106 – Be careful of transferring assets before you die

by | Oct 15, 2024 | Estate Planning, Financial Planning

Question

I am moving down to Cape Town to retire and wish to buy a property.  The property will not be financed though a bond as I will be using my savings to buy it.  My sister recommended that I buy the property in the names of my two children as it will save on estate duty.

Is this recommended?

Answer

This is an absolute minefield and you need to consider a number of factors.  These would include:

  • Donations tax
  • Estate Duty
  • Capital Gains Tax

I would recommend that you have your personal circumstances looked at by an experienced financial planner before you make any decision.

 

Donations tax

If you buy the new property in the names of your children, this will be considered to be a donation.  A donations tax of 20% will be levied on what you paid for the property less your annual R100 000 donation allowance. A straight donation like that which your sister advised is seldom recommended.

 

One way around this is to loan your children the money to buy the house. It is important that you charge an interest rate so that it is not classed as a soft loan. The usual practice is to charge the repo rate plus 1% or 2%.  Every year, you are allowed to donate R100 000.  This can be used to offset the loan repayments.  You can therefore get the same net effect over a period of time without having to pay donations tax.

 

Estate Duty

Estate duty is not as big a deal as most people think it is. You and your spouse get an abatement of R7 million between the two of you.  So only once we have passed that threshold will estate duty become an issue in your lives.

 

 

Capital Gains Tax

The tax at death that takes most people by surprise is Capital Gains Tax. Death is deemed to be a capital gain event so all your assets will have been deemed to have been sold at the date of your death and CGT will have to be paid.

 

CGT will have to be paid on the house. However, if the house is in your name at the time of death, the first R2 million will not attract CGT.  You will only pay CGT on the balance of the gain.

 

In conclusion, I would recommend that you get someone to do the calculations for you  which compare the owning the property in your own name or donating it to the children.  You may find that you do a lot of fancy financial footwork for little or no gain.

 

You also need to be careful when you go down this particular path as your home will be classed as an asset in your children’s estate. Should do they predecease you or get divorced, it can cause a lot of unnecessary complications in your life and you could find yourself being financially compromised at a stage in your life when you are financially vulnerable.

KENNY MEIRING IS AN INDEPENDENT FINANCIAL ADVISER

Contact him via phone, email or via contact phone on the financialwellnesscoach.co.za website

Read more of our articles on the Daily Maverick website or newspaper weekly!

Dec 02 2024

189 – Retirement and risk cover options for employees

Question I have a business with 20 employees.  I would like to put in some kind of retirement fund for them.  Is this financially feasible for our sized company? If so,...
Dec 02 2024

188 – Finding the right annuity for you takes thought

Question I recently heard someone talking about a with profit annuity.  I only know about living annuities and guaranteed life annuities.  How does a with-profit...
Dec 02 2024

187 – What to do if you get retrenched

Question I have just been retrenched and I'm feeling quite overwhelmed by all the decisions that I need to make.  Do you have any suggestions on what the big pitfalls...
Dec 02 2024

186 – Making the most of a medical aid on a budget

Question I would like to join a medical aid after not being on one for the past two years.  I’m 39 with a young child and can only pay around R3 500 a month. I’m...
Dec 02 2024

185 – To quell chaos, your business needs its own will

Question I recently heard someone talking about a will for a business. How does this work?Answer A will for a business documents what should happen to your interest in...
Dec 02 2024

184 – Products that can give employees peace of mind

Question A colleague has recently been diagnosed with cancer. He is going to be unable to work properly for at least three months.  The company will pay him his basic...
Dec 02 2024

183 – Measures to take to ensure that your offshore assets are protected

Question A friend’s husband passed away earlier this year, and the executor says it will take at least three years for his estate to be wound up because he owns shares...
Nov 20 2024

120 – The new two pot retirement fund

Question I retired three years ago, with half my income coming from my company pension fund and the other half from interest from investments. I am paying tax at a rate...
Nov 20 2024

121 – Why you should have separate offshore wills

Question I retired three years ago, with half my income coming from my company pension fund and the other half from interest from investments. I am paying tax at a rate...
Nov 20 2024

122 – How utilising a living annuity can maximise the financial health of your heirs

Question I retired three years ago, with half my income coming from my company pension fund and the other half from interest from investments. I am paying tax at a rate...

Download the Life File