When it comes to estate planning it is sometimes necessary to make use of complicated and expensive techniques in order to avoid estate duty.

In terms of the Act on estate duty, each person in a couple has R3.5 million to his/her disposal to leave to their heirs, duty free. A married couple has R7 million to their disposal.  This can however only be applied effectively through complex estate planning techniques.

During the recent budget speech, government announced that they planned to give spouses the flexibility to apply their combined estate duty without making use of complex and expensive techniques, such as a trust.

A proposal that the second-dying may use any portion of the R3.5 million estate duty exemption not used by the first-dying spouse,  is not practical and will only be applicable if the first-dying spouse leaves all of  his/her assets to the surviving spouse.

The proposed amendment will not allow the first-dying spouse to leave an asset to anybody but his/her spouse and then carry over the balance to the estate of the surviving spouse.  This implies that a person may not leave R1 million to his/her child and then leave the balance of the deduction (R2.5 million) to the estate of the surviving spouse.  In order to qualify for the R7 million deduction, the first-dying must leave all of his/her assets to the surviving spouse.

In the case where there is more than one spouse, for instance when the deceased got divorced and remarried, or was in a polygamous marriage, the abatement will be divided among each surviving spouse in line with  the value of the asset left to each spouse.

For example, if a deceased has two spouses and splits a third of his estate to one spouse and two-thirds to the other spouse, the first spouse will be entitled to increase her R3.5 million deduction with a third of the deceased spouses R3.5 million deduction, while spouse number two can increase her deduction with two-thirds of the deceased spouses R3.5 million deduction.

If the proposed amendment is enacted, the transferability of the deduction will apply to the estate of people who passes away after 1 January 2010.

In short, married couples will be able to make use of the R7 million deduction, if the first-dying leaves all of his/her assets to the surviving spouse.

Note:

With acknowledgement to Laura du Preez.

At the time the article was written, this deduction was only proposed to government.  After publishing, the Estate Duty Act was amended accordingly.