Protection even after death

01 June 2008 FAnews

In this second article in our new series on trusts, we look at how a trust will protect your loved ones when you die and prevent your estate from being decimated by estate duty, executor's fees and capital gains tax.

On the death of any individual, his or her estate is frozen in order for the executor to wind up the estate, i.e. collect assets and settle debts and taxes. Only once this process is completed, will the deceased's bequests be distributed to the beneficiaries and heirs.

The process can take years. In the meantime, your spouse and dependants have no access to any monies or assets. This is why having a trust is crucial to protect your loved ones. The trust holds the assets and cash, and it is immediately accessible to your spouse and dependants.
You can also avoid executor's fees, capital gains tax and estate duty by holding your assets in a trust.

Avoiding executor's fees

An executor is entitled to a maximum fee of 3.5% of the gross value (excluding liabilities!) of the estate plus VAT in certain circumstances. If your estate is substantial, including properties and other assets, your estate will attract some hefty executor's fees.

Avoiding Capital Gains Tax

Capital gains tax comes into effect when an asset, which has appreciated in value, is sold. However, there are other instances where the tax will triggered, and one such event is your death. You are deemed to have sold all your assets to your deceased estate! Therefore all the assets that you own at the time of your death, including properties, will attract CGT at a rate of 10% (ignoring roll overs and exemptions for simplicity sake). This is further exacerbated by the fact that the tax is due even though no money has changed hands or been received. This will inevitably leave your estate in an illiquid position.

Avoiding estate duty

Any person who owns property in this country, whether they are a resident or not, will be subject to estate duty. If you are a South African resident, your world wide assets will also be subject to estate duty. The definition of property and assets is wide and covers numerous classes of property and assets and all forms of rights to property, policies, annuities, investments and business. The tax is levied at a rate of 20% of the value of any assets you have in excess of R3.5 million, after certain deductions have been made.

An average estate will pay approximately 30% of any net values of such estate. The real sting in the tail, however, is that this is a tax on after-tax money and assets, and in certain cases, fictional assets such as goodwill, which might be worthless after your death.

Protection of minors

This may be the most compelling reason for establishing a trust. South African law does not allow for minors to directly inherit. Unless you establish a testamentary trust in your will to hold the assets you want to leave to minors, all these assets will be liquidated into cash to be held by the Guardians Fund. The fund is controlled by the government and pays interest of +-2%. If the monies are not claimed, they are forfeited to the state. In the interim, the minors will have limited or no access to the fund for their living needs, education and health.

Quick Polls


How confident are you that insurers treat policyholders fairly, according to the Treating Customers Fairly (TCF) principles?


Very confident, insurers prioritise fair treatment
Somewhat confident, but improvements are needed
Not confident, there are significant issues with fair treatment
fanews magazine
FAnews June 2024 Get the latest issue of FAnews

This month's headlines

Understanding prescription in claims for professional negligence
Climate change… the single biggest risk facing insurers
Insuring the unpredictable: 2024 global election risks
Financial advice crucial as clients’ Life policy premiums rise sharply
Guiding clients through the Two-Pot Retirement System
There is diversification, and true diversification – choose wisely
Decoding the shift in investment patterns
Subscribe now