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Guide to a comprehensive estate plan
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What is estate planning?

Creating a comprehensive estate plan to deal with your assets and provide for your loved ones after your death is an important financial duty. You owe it to yourself and your family to plan for the distribution of your assets upon your death. Here’s why.

Creating an estate plan is an important responsibility and yet too many South Africans – 70% of the working population – do not have a Will in place.

The reality is that anything can happen and it’s important to be prepared. If you plan your estate and how your assets will be distributed once you pass away, you’re taking significant steps toward securing the financial future of the people that matter most to you in life.

  1. Estate planning overview
  2. Financial planning
  3. Taxes and estate planning
  4. Wills and estate planning
  5. Executors
  6. Guardians
  7. Trusts and estate planning

1. Estate planning overview

What is estate planning?

  • Planning your estate refers to crafting the documents and processes to be followed upon your death to ensure your loved ones are taken care of.
  • Financial planning experts agree that estate planning is crucial if you are married, have been married multiple times, have children from different relationships or support people financially. It will allow the protection of your loved ones from legal hassles and financial uncertainty after your death.
  • By planning your estate, you’re carefully structuring your finances and assets in a way that ensures estate duties are minimised, that there is sufficient liquidity to meet your estate's financial obligations upon your death, and ultimately that any inheritances are sufficiently distributed or protected for your younger beneficiaries.
  • It’s generally misconceived that estate planning is simply about ‘making a Will’. A Will is only one component of a comprehensive estate plan. Matters such as your marriage contract/s, capital gains tax (CGT) and any income taxes you owe to SARS must be considered in your estate plan to ensure that the process of winding up the estate is smooth.

Why is estate planning necessary?

In South Africa, it’s reported that numerous estates don’t have the liquidity required to settle their debts, which can result in rough financial periods for dependents who need to suddenly fend for themselves.

Tactical consideration of your loved ones’ liquidity needs upon your death is an essential element of estate planning because of Capital Gains Tax (CGT), which can have an impact on the amount of cash or assets that are distributed to your heirs.

Are you self-employed?

  • If you are self-employed, owning a business could affect your personal financial matters upon death. However, with thorough estate planning, you can determine whether or not business creditors can attach personal assets.

Offshore assets and investments

  • Some people have assets and investments offshore and this must be taken into consideration when it comes to estate planning. This is because income tax could be levied on foreign investments as a result of any changes in South Africa’s tax protocols.

Tax implications

  • There are numerous tax implications when it comes to inheritances; appropriate planning could help you limit the impact of taxation on your estate, and ultimately, the amount of money your loved ones inherit. Estate duty, in particular, can impact wealthier people, but these duties can be kept in check through appropriate planning.

What factors should you consider when planning your estate?

The following key components come together to form an estate plan:

  1. A drafted Will
  2. The safekeeping of that Will
  3. Trust administration
  4. Estate administration
  5. Beneficiary care

We can assist you with each of these elements – separately or together – of the estate planning process, depending on your needs.

When to begin estate planning and how often should you revise your plan?  

  • A well-planned estate can benefit anyone with assets, but if you are regularly bolstering your wealth by acquiring assets like houses, cars, bikes, boats, jewellery or art, it’s advisable to discuss your estate plan with an expert.
  • Also, your estate planning should take place at least once a year. This means sitting down and reviewing the previous plan to make any alterations based on income growth or asset acquisitions.
  • You can also make changes if you part with assets or experience a knock to your income.

2. Financial planning

What role does financial planning play in estate planning?

  • With just a few hours of professionally-aided tactical work, you can develop a financial plan that can be used as part of your estate planning process.
  • We offer financial advisory services that are driven by dedicated financial consultants who will craft comprehensive financial plans with you and can recommend appropriate solutions like Wills, Estates or Trusts.
  • We also provide assistance when it comes to estate duty calculations and planning to ensure that your wealth is protected and preserved during your lifetime and upon your death.

3. Taxes and estate planning

What is estate duty and what impact can it have on my estate planning?

In 2016, the South African Revenue Service (SARS) introduced a directive when it comes to estate duty in South Africa. Any person who dies and whose net estate is more than R3,5 million will be charged at the rate of 20% by the government. This means that if you have, for example, R5 million in assets or cash to leave behind for loved ones, your estate will owe the government 20% of R1.5 million (amount above the threshold) before your beneficiaries can receive their inheritances.

