Tax consequences of estate planning.
Pillay, Puvanasen Dayalan.
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The primary objective of estate planning is to meet the short-term and long-term financial needs of the planner and to ensure a smooth transition of the planner's estate on passing on, in keeping with the needs and wishes of the individual. The implementation of an estate plan does hold many tax advantages and care should be taken to ensure that in the process of tax structuring, we do not lose sight of other important objectives and wishes of the client, as well not contravene any legislation which may render the tax benefits null and void. Estate Duty is levied on an estate at a flat rate of 20 % on the net value of an estate and the planner needs to ensure that his financial affairs are structured in a manner to take maximum advantage of the deductions and abatements available. This will ensure that the duty payable is kept to a minimum. In the process of estate planning the planner must always be aware of the other taxes that could reduce or negate the intended estate duty savings for example donations tax, capital gains tax and income tax. There are many estate planning techniques that can be implemented to meet the objective of a smooth transition of the estate as well as being tax efficient. The nature of everyone's affairs and potential estates vary considerably. As a result there are fairly simple techniques for planners with uncomplicated financial affairs. These would normally be appropriate to salaried employees and smaller business owner's who do not amass a large estate over their lifetime. For high net worth individuals the techniques can be fairly complex, integrating the setting up of companies and/or trusts in order to achieve the planner's objectives and tax efficiency. Due to the specialized and complex nature of certain entities specific estate planning techniques have been designed. With the relaxation of exchange control regulations many South African residents now have offshore assets which form part of their dutiable estate. Careful consideration has to be given to this area since it can be complex with different rules applying to different offshore centres. This is dependant on whether South Africa has a double taxation treaty with that country or not. Income tax and estate planning are inter-related and structures designed to reduce estate duty may have differing consequences from an income tax point of view. This occurs in particular when the use of trusts and donations are envisaged and care should be taken that cognizance of all the anti-avoidance provisions of the Income Tax Act are carefully considered. We can be certain of two things in life "death and taxes". The timing of one's death is an unknown mystery but tax is defined in terms of legislation. With careful planning one can take maximum advantage of the available "tax breaks" with the flexibility to react to changes in legislation, so that the plan can always meet the wishes of the planner irrespective when he/she may pass on (Personal Finance:2004)