Estate duty abatement It is not uncommon for a testator to wish to leave a large portion or entire estate to their surviving spouse,
Although the estate of the first dying in such circumstances will not attract estate duty, the estate of the second dying could be subject to substantial estate duty.
The Estate Duty Act abatement (currently R3,5 million) can be used to overcome this, by leaving this amount to beneficiaries other than the surviving spouse. http://www.wylie.co.za/wp-content/uploads/ESTATE-DUTY-ACT-NO.-45-OF-1955.pdf
Financial constraints may dictate that the testator does not nominate other beneficiaries directly.
A solution is often to place an amount equal to the abatement in a trust for the discretionary benefit of the surviving spouse and, usually, any of the deceased’s children. In this way the survivor has access to such funds for maintenance while the estate of the first dying enjoys the abatement. The residue of the estate is then usually transferred to the surviving spouse.
The viability and practical application of such a trust must be discussed thoroughly with the testator and estate planner to ensure envisaged results are achieved.
In particular, the need for such a structure must be reviewed in light of recent amendments to the Estate Duty Act, which introduced the so-called ‘portable spousal deduction’.
This deduction essentially allows any unused abatement to be rolled over to the surviving spouse so that on the latter’s death, the total abatement (currently R7 million) is available. While this would appear to reduce the need for a testamentary trust, the further benefits, such as the pegging of the assets in light of their future growth, as well as other considerations, may render the use of a testamentary trust imperative.