Even if estate duty is not payable, your loved ones will have to inform SARS that you have passed away. Copies of the following documents must be sent to SARS:

  • Death certificate or death notice
  • Identity document of the deceased
  • Letters of executorship (J238) (if applicable)
  • Letter of authority (J170 in cases where your estate is less than R250 000)
  • Certified copy of the executor’s identity document (if applicable)
  • Power of attorney (if applicable)
  • The name, address and contact details of your executor or representative/s
  • Your last Will
  • An up-to-date inventory of your assets
  • Any liquidation and distribution accounts (if available or applicable)

Once SARS has coded your profile as a deceased estate, the receiver will issue applicable letters to your estate’s executor, advising him or her of what further steps need to be taken. Any applicable estate duty is payable to SARS within one year of the date of death, or 30 days from date of assessment, if the assessment is issued within one year of date of death.

Currently, SARS adds interest of 6% per annum on late payments.

What is capital gains tax (CGT) and how does it affect estate planning?

  • Capital Gains Tax (CGT) was introduced in 2001.
  • Capital gain arises when your assets are disposed of and the proceeds exceed the base cost. So, if you bought assets (like a house or collectable item) that are sold for more than what you paid, your estate will pay a tax on that gain before any proceeds are distributed to your heirs.
  • From an international perspective, a foreign country also has the authority to levy taxes on you if you own property situated within its boundaries. This means your estate, which holds offshore property, may also be subject to estate duty in terms of the tax law of that country – resulting in double taxation.

How to structure your estate to limit tax implications

a) Donations and gifts versus inheritance

  • Donations and gifts are treated differently to inheritances. For example, South African citizen donations are subject to a donations tax of 20%, with an annual exemption of up to R100 000 of the value of all donations made during the tax year.
  • So, if a once-off donation of R80 000 is made by an individual, no tax is payable, but if a donation of R140 000 is made, then donations tax of R8 000 is payable (20% of the amount exceeding R100 000, which is R40 000). For trusts, the exemption for casual gifts is up to R10 000 per tax year.

b) Will your heirs need to pay tax on an inheritance?

  • If an asset is inherited by an heir, it is a ‘capital receipt’ and is therefore not included in the taxpayer’s gross income, according to SARS. In South Africa, there is no tax payable by a person who receives an inheritance because the capital gains tax (CGT), where applicable, is usually paid by the deceased’s estate.

c) Are spouses subject to estate duty taxation?

  • In 2017, it was reported that a potential increase in estate duty tax, and a possible doubling of the CGT rate for individuals, are on the horizon as heightened revenue sources to make up for government’s budget shortfalls. If tax adjustments are made by SARS, any transfers between spouses will start to fall within the tax net, which could potentially trigger CGT.
  • CGT and donations tax might be applicable if there are transfers of assets between couples (living and deceased), so leaving assets to one’s spouse upon death could become a fiscally expensive choice – because assets could be taxed upon your death and then again (a second time) upon the death of your husband or wife.

d) What is deemed property and how is property subject to estate tax?

  • Estate duty is charged on the value of your estate in terms of the Estate Duty Act. The general rule of the Act is that if you are a resident of South Africa at the time of your death, all your assets (including deemed property), wherever situated, will be included in the gross value of your estate for the amount of duty payable to SARS.
  • To minimise the effects of estate duty, you need to understand which property is to be included in the calculation, which property constitutes ‘deemed property’, and what allowable possible deductions are available depending on your circumstances.
  • According to financial planning specialists, ‘property’ could include any right to property, including immovable or movable items registered in the deceased’s name at the time of his/her death. If you leave property to a public welfare organisation, which is exempt from income tax, or to the State or any local authority within South Africa, the value of your assets can be deducted for estate duty purposes.
  • The Act also allows for the threshold of R3.5 million of your estate’s duty to roll over to your surviving spouse so that they can use a R7 million deduction amount upon their own death.
  • It’s also important to note that estate duty will normally be leviable on life insurance policies if you’re insured for more than R3.5 million.

e) What costs are deductible from estate tax?

Here is a list of the possible deductions that are allowed when it comes to calculating Estate Duty:

  • The cost of the deceased’s funeral, tombstone and deathbed expenses.
  • Debts due at date of death to persons who have their ordinary residence in South Africa. This includes the deceased’s income tax liability (which includes CGT) for the period up to the date of death.
  • Debts and liabilities due to non-residents are deductible, but only to the extent that such debts exceed the value of the deceased’s assets situated outside South Africa which have not been included in the dutiable estate,
  • Inheritances to certain public benefit organisations. If you undertake your estate planning process with a professional estate planner, you can determine the exact deductibles your estate will qualify for in the event of your death.

4. Wills and estate planning

Why you need a Will

  • It’s often said that you can’t anticipate what life has in store for you, but you can make sure that your loved ones are taken care of when you are no longer around.
  • Drafting a professional Will can ensure that upon your death, your wishes are carried out.
  • A properly drafted Will ensures that possessions of monetary and sentimental value are protected and distributed appropriately.

What happens if you don’t have a Will at the time of your death?

