Due to massive price increases, Many South Africans—those who had the nerve to hold on — have done rather well with their crypto investments.
Consequently, these investors face significant financial challenges in estate planning, with potential estate taxes threatening to reduce the value of digital assets substantially passed on to their heirs.
According to PR de Wet, director of the commercial and tax division of VDT Attorneys, individuals with substantial crypto holdings can take steps to minimise tax and ensure seamless asset transfer to heirs.
He explains that South Africa’s estate duty applies to estates exceeding R3,5-million at rates of 20% on the first R30-million and 25% beyond that. Surviving spouses can potentially utilise a tax exemption of up to R7-million. Additional costs to consider include executor fees, which are 3,5% of the net asset value of your holdings; potential capital gains tax on asset disposal; and transfer fees for asset reallocation.
An example illustrates the critical importance of proactive estate planning. Consider an investor with R10-million in crypto and property assets at age 30. If these assets grow to R100-million by age 60, the estate tax could reach a staggering R22,625-million — significantly reducing the inheritance for heirs.
De Wet says: “A taxpayer can arrange his tax affairs within the law to his best advantage to pay the least tax. Proper planning can minimise these costs, ensuring more wealth flows to your heirs.”
De Wet recommends the following strategies to protect your digital wealth:
- Utilise corporate structures like companies and trusts to substantially minimise tax
- Leverage roll-over provisions in tax legislation to ensure that growth in your assets is ring-fenced in your company or trust and not your personal estate
- Consider transferring asset growth to corporate entities
- Explore offshore investment solutions.
Christo de Wit, Luno’s country manager for South Africa, emphasises the importance of preparation and letting your heirs know if you hold crypto: “Luno has a process in place to retrieve crypto in the event of a death. We can share information with the appointed executor or administrator of the estate. Luno will guide you through the process and tell you exactly what’s required to retrieve the funds.”
De Wet advises consulting with a tax professional specialising in digital asset estate planning and creating a comprehensive will that specifically addresses cryptocurrency holdings. Consider establishing a trust or corporate structure to manage digital assets and maintain detailed records of all crypto investments. Make sure that your executor or beneficiaries have access to necessary wallet information and private keys if necessary.”