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Smart Ways to Give: During and After Your Lifetime

Posted On: Monday, April 4, 2022

Smart Ways to Give: During and After Your Lifetime

This article deals with a topic that should apply to everybody. Giving money to a loved one or a charitable cause that you care passionately about is one of life’s most rewarding acts. 

Key considerations

Before we go into the pros and cons of the various ways of giving, there are a few questions you should ask yourself. First you need to think about whether you want to give when you are alive, after you have died, or both? Then you should ponder how much you want to give and who/what you want to give it to? And finally, you need to consider how much control you want to have over how the funds are used.

Now let’s take a look at the various options available to you, before and after you die.

  • Use your donations allowance (during your lifetime)

    If you want to give a relatively small amount to a loved one, the annual donations allowance is your friend. As a South African taxpayer you are allowed to donate up to a maximum of R100 000 every year, without having to pay donations tax of 20%. If you’re in a couple, this threshold effectively jumps to R200 000. Two smart ways to take advantage of this benefit are to pay for your grandchildren’s school fees or to set up tax-free savings account (TFSA) in each of your grandchildren’s (or anyone else’s) names and to pay R 36 000 per year (the limit for TFSAs) into each account.
  • Make a donation to a registered public benefit organisation (before or after you die)

    As Winston Churchill said, ‘We make a living by what we get, but we make a life by what we give.’ While giving to a worthy cause is a reward in itself, SARS further incentivises charitable giving. Donations to registered public benefit organisations (PBOs) are tax deductible as long as they don’t exceed 10% of your taxable income (excluding retirement lump sum benefits and severance benefits). Reducing your annual tax bill and supersizing your good karma – what’s not to like?

    You can also bequeath money to a PBO in your Will. Provided the charity is registered with SARS, the donation will be seen as a deduction in the estate duty calculation, thereby reducing how much estate duty your heirs will pay. The 10% limit does not apply to donations in your will.
  • Use your donations allowance (after you die)

    If, for whatever reason, you don’t feel comfortable using your R100 000 donations tax allowance during your lifetime, you’ll be relieved to know that you (and your heirs) can still take advantage of it after you die. All you have to do is write annual promissory notes (and register them with SARS) detailing the amounts you want to give and their intended beneficiaries. These promised amounts will become expenses in the estate duty calculation, thereby reducing estate duty and ensuring there’s more to go around for your heirs.
  • Create a bequest in your Last Will and Testament

    If you want to give a specific item (this could be jewellery, a car, shares, or an amount of money) to a particular heir (or organisation), create a Bequest section in your Will. Here you can write, for example, ‘I bequeath my Fender guitar to my son Brian and my white gold engagement ring to my daughter, Barbara.’ Once the bequests have been taken care of, the remainder of your estate will go to your heirs in equal shares.

    Bear in mind that while there is no Capital Gains Tax payable on the transfer of personal items to your heirs, their value does form part of the estate and estate duty of 20% is payable on amounts over R3.5 million.
  • Create a Testamentary Trust in your Will

    Trusts have pretty much gone out of fashion as they no longer make tax sense. But there are still some excellent reasons to create a Testamentary Trust in your Will. Such a trust – for a special needs child or a spouse with dementia, for example – is taxed at the personal income tax rate, as opposed to the standard Trust rate, which is much higher.

    If you want to set up a Testamentary Trust, you’ll need to nominate the trustees in your Will. It’s generally a good idea to include a family member and an independent person such as a lawyer or accountant. 

The long and the short

We all know that it’s better to give than to receive. But smart giving is best of all! For tailormade advice on your smartest way to give, talk to us today. Our door is always open…

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