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ESTATE PLANNING:

WHAT TO CONSIDER

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Fay Nkosi

Fiduciary and Tax Specialist

To ensure the smooth transfer of wealth to the next generation after you’re gone, proper and timeous estate planning is essential. Failing to make plans for your estate – and reviewing them regularly, especially when circumstances change – can lead to unintended complications for your descendants.

Read more below or listen to the views of our Head of Fiduciary and Tax, Stanley Broun:

THE PURPOSE OF ESTATE PLANNING

The main idea behind estate planning is to structure your affairs in such a way that you achieve some or all of these objectives:

  • Minimisation of tax
  • Protection of assets against the possibility of a forced sale by providing sufficient liquidity during the winding up of the estate
  • Protection of assets
  • Protection of business interests
  • Facilitation of the administration of the estate
  • Practical enforcement of your wishes and needs as set out in your will
  • Flexibility to ensure that future adjustments necessitated by changing financial and family needs and circumstances can be made
  • Harmony in the family.

FACTORS TO CONSIDER

The following factors must be taken into account when you draw up your estate plan:

Your will: A will is the cornerstone of any estate plan. It helps to ensure that your wishes are clearly stated and makes provision for who will inherit your assets after you die. A properly drafted will can ensure that your possessions are protected and distributed appropriately.

Marriage regime: Your marital status and regime will have an impact on the division of assets at death. For example, if you are married out of community of property with the accrual system, your surviving spouse could have a claim against the estate, or the estate could have a claim against the surviving spouse. This may create liquidity problems, since the claim is usually payable in cash, which could lead to your surviving spouse receiving more than you intended, negatively impacting the bequest intended for other beneficiaries.

Estate duty and donations tax: These two taxes broadly provide for the same outcome, but they have different impacts on both your estate and your heirs, and it would be prudent to bear in mind the difference when drawing up an estate plan with your adviser. By incorporating a donations strategy into your estate planning, you could, for example, essentially pay estate duty ‘in advance’ to benefit your heirs.

Capital gains tax (CGT): You will be deemed to have disposed of your assets to your estate at your death, which will have CGT implications. The annual exclusion in the year of death is R300 000 and you qualify for a primary residence exemption of R2 million.

Any bequests to a surviving spouse will be treated as a transfer at base cost for CGT purposes. This is referred to as a rollover. This means that no CGT liability will arise when assets are bequeathed to a spouse. This liability is, however, merely postponed until the death of the surviving spouse.

Liquidity: You need to ensure that enough liquidity will be available for costs, liabilities and taxes to be met without having to dispose of assets at possibly the wrong time and at relatively low prices. The following assets can be taken into account to determine the liquidity in your estate:

Life insurance is one way of providing money to be paid into your estate to ensure liquidity. Domestic life policies are deemed property in your estate. If you have nominated private individuals as beneficiaries, the proceeds will be paid to these beneficiaries directly but will be dutiable in your estate.

Comprehensive estate planning will enable you to structure your affairs according to your wishes and in line with your objectives. It will also leave your loved ones with less to worry about after you’re gone, and could prevent unintended complications.

Since compiling a plan, along with carefully drafted wills, can be complex, it’s crucial to obtain professional advice. If you have any questions or need assistance to review your estate planning, call Stanley Broun on 011 778 6648 or Fay Nkosi on 011 778 6632 for an appointment, or email stanley@privatewealth.sanlam.co.za or fayn@privatewealth.sanlam.co.za.

Expert advice is crucial in dealing with cross-border estate and tax planning.

Stanley Broun has spent 10 years in Fiduciary And Tax.

Stanley Broun

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