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GLOBAL ESTATE PLANNING:

SECURE YOUR LEGACY

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SPW Contributors

Sanlam Private Wealth

To ensure the orderly transfer of your assets to the next generation, you need to consider all aspects of estate planning, including local and foreign estate duty and inheritance tax. In the last in a series of webinars focusing on what you need to know before going global, Stanley Broun examines some of the important factors that could impact the intergenerational transfer of your wealth.

You can read a condensed version of some of the main discussion points below, or watch a recording of the webinar here:

Why is proper and timeous estate planning so important?

Estate planning is a crucial part of ensuring the smooth transfer of your wealth to the next generation. It’s important to remember that each person’s estate plan is unique – there’s no one-size-fits-all solution, and it involves far more than just pushing around some numbers on an Excel spreadsheet.

We often find that clients become fixated on wanting to save on tax and estate duty – but it’s about so much more than that. Estate duty is, of course, key, especially if you’ve accumulated some wealth, but it’s paramount to obtain expert advice to ensure that all the elements of proper estate planning are taken into consideration, to ensure that there are no nasty surprises for your beneficiaries when your estate gets wound up. There are so many factors to be taken into account – especially if you have both local and offshore investment structures – including your marital regime, and whether your children have emigrated or intend to do so.

You can read more about what to consider when drawing up an estate plan here.

What are the main elements you look at when working with a client on an estate plan?

We normally ask our clients to share more than just the elements that will form part of their estate duty calculations – we’d like to know all the details of your assets and liabilities, both local and offshore, but also information about life policies, pension and provident funds, business interests, company shares and loan accounts, where the beneficiaries are resident, and much more. Under what marital regime are you married – in community of property, out of community of property, with or without accrual? It may not seem important, but the full picture enables us to draw up a proper estate plan and determine if there are ways to better structure your financial affairs to reduce your overall tax burden.

Why is the question of marital regime so important?

Our clients sometimes bequeath a portion of their assets to their surviving spouse, and the remainder of the assets to other family members or a trust. But if you’re married out of community of property with the accrual system, and your estate at your date of death is greater than that of your spouse, your spouse will have an accrual claim against your estate. This means that your spouse’s claim will have to be settled before any other distributions can be made, resulting in fewer assets being available for your other beneficiaries. People often don’t take the accrual system into account when drawing up their last will and testament.

We also had a recent case where a client didn’t remove his ex-wife as a beneficiary of his life policy and retirement funds. When he passed away, his current wife and children didn’t inherit what he’d intended them to. As part of your estate planning, it’s crucial to ensure that your beneficiaries are consistently updated, and that you keep a record of this.

When you pass away, your entire estate is frozen until it gets wound up, which could take months. Life policies (although a deemed asset in the estate) and retirement funds (which are governed by section 37C of the Pension Fund Act) pay out to the nominated beneficiaries outside of your estate. While retirement funds can take up to 12 months to pay out to the nominated beneficiaries, depending on the circumstances, life policies can pay out within a matter of weeks. To prevent your loved ones from experiencing cash-flow problems when you die, you need to ensure that the correct beneficiaries have been nominated on these plans so that they’ll have enough to live on over the short to medium term while the administration of the estate is taking place.

Let’s talk about wills. If you have both local and offshore assets, how important is it to have an offshore will as well as a South African will? And does it matter if your will is in Afrikaans?

In order for us to administer your estate in South Africa, we have to obtain a Letter of Executorship from the Master of the High Court. If you also have direct offshore assets, especially in the UK and the US, we have to go through a similar process in those jurisdictions. In the UK, for example, we have to obtain a Grant of Probate before we can act in accordance with your last will and testament.

If you have assets located in an offshore jurisdiction, even if it’s just money in a foreign bank account, we normally advise that you have both a local and a foreign will. Although it’s not a legal requirement to have an offshore will, based on our experience, it really helps with the administration of the offshore assets. If you don’t have an offshore will, it can become very time-consuming and complicated to wind up your estate.

With regard to the language issue, it also complicates matters if your will is not in English. Your executor will first have to translate it to English, leading to unnecessary delays. Remember, it’s not just a matter of using Google Translate – you have to make sure that the core of what the testator or testatrix has set out in the will is accurately reflected in the English version. Then the will must be submitted to the Master of the High Court, and only once we’ve received the sealed will from the Master – which could take months in the current COVID-19 circumstances – can we start the process of obtaining a Grant of Probate in the UK, for instance. All these elements can delay the administration of the estate and can result in additional costs.

Another advantage of having an offshore will relates to terminology. In South Africa, we may use different legal terms to those common in other jurisdictions. In the UK, for instance, they might have different legal terms for concepts such as ‘bare dominium’ and ‘usufruct’ – so they’ll have to send your local will containing these terms back for legal clarification before a Grant of Probate can be issued, resulting in further delays. When we draft an offshore will, we work with solicitors in the jurisdiction in question to make sure it’s drafted in line with legislation in that jurisdiction and that there is no confusion when it comes to interpretation.

You can also read Stanley’s views on the importance of drawing up an offshore will here.

How can estate planning help you to structure your assets more efficiently?

Taking into account all the elements of your financial assets and liabilities, proper estate planning can provide an excellent opportunity to restructure your wealth. For example, what planning opportunities are there to better manage inheritance tax issues in the UK, or US estate taxes? Would an offshore trust or a dry trust be a good option to house your offshore assets? Are there ‘wrappers’ such as the Glacier Global Life Plan that may be beneficial? Yes, there may be an immediate capital gains tax impact should you decide to transfer your assets into a more suitable vehicle, but the future growth of your assets is now outside your estate for estate duty purposes, which will definitely be more advantageous for your beneficiaries at your date of death.

The most important question to ask when thinking about estate planning is, ‘What are my objectives, and what do I want to achieve?’ Just because one product or vehicle may prevent someone from having to pay estate duty and taxes, it doesn’t mean it will be suitable for your particular purposes. Your estate plan, whether it’s for your local or your offshore assets or both, must be in line with your overall objectives. You should never allow tax to be the driving force in your decision-making because if the tax laws change, you may have to change your vehicle or structure again. Yes, certain events may well result in you having to pay some taxes, but your plan will at least be aligned with your objectives, so that when you pass away, your beneficiaries will inherit the way you intended them to.

Any final comments on the importance of estate planning?

You’ve worked extremely hard to accumulate your wealth, and you want to be able to leave a lasting legacy for those who come after you. You want to make sure that your assets are distributed according to your wishes when you pass on. The elements we’ve mentioned above, and many more, are crucial in drawing up your estate plan. It’s one thing to grow and preserve your assets while you are still around, but it’s equally important to ensure that you don’t wipe out a significant portion of your returns and potentially miss your objective by not taking into account all the elements that are crucial in drawing up a proper estate plan, or making small, easily avoidable mistakes that can have a major impact in the long run.

At Sanlam Private Wealth, we have all the necessary skills and expertise to assist you in drawing up your estate plan. If you’d like further information, please contact Stanley Broun on +27 (0)11 778 6648 or stanleyb@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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