Your estate consists of all your moveable and immovable property, including life insurance policies and payments from pension funds. Estate duty is payable on estates in excess of R3.5 million and charged at the rate of 20% on the first R30 million and at a rate of 25% above R30 million.

To avoid estate duty surprises, thoughtful business estate planning – including making a will – is essential. This is especially so if, like most small business owners, the bulk of your wealth – and your family’s source of income – is tied up in your business.

The key to successful estate planning is to:

  • Communicate with those who have a stake in the business about a wise path for the future. For example, a successor might be chosen.
  • Document those wishes in an estate plan to ensure a smooth transition and to prevent future disagreements. Without a will or estate plan, your business may be tied up in probate court, during which time the business may lose customers and decrease in value.

A well-structured business estate plan should:

  1. Take stock of what the business is worth and what value you as the owner bring to it.
  2. Be aware what the capital gains tax and the estate duty liabilities are likely to be.
  3. Ensure the estate has adequate liquidity to avoid the forced sale of assets.
  4. Provide your loved ones with financial stability after you are gone.
  5. Ensure your business is taken care of and allow for a smooth transition after you’ve gone.

The following planning strategies can help avoid estate duty surprises:

  • A buy-sell agreement is a formal document that protects all the partners in a business when one of them dies and makes it clear whether there’s a successor to that partnership or it just gets dissolved.
  • Insurance policies: Insurance policies are useful to ensure liquidity and the continuity of the business. They can be structured in various ways to meet the needs of the business and its owners. For example:
    Key man cover can alleviate the pressures associated with the death of the sole proprietor. In the event of the owner’s death, the proceeds provide liquidity to ensure that the business can continue trading until such a time that a new director can be appointed or the business can be sold.
    Life insurance can provide partners with the necessary capital to buy out a deceased partner’s shares. This strategy gives surviving owners tax-free proceeds to purchase the deceased’s portion of the business at fair value.
  • By using accredited professionals the risk of encountering costly estate duty surprises can be minimized and the estate administration process can run smoothly.

Should you require assistance with estate planning, please contact us at info@diga.co.za and let us know your specific needs.