The bequest of a usufruct to one or more interim usufructuaries for a limited period
after the decease of the first usufructuary is often utilised by estate planners to
reduce the value of the ceasing limited interest and thus to effect a saving in respect
of estate duty.
The saving in respect of estate duty is effected due to the fact that
- the value of the ceasing limited interest in the estate of the first
usufructuary is calculated only over the duration of the period during
which the interim usufructuary is entitled to the limited interest and not
also over the life expectancy of the ultimate beneficiary, and
- that, on the cessation of the interim usufruct due to the efflux of time.
no estate duty is payable.
The very first reference to this method appeared in an article published in The
Taxpayer during 1965. Other authors like Meyerowitz, Silke and Stein and Davis,
Beneke and Jooste also referred to this method without analysing it or
investigating the legality thereof. All the aforementioned authors relied to a certain
extent for their views on a judgment of acting judge Warner in Bassett v
Commissioner for Inland Revenue (1 961 4 SA 769 (D)).
This dissertation is therefore aimed at investigating the legality of the method and to
focus on a few practical aspects regarding the application thereof as an estate
planning instrument.
An analysis of the wording of the charging clause (section II (a )(1) of the Estate Duty
Act and the valuation clause (section 5(1) of the act) has led to the belief that, in
considering the validity of the method, it is extremely important to bear in mind the
principles applicable to the vesting of testamentary rights.
In terms of the valuation clause of the Estate Duty Ad the value of a ceasing limited
interest for estate duty purposes is determined by capitalising the annual value of
the right of enjoyment of the properly in which the deceased held any such limited
interest to the extent to which the person who, upon the cessation of the said
interest of the deceased in consequence of the death of the deceased, becomes
entitled to any right of enjoyment of such properly.
In terms of the charging clause "the person to whom any advantage accrues by the
death of the deceased" is liable for the payment of estate duty in respect of the
cessation of a limited right.
In order to calculate the value of a ceasing limited interest and to determine the
liability for payment of estate duty in respect thereof it is necessary to determine
(a) the extent to which a successor in title of a deceased in consequence of the
death of the deceased has become entitled to any right of enjoyment, and
(b) to which person any advantage has accrued by the death of the deceased.
After analysing the wording of section 5(1)(b) and section 11(a)(1) the writer has
come to the following conclusions:
(a) In the case of an interim usufruct the right of enjoyment of the first
usufructury has to be capitalised only over the period of currency of the
interim usufruct and not also over the life expectancy of the owner of the
nuda proprietas.
(b) Subsection 5(l)(b) does not make provision for the valuation of an interim
usufruct at the termination them due to the efflux of time.
(c) Upon the decease of the first usufructuary an advantage as contemplated in
section 11(a)(1) accrues to the interim usufructury but not to the owner of
the nuda proprietas.
(d) On the cessation of an interim usufruct due to the efflux of time there is no
person to whom any advantage accrues by the death of a deceased as
contemplated in subsection 11 (a)(1), and consequently the owner of the nuda
proprietas does not at that stage incur any liability for estate duty.
In view of the aforegoing considerations the writer has come to the conclusion that
the utilisation of this method does not constitute a contravention the provisions of the
Estate Duty Ad. The artificiality of the valuation method prescribed in terms of
subsection 5(1)(b) lends itself to reducing the value of a limited interest by
interposing a successor for a short period between the deceased and the ultimate
beneficiary.
It follows therefore that the utilisation of this method does not constitute tax evasion.
Where the main consideration for the appointment of an intermediary usufructuary is
not so much the possible benefit that may acme to the intermediary as the
limitation of estate duty, the application of the method may constitute an avoidance
of estate duty. The Estate Duty Act, however, does not contain any general anti-avoidance
provision similar to section 103 of the lncome Tax Act.
In utilising this method estate planners should therefore bear in mind the possibility
that the fiscus may sooner or later introduce an amendment to the Estate Duty Act
to close this loophole. / Thesis (LL.M. (Estate Law))--North-West University, Potchefstroom Campus, 2004.
| Identifer | oai:union.ndltd.org:NWUBOLOKA1/oai:dspace.nwu.ac.za:10394/275 |
| Date | January 2003 |
| Creators | Albertse, Gert Petrus Schlebusch |
| Publisher | North-West University |
| Source Sets | North-West University |
| Language | Afrikaans |
| Detected Language | English |
| Type | Thesis |
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