Page 39 - Bespoke EPG 2017 Digital

Living Annuities
■■ An annuity is a policy taken out that will provide a pension to the estate

planner from the age of 55 years and older.
■■ Upon maturity, the insurance company invests the proceeds and the estate

planner receives a monthly pension from the proceeds. He may take a lump
sum payment (up to one third of the value) on maturity.
■■ Should he die before the policy matures, or decide not to use it in favour of
it being used by his spouse or dependants after his death, the proceeds will
attract no estate duty.
■■ However, so much of all the contributions made by the deceased in
consequence of membership or past membership of any retirement annuity
fund, that has not been deducted at the time of death for income tax, will be
subject to Estate Duty.
■■ This specific inclusion in the property of a deceased estate was introduced
to limit the practice of avoiding estate duty through retirement contributions,
which are not deductible and not subject to the retirement lump sum tax
tables. These contributions would otherwise pass on to beneficiaries free
from estate duty.
■■ Although there is no estate duty payable, his heirs may be liable for income
tax on the monthly annuity benefits.
This tool can be used effectively to provide an income for spouses or dependants.
By making contributions to an annuity fund during his lifetime, the estate planner
is effectively:
■■ Taking income out of his estate to create a fund which will have no bearing
on his estate;
■■ Creating an income tax saving (by deducting monthly premiums from taxable
income).

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