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Leave a Legacy

Leaving a legacy through charitable giving

A lot of people contribute towards charities during their lifetime but don’t realise that a charity can also be an heir in their estate and therefore receive an inheritance.

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How to leave a legacy

There is no real downside leaving an inheritance to a charity and what should be kept in mind is that it can reduce your estate duty tax liability.

All South African taxpayers are liable for the payment of estate duty upon their death if the value of assets held in their name exceeds R3.5 million (after applicable deductions have been considered.

In terms of Section 4(h) of the Estate Duty Act, a deduction is allowed in respect of the value of any property which accrues to a public benefit organisation. It is important to note that for the bequest to qualify as a deduction for estate duty, the public benefit organisation must be exempt from tax in terms of the Income Tax Act.

The example on the right illustrates the saving on estate duty that can be realised through charitable donations to public benefit organisations. However, this should not be the primary motivation for making this bequest, as it takes R500 000 away from your other heirs in order to receive a R100 000 saving on estate duty.

If the primary motivation is giving back to society through a bequest to a charity, then from this point of view there is an additional benefit of a saving on estate duty.

Reproduced from Estee Beetge, Wealth Advisor from PSG Wealth.

Example

Example 1: The estate of a person (with no surviving spouse) is R5 million and let’s assume there are no other deductions:

  • Minus Section 4A abatement of R3,500,000 = R1,500,000
  • Estate Duty is therefore R1,500,000 x 20% = R300,000

Example 2: If an amount of R500,000 is bequeathed to a charity, the calculation will be as follows:

  • Minus amount of R500,000 charity = R4,500,000
  • Minus Section 4A abatement of R3,500,000 = R1,000,000
  • Estate Duty is therefore R1,000,000 x 20% = R200 000

There is an estate duty saving of R100,000.

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