Hopeton Morrison, ContributorTHE STATEMENT to Parliament by the Minister of Finance, Dr. Omar Davies, last Tuesday, while specifically
significant to those presently engaged in probating estates, would also be of signal importance to those who wish to leave an ordered and sufficient legacy for their loved ones when they pass on.
Unfortunately, death at the hands of criminals is a very clear and
present danger in our beloved land these days and his statement craves immediacy of thought and action.
Your estate is defined as anything that you own in your name and also your share of anything that you own with other people. This estate can be real (real estate, motorcars) or personal (securities such as stocks, bonds, mutual funds/unit trusts; bank accounts; life insurance
policies; etc).
The computation of the value of your estate is done after you die. In the same way, however, that what you own constitutes your estate, its value is reduced by what you owe.
This includes loans, mortgages, income taxes, and funeral expenses for example, and these sometimes can be quite substantial.
The impact of estate taxes is very significant and can reduce the size of one's legacy immensely. In other jurisdictions the formation of trusts, charities, and gifts are all used as legal means of reducing the amount of taxes charged but we are unaware of the legality of these in our jurisdiction.
In his budget speech in April, the minister replaced a complicated five tier transfer tax payable on estates at death. Previously, the first $10,000 of value was exempt, the second $10,000 attracted a tax of 7.5 per cent, the next $40,000 attracted a tax of 10 per cent, the next $50,000 attracted a 12.5 per cent tax and the balance (over $110,000) attracted a tax of 15 per cent.
On top of this, there was also the cost of legal fees. It was a cumbersome and expensive process.
Dr. Davies replaced this system with a new one based on two tiers only. The first $100,000 value of the estate attracts no tax and the
balance above that amount
attracting taxes of 7.5 per cent.
In announcing an amnesty on Tuesday last of six months from July 1 to December 31, 2005,
his stated intention was to allow beneficiaries of persons who died prior to June 1, 2005 to benefit from the new estate duty.
This is an opportunity that offers even more than significant
monetary savings.
We take a simple example. John Brown dies leaving an estate of $5,00,000.
Under the previous five-tier
system, our simple calculations show transfer taxes due of $780,500. Under the new two tier system, John Brown's estate owes $367,500 representing savings of $413,000 or 112 per cent.
There is a second and perhaps even more significant advantage. Where real estate is concerned, some beneficiaries are quite sanguine about paying the appropriate property taxes, while allowing an estate to remain outside of probation.
The intention is to delay paying the necessary taxes to probate an estate for as long as possible while 'enjoying' the benefits of the estate.
The problem with this arises where beneficiaries attempt to use this property to secure a loan or for some other benefit.
The harsh reality is that there
are very few reputable financial institutions that are prepared to take an 'attorney's undertaking' here even where the firm of attorneys is itself a most reputable one.
Hopeton Morrison is general manager of St. Thomas Cooperative Credit Union Ltd. and lecturer in the School of Business Administration at the University of Technology. Please send comments and questions to: hmorrison@stccu.com
