Are life-insurance proceeds subject to estate duty?

Direct answer

Life-insurance proceeds can be deemed property for estate-duty purposes, including some policies paid directly to a beneficiary rather than into the estate bank account. This does not mean every policy is fully dutiable. Statutory exclusions, deductions, ownership, premiums and the reason for the policy must be tested.

Where policy proceeds are paid directly to a beneficiary, that beneficiary may bear the estate duty attributable to those proceeds.

What this means in practice

The executor needs the complete policy history, not only the payout letter. Identify the policyholder, life insured, premium payer, beneficiary and whether the policy was connected to a business, marital arrangement or buy-and-sell agreement.

The income-tax treatment of a beneficiary and the estate-duty treatment are separate questions. A payout can be exempt from normal income tax yet still enter the estate-duty calculation.

Step-by-step

1. List every policy on the deceased's life.
2. Obtain policy schedules, nominations and payout statements.
3. Trace who paid premiums and why the policy was held.
4. Test the deemed-property rule and each possible exclusion.
5. Allocate any attributable duty to the correct person.
6. Include the result in the estate-duty return and distribution planning.

Documents and records to keep

• Policy schedules and beneficiary nominations.
• Premium histories and proof of payment.
• Insurer payout and tax certificates.
• Buy-and-sell or security agreements.
• Estate-duty calculation and assessment.

Important limits and exceptions

Business policies, policies ceded as security and policies connected to matrimonial property can produce different results. A beneficiary nomination does not by itself exclude proceeds from estate duty.

When to get tailored advice

Obtain estate advice for high-value policies, business assurance, cross-border insurers, premium disputes or direct beneficiary payouts.

Related TaxProof guides

• Is an inheritance taxable in South Africa?
• How do I pay estate duty through eFiling?

Sources

• SARS, Estate Duty
• SARS, How We Collect Tax