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The rationale behind a tax on donations is to discourage the transfer of assets by means of a donation. If this was allowed to happen unchecked it would
result in people with wealth distributing there wealth during their lifetime and thereby avoiding estate duty on death. Apart from preventing the avoidance
of estate duty it also prevents income-splitting. If there was no restriction on donations, it would be possible for people to donate their income generating
assets to others with no income, thereby reducing the amount of income tax payable.

The rules governing donations tax are found in the Income Tax Act. It is the intention of the Revenue authorities to combine the estate duty and donations
tax provisions into a single act to be called The Capital Transfer Tax Act. Although it is widely accepted that this will happen, it has not enjoyed a high
priority.

Donations Tax

The rationale behind a tax on donations is to discourage the transfer of assets by means of a donation. If this was allowed to happen unchecked it would
result in people with wealth distributing there wealth during their lifetime and thereby avoiding estate duty on death. Apart from preventing the avoidance of
estate duty it also prevents income-splitting. If there was no restriction on donations, it would be possible for people to donate their income generating
assets to others with no income, thereby reducing the amount of income tax payable.

The rules governing donations tax are found in the Income Tax Act. It is the intention of the Revenue authorities to combine the estate duty and donations
tax provisions into a single act to be called The Capital Transfer Tax Act. Although it is widely accepted that this will happen, it has not enjoyed a high
priority.

Trusts in Estate Planning

The most popular method of pegging the size of an estate is to use a trust. A trust is a contract in terms of which a donor (also known as the settler),
transfers certain assets to a trustee or trustees to be administered for the benefit of beneficiaries. The trustees will have no beneficial interest in the trust
property and are responsible for managing the trust assets in terms of the powers granted to them in the trust deed. The true legal position of trusts is not
clear because Roman Dutch law, upon which South African law is based, does not recognise the concept of a trust. The law relating to trusts has been
imported from English law. Notwithstanding the legal uncertainty, practically, trusts are part and parcel of our law. They are recognised by the tax
authorities and a number of sections of the Income Tax Act are devoted to the consequences and taxation of trusts.

Trusts may be divided into two categories, testamentary trusts and inter vivos trusts. Testamentary trusts are trusts established in terms of a persons will.
Because of the nature and timing of their establishment, they cannot be used to peg the size of a persons estate. An inter vivos trust is one established
during a persons lifetime in terms of a contract known as a trust deed. This is the type of trust that is used in estate pegging.

From an estate planning point of view trusts have the following advantages :

• It enables the founder or the planner as he is also known, to dispose of his assets.
• The beneficiaries need not have vested rights to the trust assets.

The trust is not a natural person and will therefore continue to exist indefinitely if necessary. These advantages allow a trust to be established by a
planner into which he can sell his growth assets. He can retain de facto control of the assets held in the trust and protect the trust assets from his
creditors and from the creditors of the beneficiaries. In addition, his descendants can enjoy all the benefits of ownership of the assets without having to
suffer the consequences of ownership in the form of estate duty.

The Law of Succession

The law of succession deals with what happens to a deceased persons property after his death. Its origins are to be found in Roman Dutch law. There has
however been a considerable influence of our law of succession by English law. Succession may take place in three different ways :

• in terms of a properly executed will in which the testator states directs his executor in the distribution of his estate. (Testamentary succession.)
• in the absence of a valid will by the operation of the law of intestate succession.
• in terms of an agreement or contract such as an antenuptial contract, a beneficiary nomination under a life assurance policy (stipulatio alteri) and a
donation made in contemplation of death (donatio mortis causa).

The law of succession is largely common law. This means that it is unwritten and comes to us from our fore fathers. There are however two acts that play
an important part in this area of our law. They are :

• The Wills Act
• The Administration of Estates Act.

Marriage Contracts

The Matrimonial Property Act (No 88 of 1984) applies to all marriages contracted after 1 November 1984. Marriages contracted prior to 1 November 1984
are not affected unless both spouses voluntarily apply, by way of notorial deed or a court order, for the new dispensation to be applicable.

The nature of a couples marriage contract will affect the legal nature of their relationship, particularly when it comes to the assets they own and how these
are controlled. The choice of the contract that will govern a marriage is therefore a critical decision. Unfortunately it is all too often not considered properly
by those entering into it.

Estate Duty Act

South Africa does not have many wealth taxes. It is the one area of our tax system that is relatively underdeveloped in comparison with the rest of the
world. One of the most significant taxes on wealth in South Africa is Estate Duty. The purpose of estate duty is to tax the transfer of wealth from one
person to another in the event of death. The Estate Duty Act is the statute that creates the obligation to pay the tax, defines what is taxable and deals
with the administration of the collection process.

Estate duty is levied on any person who is ordinarily resident in the South Africa at the time of death. A person is ordinarily resident in South Africa if they
have a physical presence in the country and have the intention to live here. Where that persons assets are situated is irrelevant. Double taxation agree-
ments exist with many countries to prevent duty being paid twice on the same assets.