Coreen van der Merwe, Director at Sovereign Trust (SA) Limited

Creating a will and planning your estate is not everyone’s idea of fun. It requires you to confront issues like incapacity, death and taxation. However, National Wills week taking place from the 13^th to the 17^th of September, presents itself as a reminder that it’s a vital exercise that should not be delayed. By taking the time to address your estate planning now, you will have comfort knowing that you have provided properly for your dependents, and have a feeling of control at a time of uncertainty, especially since the onset of the Covid-19 pandemic.

The benefits of estate planning

Estate planning is so much more than just creating a will. It is about ensuring there is sufficient liquidity to meet your estate’s financial obligations if you’re incapacitated (through income protection policies) or if you die (often through life insurance). In both cases, the objective is to eliminate uncertainties and financial hardship.

Many estates are rich in assets, but lack the liquidity to settle liabilities in the short term. This can result in difficult financial situations and tough choices for dependents. Unless your estate is cash rich and debt free, it is essential to incorporate financial planning into your estate planning to ensure business continuation or assets stay within family ownership. 

When you structure your finances and assets, look to minimise taxes, including donation tax (currently 20%), estate duty (20% on estates above ZAR3.5 million and 25% on estates above ZAR30 million) and capital gains tax (40% of the gain is included in your taxable income after deducting the annual exemption). You can also minimise the potential costs of executor fees by placing assets into a trust. Executors’ fees are currently 3.5% (excluding VAT) of the gross value of the estate’s assets subject to a minimum remuneration of R350. The executor is also entitled to a fee on all income earned after the date of death, currently 6% (excluding VAT). 

If you have assets in more than one country, the foreign country may levy taxes on property that is situated there, or have ‘forced heirship’ rules that stipulate the proportion of your estate that must be left to certain family members. Careful estate planning can avoid double taxation or forced heirship. 

Families are often complex structures, with multiple marriages or children from different relationships. An estate plan combined with a detailed and well thought out will may protect your loved ones from legal battles or financial uncertainty. This can often be achieved by transferring assets into trusts. It is even possible to arrange for generation-skipping asset transfers through trusts.  

The role of trusts in estate planning 

In recent years, trusts became popular vehicles to reduce estate duty and other taxes. As a result of changes to our Income Tax Act, though, trusts no longer offer the same tax benefits and funding them is no longer as straightforward. However, they are still a secure way to protect your assets and ensure your wealth can be preserved for future generations. 

Trusts can play an essential part in estate planning if your intention is to:

• Protect your assets and preserve a legacy for future generations;
• Protect your and your beneficiaries’ assets from creditors or claims as a result of relationship breakdowns;
• Look after the needs of minor or disabled beneficiaries (special trusts);
• Ensure your beneficiaries benefit from an asset that cannot be easily subdivided, such as a holiday house or farms;
• Separate personal capital assets from business and trading assets; and 
• Provide for dependents and relatives who are incapable of managing their money or taking care of their own affairs.

To create a valid trust, the settlor of the trust must intend to transfer ownership of the assets to the trustees. If there is any uncertainty around this, the trust will fail and the assets will still be regarded as belonging to the settlor. This is known as a ‘sham’ trust, and can be set aside if challenged in court. This would have a devastating impact on any estate plan. 

Reviewing your estate plan and will

Estate planning, including a review of your will, should take place at least annually. This involves reviewing and ‘stress testing’ your existing plans and making any alterations based on income/asset growth or declines or changing circumstances. If your estate is subject to frequent asset acquisitions or disposals, update your estate plan and will more regularly.

Privacy and estate planning

Estate planning is a private concern, and there are many good reasons to keep matters confidential. However, it is essential to avoid any uncertainty, unhappiness, anger or resentment among your family and business partners. Discuss your estate plan with your family, or at least, your spouse or partner. After all, it is their future that you are planning for.