All assets acquired during the life of person becomes a part of their estate on their death. A life policy only pays out after death, so it is not part of a person’s ‘deceased estate’, and so not subject to estate duty. However, life policies can attract estate duty if not paid to nominated beneficiaries.

1. Nominated Beneficiaries:

Your life policy payout, or proceeds, are not considered part your taxable estate if you have nominated beneficiaries to whom the policy pays out before an estate is administered.

However, while in this case your policy is not taxed directly, it does attract estate duty. Your life policy is included in calculations of the value of your entire estate for the purposes of estate duty.

So, if you other assets add up to R3 million, and your life policy adds another million, your Estate will be valued at R4 million. This puts it over the R3.5 million estate duty abatement threshold. Your estate will then be levied at 20% of R500 000.

(The proceeds of the policy are also subject to tax – but not payable by the deceased estate: As per SARS: ‘…where a policy is payable directly to a beneficiary, the Executor must recover the estate duty attributable to such policy directly from the beneficiary (in other words, this portion of the estate duty will not be paid by the deceased estate).

2. No Specified Beneficiaries or Estate as Beneficiaries:

Once the proceeds become part of your estate, they are subject to estate duty.
So why do it? Nominating your estate as your life policy beneficiary is very useful if you have debts. Your policy proceeds can help you pay outstanding debts, as well as estate duties and levies associated with administration of the estate.

Although your policy payout is then subject to estate duty as part of the estate, the remainder can help you leave more of your original estate, after duties and fees, for your beneficiaries. It can ensure that your beneficiaries aren’t saddled with your debt repayments.

NB: Your life policy is not automatically included in your estate if you don’t nominate living beneficiaries; you’ll need to arrange it.

TAT Financial Services include Life Assurance, Investment Structuring, buy and sell policy agreements and short term insurance. Organisation is the key to financial security and family wealth protection.

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Erasmus Pretorius

With over 23 years of unwavering expertise, I am a seasoned Chartered Accountant committed to financial excellence. My journey in the realm of finance has been marked by astute strategic insights, meticulous attention to detail, and an unyielding dedication to precision. Over the years, I’ve navigated the complexities of financial landscapes, providing invaluable counsel to diverse clients. My proficiency extends across auditing, taxation, and financial management, coupled with a profound understanding of regulatory frameworks. As a registered professional, I have consistently upheld the highest standards of integrity and ethics, earning a reputation as a trusted advisor in the dynamic world of finance.