  • A Will allows you to nominate a trusted executor, appoint heirs of your choice and even nominate guardians for your minor children.
  • Ultimately, a Will is the foundation of any estate plan. In the case of someone dying without a Will, the Master of the High Court will appoint an executor since no-one would have been nominated.
  • The executor’s first duty is to locate a Will if there is one; if your Will cannot be found among personal papers, the estate must be administered as if no Will has been drawn up.
  • Passing away without a Will in place means your estate will be administered under the Intestate Succession Act, Act 81 of 1987.

The Intestate Succession Act

Intestate succession concerns matters around ‘blood’ relationships. It’s noteworthy that illegitimate children are eligible to inherit, and a legally-adopted child is also considered a ‘blood’ descendant of his or her adoptive parents.

The following are examples of how an intestate estate could be administered where no Will is in place:

  • Should a deceased individual be survived by his or her spouse (or spouses) and have no living offspring, the spouse(s) will inherit the estate.
  • Should a deceased person be survived by a descendant, but not by his or her spouse, the descendant shall inherit the estate.
  • Where there is a living spouse or spouses and descendant/s, each spouse will inherit R250 000 or a child’s share, whichever is greater (this amount is fixed from time to time by the Minister of Justice). Note that children receive the balance of your estate, and if your child is deceased and has descendants, his or her inheritance will go to their surviving spouse and/or dependents.
  • If you have no Will and no spouse or descendants, but both your mother and father are alive, they will be eligible to inherit your estate in equal portions.
  • Note that if you have no living relatives and your assets have not been claimed by a legitimate heir upon your death after 30 years, your estate may be forfeited to the government.

Through Standard Trust Limited, we can provide you with professional Will drafting services as well as the safe storage of your Will. To start drafting your Will today, contact our Will drafting services department.

5. Executors

What is an executor?

  • An executor is someone you select in your Will to carry out the instructions set out in your Will and help to handle the winding up your estate. Kobus van Schalkwyk, Head of Legal at Standard Trust Limited says:
  • “Even if you know that you need to appoint an executor, you need to think carefully before you decide who is going to represent your estate in that capacity. Family friends are usually appointed, but we fail to realise that a friend might not understand the complexities and legalities needed to manage your estate effectively. As such, wrong decisions can be made that will harm your estate.”

How do you appoint an executor?

  • Understanding the role of executor can help you make an informed decision. You have the option to approach your bank to assist with the executorship function, should you not be ready to choose someone in your family take on this important role.
  • “One other important issue to consider when choosing to take on the role of executor is the fact that impractical and incorrect provisions may be included in Wills, which could make the administration difficult,” van Schalkwyk adds. “A bank, trust company, attorney, accountant or another professional person can administer the process to ensure it is handled effectively.”

What are the typical costs associated with an executor?

  • It’s important to note that an executor can take a maximum fee of 3.5% of the gross value of the estate if they want to.
  • While it’s reported that family members do not take this fee in most instances, a bank or lawyer will charge this fee for handling the administration. They may also earn 6% of the income earned by the assets from the date of the person’s death until the estate is distributed.

How can you reduce costs associated with an executor?

  • Standard Trust, through Standard Bank, aims to reduce the costs associated with executorship through an array of estate planning solutions at cost-effective rates.

What is the difference between an heir and a legatee?

  • According to SARS, your beneficiaries can consist of heirs and/or legatees. A legatee is a person who receives a specific asset from the deceased estate, like your prized watch or collectable car. An heir is a person who receives the balance of the estate (after all distributions to legatees has been finalised).

6. Guardians

How do I appoint guardians for minors?

  • If you’re a parent with young children (under the age of 18), it’s advised that you appoint someone to act as their guardian in your Will.
  • In most instances, the surviving parent is automatically the child's guardian, but you should always nominate a guardian or a substitute guardian in the event of the surviving parent passing away.
  • Legal experts agree that consideration must be given to appoint someone appropriate who can possibly exercise the same love and care for the child as you would have done yourself; perhaps a close relative can fill this particular role.

7. Trusts and estate planning

What is the role of trusts in South Africa when it comes to estate planning?

It’s widely believed that a trust is one of the most secure ways to protect your assets and ensure that your wealth is preserved for generations – providing continuity of financial support and protection for your loved ones.

We can provide you with the following tailor-made trust solutions:

  • Testamentary trust: Established on death and works to protect the interests of minors and other dependents who are not able to look after their own financial affairs.
  • Inter vivos trust: Created during your lifetime and is designed to provide protection of the family wealth over generations.
  • Settlement trust – Set up to accept proceeds from policies, divorce settlements, the Road Accident Fund, etc.

Next Step

Go to our Financial Planning page to explore your estate planning options, or use the comments field to chat to customers and consultants in the Community.