I have a company that I founded.
I borrowed a large some of money (R4mil+) from my mother to buy 5 rental properties cash. My mother now holds an asset against the company, and the company has a liability loan account against my mother.
No formal agreement on the loan account has been set up but we have been paying our mother interest on her loan up to this point, no capital has been paid back yet.
The shareholding of the company is split 15% me, and 85% into a inter vivos trust whereby my mother is the donor and my brother and I are trustees.
I am the sole director of the company.
What happens to the loan when my mother dies with regards to estate duty?
I believe estate duty is calculated on 20% of any amounts over R3.5mil. Since the loan account is way more than 3.4mil we expect the estate duty to be quite sizable.
The advise we have received is that upon my mothers deat the loan account bequeaths back to the company and an estate duty will be due that the company will have to pay. Once the company pays the estate duty the loan is closed and all money is capitalised back to the company.
So if she dies tomorrow we will have to pony up some serious cash to SARS in order to settle the estate duty.
Is this correct?