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Reducing Estate Duty Costs – 4 Estate Planning Tips

Clever estate planning involves finding ways for reducing estate duty costs and is an essential part of the financial planning process, as this ensures that your heirs benefit fully from their inheritance.

Apart from reducing estate taxes, estate planning can also help you:

  • Choose exactly who your beneficiaries will be and what they will inherit
  • Minimise the risk of family feuds and legal battles over assets
  • Assign a chosen and trusted legal guardian in the event of your early death

In this article, we look at 4 smart estate planning tips which can assist you in reducing estate duty costs.

Reducing estate duty - financial planning Johannesburg

Reducing Estate Duty Costs – Estate Planning Tips

Invest in a Retirement Annuity

This is one of the best financial moves you can make, especially from a tax point of view. Some of the benefits of a retirement annuity include the following:

  • Your contributions to your RA are tax deductible, meaning that you do not pay tax on your yearly contributions.
  • The growth value on your investment is tax-free
  • RAs do not form part of your estate after death, therefore it’s safe from tax penalties by default

Take out Life Insurance – Estate Duty on Life Insurance Policies

By taking out a life insurance policy, you pay a monthly premium in return for a lump-sum payment in the event of your death.

In case you have not made other provisions for reducing estate duty costs, this lump-sum can be used to pay the relevant taxes incurred on your estate.

In this way, your beneficiaries are still able to enjoy the full extent of their individual inheritances.

Purchase your Lifestyle Assets by Forming an Inter Vivos Trust

Inter vivos is a legal term which refers to a transfer or gift made during one’s lifetime. This sort of trust allows you to purchase lifestyle assets such as additional property or land, without facing the exorbitant costs of transferring them to the next generation.

In this way, you can avoid paying capital gains and estate duty taxes, but only if you’ve set up the trust during your lifetime.

If you have not set up an inter vivos trust before purchasing these assets, then taking out a life insurance policy is your best solution for addressing the transfer costs.

Make Donations of R100 000 to Your Trust

By taking assets from your estate and donating it to a trust instead, you can avoid donations tax as long as your donation is no more than R100 000 per person, per annum.

In other words, if you donate R100 000 to your trust every year for 10 years, you effectively reduce the value of your estate by removing one million rand from your estate and in turn, you reduce the amount taxable on your estate.

In addition, you would save 20% (R200 000) in donations tax.

Olemera – Financial Planning Johannesburg

When it comes to reducing estate duty costs, there are several financial moves that can be made during the estate planning process.

Estate planning is a crucial part of the overall financial planning picture and should not be overlooked should you want your beneficiaries to enjoy their inheritances fully.

For more information on smart estate planning and reducing estate duty costs, please contact our financial advisors in Johannesburg.

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