“The highest reach of injustice is to be deemed just when you are not” – Plato.
According to the Estate Duty Act (“the Act”), certain assets are deemed to be property of the deceased (even though they are not—thank you, Plato). Section 3(3) of the Act regulates what this deemed property is. Today, I would like to discuss life insurance policies, which I think most executors will be exposed to.
A domestic life insurance policy on the deceased person’s life will be deemed property for estate duty purposes. The amount deemed a property can be reduced by the amount of any premiums paid by the person entitled to the proceeds, plus 6% per annum from the date of payment to the date of death (in practice, compound interest is used). Remember, premiums paid by the deceased person cannot be used.
The above rule has three exceptions: when applicable, the policy proceeds are not deemed property.
The first exception is when proceeds are payable to the surviving spouse or child of the deceased person under a duly registered antenuptial or postnuptial contract. Note that if the policy is paid to a surviving spouse but not under an ante- or postnuptial agreement, the policy proceeds must be included under deemed property. Still, it will qualify for a deduction under Section 4(q) of the Act (for estate duty purposes).
The second exception is when proceeds are paid to a person who was a partner or co-shareholder (or co-member of cc) of the deceased at the date of death. This exception will be allowed if the deceased never paid a premium on the policy and the policy was removed to enable the partner to take over the deceased's share in the business.
A third exception is possible if the Commissioner (of SARS) is satisfied that,
The policy was not taken out by the deceased
No premiums were borne by the deceased
No amount is payable to the estate of the deceased and
No amount is payable to or used for the benefit of any relative or dependant of the deceased or any family company of the deceased.
Plato would now deem you just applying life insurance policies concerning estate duty.
Happy administration of estates, and do not forget SARS.
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