Finance Minister Trevor Manuel this week announced another significant increase in the amount in your estate that is free of estate duty, increased the amount of donations you can make without incurring donations tax and increased the capital gains tax (CGT) exemption on death - all of which means it could be time to review your estate plan.
Drawing up an estate plan can ensure that you pass on the maximum benefits to your beneficiaries at the lowest taxes.
Manuel has raised the estate duty threshold from R2.5 million to R3.5 million, which means that if you die after March 1, your estate will not pay this tax on the first R3.5 million of the net assets (your assets less your liabilities such as your home loan) in your estate.
The rate at which you pay estate duty is currently 20 percent, so if your net estate is worth R3.5 million, the change announced this week will save your estate R200 000.
Smaller estates will not have to pay estate duty and with careful planning, spouses can avoid estate duty on their assets up to R7 million, Alfred Bester, a director at Maitland Trust in Cape Town, says.
When you die, your estate also has to pay CGT, which is a tax on the capital gains you have made on your assets. This tax year, the first R60 000 of any capital gains on your death are exempt from this tax. However, this figure has now been doubled to R120 000, which means after that March 1 your estate can make capital gains of R120 000 before it starts paying any CGT.
A capital gain is calculated by subtracting the acquisition cost of an asset from its value. Individuals pay CGT on gains made after October 2001 at a maximum rate of 10 percent of the gain.
The threshold below which no donations tax is payable has also doubled from R50 000 to R100 000, effective March 1. So, during your life, you could each year donate cash or assets to the value of R100 000 to your beneficiaries without having to pay donations tax on that money.
By making such donations, you can reduce the ultimate value of your estate and legally avoid paying any estate duty on the amounts donated.
"All three taxes had not been changed for years before Manuel started ringing in the changes with estate duty tax in 2004. Suddenly, the thresholds for these three taxes seem to be changing year on year and are keeping pace with current growth levels, which is a welcome change," Boris Pelegrin, a senior manager at Maitland Trust, says.
While the increased thresholds mark a significant change, they by no means signal that estate planning has become a thing of the past, Bester warns. The changes should be seen as a "wonderful opportunity" to reassess your estate plan and bring about significant savings.
Bester says it is a particularly good opportunity if you have had a significant growth in your estate through fixed property and listed investments.
"The emphasis should now be on asset protection. By using the provisions of the estate duty threshold efficiently, you have the opportunity to pass on at least R7 million to your beneficiaries if you are part of a married couple. Using a trust can help you peg the value of your assets now," Bester says.
Younger couples who believe that their combined assets could well exceed R7 million in future are advised to look at their estate plans as soon as possible.