Estate Duty: Trevor Manuel encourages savers and investors to accumulate wealth

Under current legislation the primary abatement for estate duty purposes is R3.5 million. This means that the first R3.5 million of the dutiable value of an estate is free of estate duty. Duty is only levied o­n the balance above that figure.

Trevor Manuel announced during his 13th budget speech in parliament that the dutiable value of estates of surviving spouses would be further reduced by whatever portion of the primary abatement was unused in a first-dying spouse’s estate.

Savings and investment company Old Mutual welcomes the tax concession.

“A transferable abatement would prevent the need for the estate planning technique of combining the abatement with the deduction of assets accruing to the surviving spouse under current legislation,” says Peter Stephan, Legal Product Manager at Old Mutual.

Currently, the estate planning technique widely used entails a specific bequeath to a beneficiary other than the surviving spouse - usually to a family or testamentary trust - to the value of the abatement. The remaining assets are bequeathed to the surviving spouse, which under current legislation are duty-free.

This technique requires that wills are carefully worded to implement the technique, and it requires careful analysis of the spouses’ estates.

Problems that have occurred with this technique include estates consisting of assets that are not easily capable of being divided into specific bequeaths to the value of the abatement; failure to review the will to update the amount of the abatement from time to time; disputes as to which assets should be part of the bequeath and which assets should be part of the residue, and unintended capital gains tax consequences of a specific bequeath when no roll-over applies.

Now that the unused portion of R3.5 million is transferable to the surviving spouse (even if the surviving spouse inherits the whole estate of the first-dying spouse, which will be estate duty and capital gains tax-free) the surviving spouse can enjoy the total abatement afforded to both spouses (presently R7 million in total).

The overall tax savings that the average taxpayer will enjoy can be used to pay off debt and to put aside extra savings as a buffer for the tougher times that the minister signalled lie ahead.

Stephan concludes: “Trevor Manuel has created a positive savings environment. This tax abatement can go a long way, and consumers should seek the assistance of a qualified financial adviser to assist them in investing the extra capital wisely in the context of a holistic financial plan, o­nce expensive debt with high interest rates has been settled.

The need for South Africans to save and invest for their future during the global credit crunch has never been stronger, and this budget provides significant extra incentives for them to do so.”