A well-thought-out estate plan helps prevent disputes and conflicts among family members by clearly outlining your intentions regarding the distribution of your assets.
Estate planning documents, such as wills, codicils, trust deeds and living wills are used to carefully express your wishes and to map the process to be followed when you die, ensuring the smooth transfer of wealth. They are also particularly useful for complex family structures,
-Gareth Lange, a wealth manager at Private Client Holdings.
Why is estate planning important?
- Provides for dependants. Dependants include minor children, elderly parents or disabled family members.
- Minimises taxes. Strategic estate planning can minimise the tax liabilities associated with transferring assets to your heirs, potentially saving your beneficiaries significant sums of money.
- Protects assets. Estate planning protects your assets from creditors, lawsuits and other legal claims.
- Estate liquidity. Estate liquidity is critical to cover estate costs and liabilities without affecting the financial inheritance intended for your beneficiaries. “It’s important to note that SARS and your creditors are paid first during estate administration. If there is insufficient liquidity, your beneficiaries may be forced to sell some of your assets to pay off debts,” cautions Lange.
- Beneficiary nomination. Nominations should be regularly updated as your personal and financial circumstances evolve. It’s important to understand how beneficiary nomination works for each type of policy and investment.
- Appropriate structuring of growth assets. Long-term growth assets are placed in the proper investment vehicles.
- Efficient estate administration. Avoids unnecessary delays.
Considerations
- Individuals with foreign assets should consider a foreign will as well. Most countries have their own laws regarding succession and the drafting of wills.
- In terms of the Estate Duty Act, if the deceased was a South African resident at the time of death, their worldwide assets are included for the purpose of calculating estate duty.
- Marital regimes or life partnerships have consequences when it comes to estate planning.
What estate planning tools are available?
- Testamentary trust. These are employed where children under the age of 18 lack contractual capacity (and) or are not capable of inheriting directly, for example, someone with special needs.
- Inter vivos trust (living trust). This tool reduces your estate duty liabilities by pegging the value of assets in your personal estate and allowing the growth of the assets to take place in the trust. This trust is established during your lifetime to manage and protect assets for your beneficiaries.
- Donations. Donations are used to reduce the value of your estate (R100 000 annual exemption). Donations between spouses are exempt from donations tax, while donations to certain public benefit organisations are also exempt, subject to certain thresholds.
- Section 4q deductions. No estate duty is payable on bequests to your spouse, including proceeds from a domestic life policy.
- Bequests. A cash legacy may be bequeathed to a beneficiary in your will, but you must ensure that there is sufficient liquidity in the estate to honour the bequest.
- Insurance policies. Proceeds of domestic life policies can be excluded for estate duty purposes or may be deductible in examples such as life policies or key-person and buy-and-sell assurances in favour of a spouse.
- Living annuities. These excellent succession planning tools don’t attract estate duty or executor fees. Beneficiaries have the option of transferring the living annuity into their own name, taking it as a lump sum or a combination of the two with almost immediate access.
Your estate plan should be reviewed at least once every three to five years or whenever significant life events occur, such as marriage, divorce, births and deaths of family members as well as significant changes in your financial circumstances or relocation to another country or jurisdiction with different estate planning laws.
Given the complexity of robust estate planning, and as estate planning laws evolve, it’s critical for your estate plan to remain compliant with current legal requirements to maximise benefits for your beneficiaries. This is where professional advice plays an important role in developing and maintaining a robust estate plan that secures your legacy,
-says Lange.
Private Client Holdings is an authorised financial services provider (licence #613). Private Client Holdings has taken care to ensure that all the information provided herein is true and accurate and will therefore not be held responsible for any inaccuracies in the information herein. The above content does not constitute advice and the reader should contact the author for any related concerns. Private Client Holdings shall not be responsible and disclaims all loss, liability or expense of any nature whatsoever which may be attributable (directly, indirectly or consequentially) to the use of the information provided.
