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Estate planning:
what to consider
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, here.
The main idea behind estate planning is to structure your affairs in such a way that you achieve some or all of the following objectives:
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 your death. For example, if you are married out of community of property with the accrual system, your surviving spouse could have a claim against your estate, or your 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, thereby negatively impacting the bequests intended for other beneficiaries.
Couples that are married in community of property share equally in their assets, money and property, as well as all debt. Only a half-share of the assets can be dealt with in your will, as the other half-share belongs to the surviving spouse.
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. From 1 March 2018, the estate duty rate is 20% on the first R30 million of the dutiable estate and 25% on the dutiable amount of estates above R30 million in value.
Any donations you may have made over your lifetime are subject to donations tax of 20% on the first R30 million of donations (cumulative over your lifetime), and 25% on donations above the R30 million threshold. You have an annual exemption of R100 000 of the value of all donations made during the tax year, irrespective of whom the donation is made to. Donations between spouses are exempt from donations tax. 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. You qualify for a primary residence exemption of R2 million, and R1.8 million on small business assets or an interest in a small business if certain requirements are met.
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, with the executor being able to claim a proportionate part of estate duty from the nominated beneficiaries.
Estate planning is not a one-off event, and your plan should be reviewed whenever your circumstances change, for example, in the event of:
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 in reviewing your estate planning, please email Kajal Chowthee at kajalc@privatewealth.sanlam.co.za.
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.
Expert advice is crucial in dealing with cross-border estate and tax planning.
Stanley Broun has spent 13 years in Fiduciary And Tax.
Have a question for Stanley?
