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Provided by the South African National Department of Health
Estate planning: prepare
for the unexpected
Fiduciary and Tax Specialist
Jun 28, 2023
As average life expectancy continues to increase due to improved medical care and healthier lifestyles, our ageing population is also exposed to a wider range of potentially incapacitating illnesses or injuries. Some conditions, such as dementia, may lead to a loss of mental ability and capacity to make important decisions, including financial and care decisions. This could be problematic for those who are responsible for your welfare, especially if they are unprepared for the practical implications of your situation.
Many people believe that either a general or special power of attorney will entitle an agent, such as a close family member, to act on an incapacitated individual’s behalf. What they don’t realise, however, is that under South African law, if someone is no longer capable of making their own decisions, the power of attorney will fall away.
Under our law, the agent can never have more powers than the principal, so if the latter is no longer of sound mind, the agent’s power of attorney will become void. This clearly leaves those looking after a loved one who has lost mental capacity in a predicament, for example, if funds need to be accessed to provide for the individual’s personal care.
None of us knows what the future may bring, but there are certain steps you can take now to ensure that, in the event of incapacity, your estate and financial affairs will continue to be run in a responsible manner.
If you are in a moderate to advanced stage of illness and unable to manage your own affairs, your family may apply to the High Court for curatorship, which will result in the court appointing a curator bonis to manage your day-to-day needs. This process may be onerous and costly, and could require, among other things, medical assessments and legal representation. Depending on your circumstances, this may be the only option available to your family.
If you have a disability as defined in section 6B(1) of the Income Tax Act 58 of 1962, you can create what is known as a special trust (as defined in section 1 of the Act). The purpose of this special trust will be to provide for your care and maintenance when you are no longer able to do so. The benefits of this type of trust include:
A special trust can potentially be a good estate planning tool. Other beneficiaries besides you may be added to the trust, as a separate class of beneficiary – these beneficiaries will only be able to benefit from the trust once you have passed away. When this happens, the trust will lose its ‘special’ status, but the structure of the trust for preservation of assets will be maintained.
A fear shared by many who have been diagnosed with a disease that may lead to eventual incapacity, such as dementia, is how they will be cared for during the late stages of illness. Diminished mental capacity means you won’t be able to make informed decisions relating to your medical treatment and care, which may lead to prolonged suffering. In such circumstances, it is advisable to draft what’s known as a ‘living will’ in which your wishes for future medical treatment can be expressed.
While the legal enforceability of a living will can’t be guaranteed, the intention of the document is to provide clear guidelines for your family and doctors regarding end-of-life care and treatment.
Your will is an effective estate planning tool only to the extent that you have full mental capacity when drafting it. Reviewing your will regularly and keeping it updated is crucial, since the validity of any will drafted after you have lost mental capacity can be challenged. We advise that you review your will at least annually to ensure that it correctly expresses your wishes and that it meets all the criteria for a valid will.
A pre-emptive and effective way to ensure that your affairs can be protected and safely managed in the event of future mental incapacity is through an inter vivos trust. This type of trust is set up during your lifetime.
Once you have created the trust and transferred your assets into it, the administration and management of those assets become the responsibility of your appointed trustees, and the assets will no longer form part of your personal estate. It is advisable to give careful consideration to the wording of your trust deed to ensure that the trustees’ mandates, duties and responsibilities are clearly set out.
If you’d like to discuss or implement any of these proposed solutions, or if you need a trust deed drawn up or reviewed, please don’t hesitate to contact one of the Sanlam Private Wealth fiduciary and tax specialists at firstname.lastname@example.org.
The formation and registration of trusts, and the provision of independent trusteeships – both local and oﬀshore.
The creation of BEE, charitable, special and Shariah trusts compliant with regulatory and legislative requirements.
The administration of deceased estates in South Africa and abroad.
Advice on complex structures, asset restructuring and bequests in foreign jurisdictions.
Advice on emigration and immigration, foreign earnings and the application of any double taxation agreements.
Updating trust deeds to ensure they’re in line with the latest changes in the trust environment.
Updating and/or drafting of wills dealing with South African and/or foreign assets.
Advice on the establishment and management of charitable organisations, their tax status and tax deductible donations.
Advice on the potential tax consequences and reporting obligations if you hold a US passport or green card, or if you have children living in the US.
Guidance on the financial implications of life-changing events, such as getting married, divorce or the birth of a child.
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