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Financial Planning

The most effective tax decisions to protect your clients estate

By: David Thomson, Senior Legal Advisor from Sanlam Trust

Whether your client inherits cash, investments, or property, as their financial planner it is your responsibility to advise them of the best way to protect their estate, especially from the taxman. David Thomson, Senior Legal Advisor from Sanlam Trust, explains that as a financial planner you are responsible for asking the right questions, putting the best options forward to your client and ensuring you are aware of any tax and regulatory changes that could affect them.

The COVID-19 pandemic and lockdown has resulted in thousands of job losses due to retrenchments as well as the collapse of many businesses, so clients need good advice now more than ever. More than 70% of working South Africans also do not have a will which compounds the confusion and uncertainty brought about by lockdown, he adds. 

“For many people, their life expectancy has been cut tragically short due to COVID-19. Putting off executing a will and engaging in estate planning is short-sighted. Every day we hear of people who have passed away due to COVID-19 which significantly aggravates the situation for those who are already vulnerable, in poor health, obese or with so-called ‘co-morbidities’. The time to act is now,” says Thomson.

Below, Thomson shares the top 10 questions financial planners should be asking their clients to establish how to structure their estate in the most effective manner.

  1. Are they married and if so, is it in community of property or not? Or, if they are recently divorced, have they changed their will and beneficiary nominations on all policies to reflect their current needs and wants?
  2. Do they have children and other dependants who rely on them for financial support and have they considered guardians for their minor children if they have any?
  3. Ask your client for a copy of their last will and testament. If no will exists, do nothing before you have prepared a will for them. Failure to have a will means failure to plan from day one.
  4. Have they considered a trust for special needs or disabled beneficiaries?
  5. Have they considered whether they have enough liquidity at date of death to ensure the proper finalisation of their will?
  6. What is their taxable income and income tax rate? 
  7. What are their total assets and debt (both long term and short-term debt)? You must also obtain their insurance portfolio and beneficiary nominations.
  8. Are they a member of a retirement fund? Acquire the details of the type of fund and the benefits in monetary terms. Ensure that your client’s nomination forms up to date as their circumstances might have changed. It is also vital to understand when they intend to retire and what will they need as far as income is concerned at that time.
  9. Are they planning to emigrate?
  10. Engage your client on their lifestyle and attitude towards tax. You may be surprised to find that many people do not want to structure their lives around tax and prefer to maximise what appeals to them, regarding tax as a necessary evil. For example, some people regard having a family trust as an administrative burden and offshore trusts as very expensive.

Retirement funds, which include pension, provident and preservation funds, all provide tax-exempt ‘roll-up’ which means taxpayers enjoy tax-exempt growth in their portfolio and have the right to deduct certain contributions for tax purposes. Endowment plans also provide tax-exempt proceeds on the maturity of the investment. Thomson advises that the best way to protect your clients from the taxman is to ensure that they file their tax return on time, thereby avoiding penalties and interest.

As a financial planner, you also must be aware of any tax and regulatory changes which could affect your client’s estate. Thomson advises that considering the fiscal shortfall the government of South Africa finds itself in, there may possibly be an increase this year in the rates of estate duty, donations tax and capital gains tax as recommended by the Davis Tax Commission. “We anxiously await the Minister’s ‘budget speech’ in February,” he adds.

“Effective tax decisions must give rise to effective estate planning- which means that your client’s estate actually passes to the people they want to benefit and not into a structure that their heirs find costly and burdensome,” concludes Thomson.




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