The agreement stipulates that the premium contained in the agreement “must be borne and paid by the policyholders in proportion to their participation in the company.” A “Business Continuity Plan” or “buy-back and sale contract” is put in place, in which the business owner will find appropriate people (potentially existing business partners) who understand the business and are interested in taking over the business. These parties then enter into a “Buy and Sell” contract; terms of sale and under what circumstances. There are other exceptions for purchase and sale policies that are not allowed here. It is important for the seller and buyer to agree in advance and document the basis for assessing commercial interests, otherwise no contract is concluded, it is also important to avoid potential litigation in the future. This valuation method is then used to determine the purchase price at the beginning of the contract. For the purposes of Section 5 (1) of the Estate Duty Act, the value of a property is intended to be included in a person`s estate within the meaning of Section 3 … on the date of that person`s death, in the case of shares of a company that is not listed on the stock exchange, it is determined in accordance with paragraph (f) bis from section 5, paragraph 1. If a person has died, the inheritance tax must be calculated. This is done by adding up all the real estate and as a property that a person owned. The property consists of all the physical assets that a person owned: home, car, furniture, clothing and other assets that can be valued. Some property that the deceased did not own but was of interest to him is considered his property. For example, national life insurance policies are considered property, regardless of who owns these policies. Once the estate and estate claimed as the property of the deceased have been added in, and after certain deductions and a reduction, the value of the person`s estate is determined and inheritance tax is calculated on that amount.
Let us assume, for the purposes of the article, that the most recent valuation statement is the one attached to the agreement and that the death benefit under the two policies is R8 million and R2.4 million and R10.4 million R10.4 million R10.4 million respectively. A key man policy is where a company (for example) has a policy on the life of their director (key collaborator) in case the director dies and the company suffers a financial loss. Such a policy is withdrawn by the company (i.e. the director did not apply for the policy). The proceeds from the policy must be returned to the company immediately after the death of the director, not to the estate of the director. As has already been said, all life policies are part of the estate of a deceased, but if politics is a key policy, it is not part of the deceased`s estate. The parties to the agreement are business leaders one, in the rest of the so-called “deceased” article and two business owners called “survivors”. These agreements show that a policy is underwritten by both spouses and that the income from the policy is paid to the surviving spouse. If it is such a policy, taken over by the deceased, the proceeds of such a policy are not considered property in the deceased`s estate.
According to Kobus Barnard, in his article “Buy and sell – pactum estate or not” these agreements are based on two parts i.e.: The other exception requirements seem to be very clear in most cases, where the shares or interests are held by an individual, but these become quite complicated when the stock or interest is held by a trust or company. SARS has issued guidelines on how this works. External Guide: Estate Duty Implications on Buy-and-Sell Agreements explain the effects of inheritance tax when shares are held in trusts.