Norwich Life has grouped a number of concepts to create a product that will help you plan your tax, retirement and estate duty.
Thea Heunis, senior manager of Norwich Life legal services, says the concept combines the use of an inter vivos trust (a living trust) and the R25 000 a year donations tax exemption.
But it only applies to people who believe they will be leaving more than R1 million to their heirs (the first R1 million of an estate is untaxed). It also does not apply to money left to a spouse as no death duties apply to assets left to a spouse.
It works like this:
* You establish an inter vivos trust;
* The trust takes out an endowment policy with a minium premium of R25 000 a year;
* You donate R25 000 a year to the trust to fund the premium (a further R25 000 a year may also be donated by a spouse);
* After five years you can borrow money interest free from the trust to pay for such things as education, holidays and living expenses;
* When you die the loan can be repaid from your estate reducing the assets in your estate and therefore tax payable; or on retirement the loan can be paid from a lump sum.
After five years the matured policy can be used to produce tax-free income with growth on the assets being taken as partial surrenders.
At retirement you can draw the income as loans which can be repaid out of your assets when you die, reducing your tax liability on death.