growth assets in favour of a trust. In doing so, the growth in the assets accrues to the trust and only the value of the assets at date of transfer (usually in the form of a loan account) is retained in your own estate. No Estate Duty will be payable on the assets in the trust. However, if the Commissioner is convinced that the deceased had too much control in the trust whereby he/she could have benefited his/her own estate, SARS will deem the assets in the trust to have been the assets of the deceased. The Trust Deed should therefore be structured in such a way as to prevent this from happening.  

As of 1 January 2010, the balance of the primary rebate (currently R3,5 million) can be carried forward to the estate of the surviving spouse. This means that, at the death of the surviving spouse, the couple would have utilized a total deduction of R7 million.

However, in certain circumstances and taking into account the time value of money, it would still be advisable for the first dying spouse to bequeath R3,5 million to an inter vivos trust, thereby pegging the growth thereof in the trust instead of having it grow in the survivor’s estate. The couple will therefore still benefit from a total rebate of R7 million. The only difference is that the growth of the R3,5 million which was bequeathed to the trust at the first dying’s death has grown in the trust and not in the estate of the survivor. 

  • Donations tax


When you transfer assets to a trust, there must either be a sale agreement or a loan agreement. In the absence of an agreement, the transaction might be regarded as a donation. A loan agreement will usually be entered into as a trust seldom has any funds to acquire assets. The loan agreement does not necessarily have to include an interest rate but must include a repayment date. If an asset is donated to the trust, any amount over R100,000-00 will be subject to donations tax at 20%. The asset will, however, then be completely out of the donor’s estate

Where assets are sold to a trust on an interest-free loan basis, such transaction does not constitute a donation for purposes of donations tax. Reduction of this loan can take place by means of annual donations of R100,000 by both the seller and his/her spouse to the trust. The reduction or discharge of a loan (without full consideration) is deemed to be a disposal for capital gains tax purposes and it is therefore important to have a paper trail showing that the cash indeed changed hands. 

  • Transfer duty


When a property is distributed from a trust to a beneficiary who is a relative of the founder, no transfer duty will be payable (section 9(4)(b) of the Transfer Duty Act). 

  • Capital gains tax


            On transferring assets to a trust, you will incur a CGT liability. All the necessary calculations should be done in order to determine whether it will be practical to transfer assets to a trust. If it is clear that a transfer will not be worthwhile, you could still make use of the other benefits of a trust and consider acquiring any future growth assets directly in the trust.

As death is a disposal for CGT purposes, your estate will be liable for CGT at your death. Assets held by a trust will, however, not be subject to CGT at your death. 

CGT will, however, be payable by the trust on any gains made as a result of the disposal of any of its assets. As a capital gain is included in a trust’s taxable income at a rate of 50%, the effective CGT-rate of a trust is 20%. Any gains can, however, be distributed to the beneficiaries, who will be taxed in their own hands at their effective rate (maximum 10%) and subject to the relevant rebates for individuals. The trust deed should, however, expressly make provision for such distributions to be made. 

The primary residence abatement applicable to natural persons does not apply where the property is owned by a trust. If the property is already in the name of a trust, paragraph 51 of the Eight Schedule of the Income Tax Act (as amended) allows for a concession whereby no CGT will be payable if the property is transferred to a natural person between 11 February 2009 and 1 January 2012.