Reduce Estate Duty with a Trust in South Africa
Estate duty in South Africa can take a significant portion of the wealth you intend to leave behind — up to 25% of your estate’s value in some cases. Without proper planning, families often lose millions in taxes that could have been legally avoided. One of the most powerful tools available for this purpose is a trust. When structured correctly and used strategically, you can reduce estate duty with a trust, protect your legacy, and ensure your heirs benefit fully from the wealth you’ve built.
In this guide, we’ll explain how trusts help minimise estate duty, how to set them up within SARS guidelines, and who should consider this estate planning strategy.
💰 What Is Estate Duty and Who Pays It?
Estate duty is a form of tax imposed on the total net value of a deceased person’s estate in South Africa. Its purpose is to ensure that a portion of accumulated wealth is returned to the fiscus upon death — but without proactive planning, this can significantly reduce the legacy left to your loved ones.
The current estate duty rates are:
- 0% on the first R3.5 million (this is known as the abatement — a tax-free threshold)
- 20% on the portion of the estate exceeding R3.5 million up to R30 million
- 25% on any amount above R30 million
Estate duty applies to nearly all assets held in your name at the time of death. This includes:
- Immovable property (e.g., homes, farms, rental properties)
- Investments and cash (such as unit trusts, shares, savings)
- Business shares and ownership interests
- Life insurance policies payable into the deceased estate
For wealthy individuals or those with a combination of business and property interests, these estate assets can quickly add up — resulting in millions of rands payable in tax before any inheritance can be passed on.
However, there is a proactive and legal way to reduce estate duty with a trust. By transferring assets into a properly structured trust during your lifetime, those assets are no longer considered part of your personal estate when you pass away. This means they fall outside the scope of estate duty, helping you preserve more of your wealth for your family or beneficiaries.
In other words, if your estate is not planned with this tax in mind, a significant portion could be lost to SARS. But by taking steps to reduce estate duty with a trust, you can ensure that your assets are protected, your heirs are better cared for, and your legacy remains intact — rather than diminished by unnecessary taxation.
🔐 How Trusts Help Reduce Estate Duty
By transferring assets into a trust while you are still alive, those assets are no longer considered part of your personal estate. This means SARS cannot include them when calculating estate duty at death. Instead, the trust — a separate legal entity — continues to hold and manage those assets for the benefit of your nominated beneficiaries.
However, it’s critical that this be done:
- Well in advance of death, to avoid triggering anti-avoidance legislation
- With a proper loan or donation structure, complying with Section 7C of the Income Tax Act
- With full supporting documentation, including resolutions and agreements
✅ Example:
Sipho transfers a R5 million property to a family trust in 2015. By the time he passes in 2030, the property has appreciated to R10 million. Because it’s held in the trust, the R10 million asset is not included in Sipho’s estate, legally saving over R1.3 million in estate duty.
✅ 4 Legal Strategies to Reduce Estate Duty with a Trust
1. Early Asset Transfer into a Trust
Transferring appreciating assets like property or business shares into a trust early in life ensures future growth takes place outside your estate.
Structure the transfer via:
- A loan agreement — subject to interest under Section 7C
- A donation — subject to donations tax (20% after R100,000/year exemption)
The earlier the transfer, the more growth is excluded from your estate, helping you reduce estate duty with a trust in a compounding way over time.
2. Use a Loan Account with Annual Write-Downs
When you sell an asset to a trust, you create a loan from the trust to yourself. You can legally reduce this loan balance over time by writing off R100,000 per year — the annual donations tax exemption.
This reduces your estate’s value year after year, lowering your eventual estate duty. Just remember:
⚠️ SARS considers interest-free or low-interest loans to trusts as deemed donations unless the official rate is charged — so proper loan agreements are essential.
3. Redirect Life Insurance Proceeds Outside the Estate
Many life insurance policies are payable into the deceased’s estate — making them subject to estate duty.
To avoid this:
- Nominate a trust as the beneficiary of your policy
- Or nominate a spouse or child where appropriate
This simple change ensures life cover is paid directly to beneficiaries or managed through a trust, bypassing estate tax and executor fees.
4. Include a Testamentary Trust in Your Will
While a testamentary trust only comes into effect upon death, it still plays a vital role in long-term wealth management. Though it doesn’t directly reduce estate duty with a trust, it:
- Protects assets for minor or vulnerable beneficiaries
- Avoids forced sales or delays caused by estate administration
- Enables structured distribution to heirs over time
⚠️ Compliance Risks and SARS Red Flags
While you can legally reduce estate duty with a trust, SARS is increasingly scrutinising aggressive or artificial structures. Trustees and founders must be aware of the following:
🔍 Section 3(3)(d) of the Estate Duty Act
If you transfer assets into a trust shortly before death, or continue to exercise full control over them, SARS may still treat the assets as part of your estate.
🔍 Section 7C of the Income Tax Act
This section targets interest-free or low-interest loans to trusts. SARS may:
- Impose annual deemed donations tax
- Add unpaid interest to your estate’s taxable value
🔍 Scrutiny of Trust Distributions
SARS now evaluates whether beneficiaries actually receive the income allocated to them, or if trusts are simply retaining funds indefinitely to defer tax.
✅ Pro Tip: Maintain detailed trust resolutions, signed loan agreements, accurate accounting, and minutes of trustee meetings. These records help withstand a SARS audit.
👥 Who Should Consider This Strategy?
You should consider using a trust to reduce estate duty if you are:
- A high-net-worth individual with a large estate
- A business owner or shareholding director
- A property investor with multiple appreciating assets
- A parent or guardian of minor or dependent children
- Someone committed to legacy and intergenerational planning
👨💼 Why Work with a Professional?
Trusts can save millions in taxes — but only if they’re structured correctly. Poorly planned trusts may:
- Trigger unnecessary donations tax
- Be disregarded by SARS and added back into your estate
- Create legal or compliance risks for trustees and beneficiaries
At Sparrows Chartered Accountants, we specialise in helping individuals and families legally reduce estate duty with a trust, while staying 100% compliant with SARS. From trust formation and asset transfers to loan monitoring and ITR12T submissions, we offer end-to-end support to safeguard your legacy.
📞 Ready to Reduce Estate Duty with a Trust?
Don’t wait until it’s too late to protect your estate. Let us help you structure a trust that preserves your wealth, reduces your tax exposure, and benefits generations to come.
Contact Sparrows Chartered Accountants today for expert advice on trusts, estate planning, and SARS compliance.
Disclaimer: This article is intended for general informational purposes only and reflects the legislation and SARS practices in effect at the time of publishing. Tax laws are subject to change, and individual circumstances vary. Always consult a registered tax practitioner or financial advisor for advice tailored to your situation.
