Estate Planning
In the financial and legal world, an Estate refers to everything of value that someone owns—such as all property owned, in and outside of South Africa (in cases where someone was ordinarily resident in the country), art collections, antique items, investments, certain insurance policies, annuities, intangible assets such as a patent or trademark and any other asset or entitlement.
Key Takeaways:
Estate planning is the process of arranging your assets and affairs for your death or incapacity.
Estate planning can help you minimize taxes, protect your beneficiaries, and avoid legal disputes.
Estate planning involves creating a will, appointing an executor, setting up trusts, and choosing guardians for minors.
Estate planning should be reviewed and updated regularly to reflect your changing circumstances and goals.
Comprehensive Estate Planning: Securing Your Legacy in South Africa
Estate planning is not just for the wealthy; it's a crucial process for anyone who wishes to ensure their assets are distributed according to their wishes and their loved ones are provided for after their passing. In South Africa, effective estate planning involves more than just drafting a will; it's a holistic approach to managing your assets, mitigating taxes, and safeguarding your legacy for future generations.
What is an Estate?
A person’s ‘collection” of assets (less any debts on those assets) is also used as the primary way to refer to their net worth i.e. the value of everything a person owns. Meaning their financial and non-financial assets minus their total outstanding liabilities (your debts).
An asset is a resource with economic value that someone owns or controls with the expectation that it may provide a future benefit. Assets can be sorted into short-term (or current) assets, fixed assets, financial investments, and intangible assets.
What is estate planning?
Estate planning was once considered something that only high net worth individuals needed. But that has undoubtedly changed. Nowadays many middle-class families need to plan for when something happens either to themselves or to their family’s breadwinner (or breadwinners). After all, you do not have to be wealthy to do well in the stock market or real estate, both of which produce assets that you will want to pass on to your beneficiaries.
Planning your Estate partly involves the drafting of documents and processes to be followed upon your death ensuring that your loved ones are properly taken care of. It is the act of managing your assets, which arguably represents the most important financial planning of your life.
Whilst not the only part of the process, the planning of your Estate involves the process of drawing up your Will which will explain your (as the testator) intentions for the distribution of your Estate upon your death. This will involve the nomination of beneficiaries and the appointment of your Executor to administer your Estate.
But the drawing up of a valid Will involves much more than just nominating heirs and appointing an Executor. Provision must also be made for the settling of debts, taxes and other related costs, in order to secure your family’s financial future. And these intricacies will need professional assistance.
Remember, as set out in our article Your Will is Yours to Make, without a valid Will (meaning you have passed intestate), the assets in your (now deceased) Estate will be distributed in accordance with the Intestate Succession Act 81 of 1987. This in essence means that with no valid Will to direct your Executor as to what you want to go to who, your estate will be administered and divided according to Section 1 (1) of the Intestate Act, either wholly or in part. And these rules of devolution may not be in accordance with your actual last wishes.
What could affect my Estate?
As more fully set out in our article Death and Taxes, here are some provisions you should always keep at the back of your mind -
Estate Duty at a rate of 20% is levied on the net value of Estates that exceed R3.5 million and which fall below R30 million. Thereafter, all amounts above R30 million, Estate Duty will be levied at 25%. If duty is paid late, interest is charged at a rate of 6% per annum;
there are, however, many exclusions that could potentially apply which could reduce Estate Duty liability and it is important that all of these are taken into consideration during the Estate planning process;
allowable deductions from Estate Duty include debts, funeral and death-bed expenses, administration costs and fees on transfer of property to a surviving spouse. Deductions are also allowed for bequests made to qualifying public benefit organisations, and assets that are inherited by the surviving spouse (Section 4q deductions);
all persons are entitled to a Section 4A abatement (rebate) to the value of R3.5 million which may or may not be required to be utilised. In the event that the abatement is not utilised at the instance of the first death, a surviving spouse is entitled to an Estate Duty abatement of R7 million. Where the deceased had more than one spouse or a predeceased spouse, special rebate rules apply;
retirement annuities and pension or provident fund benefits (including lump-sums) are not considered to be “property” and will not be subject to estate duty nor form part of the Estate where there is a nominated beneficiary. Where the proceeds of the annuity investment are paid to the Estate, it will be subject to Estate Duty and Executor’s fees;
when a life insurance policy is paid out, the value of the pay-out is included in the value of the deceased’s Estate and it could, therefore, impact the amount on which the Estate Duty is levied. There are certain exceptions to this rule. It is important to note that endowment investments/policies (local and offshore) that are co-owned by the deceased is included in their Estate to the value of their share of such policy/investment and will, therefore, be subject to Estate Duty, although exempt from Executor’s fees, and
Capital Gains Tax is applicable to a deceased Estate in the same manner as it is applicable to individuals, with one exception to the general rule. The exception is that death is regarded as a deemed disposal of assets that is subject to capital gains tax, such as immovable property, shares, unit trust, etc. Exclusions would include a R2 million capital gain exclusion on a primary residence and a R300 000 death exemption.
Correctly calculating Estate Duty is a complex process with many additional factors which require professional assistance and advice by legal advisors (such as Benaters) who are trained to successfully assist with planning your Estate and drafting your Will.
When should I start the process of Estate planning?
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 is advisable to discuss your Estate plan with an expert, whenever this occurs.
Keep in mind that as a bare minimum, your Estate planning should take place at least once a year. This will entail sitting down and reviewing your previous plan to make any alterations based on income growth or asset acquisitions. A good measure is to review your Estate plan after any significant change in life circumstances or if you acquire new assets, part with existing assets or experience a knock or vast improvement to your income (as similarly set out in our article Wills - the Do's and the Don’ts, on how often one should update their Will).
Your Step-by-Step Guide to Estate Planning in South Africa
Effective estate planning South Africa involves a series of strategic steps to create a robust framework for your future. Here’s how our experts at Benaters help you plan your estate:
Assess Your Current Financial Situation: Begin by compiling a detailed inventory of all your assets (properties, investments, bank accounts, businesses, retirement funds) and liabilities (debts, loans). This provides a clear picture of your estate.
Define Your Goals and Beneficiaries: Clearly articulate who you want to benefit from your estate (individuals, charities, trusts) and what specific assets you wish them to receive. Consider any special needs or long-term care for dependents.
Draft or Update Your Will: Your will is the cornerstone of your estate plan. It dictates how your assets are distributed, nominates an executor, and appoints guardians for minor children. Regular review of your will (every 3-5 years or after major life events) is crucial.
Consider Establishing Trusts: Trusts can be powerful tools for estate planning, offering asset protection, tax efficiency, and control over how and when beneficiaries receive assets. This is especially relevant for minors, individuals with special needs, or managing large estates.
Address Potential Tax Implications: Your estate may be subject to various taxes, including estate duty and capital gains tax. Strategic planning can significantly reduce these liabilities, preserving more of your wealth for your heirs.
Review Beneficiary Designations: Ensure your retirement annuities, life insurance policies, and other financial products have up-to-date beneficiary nominations, as these often bypass your will.
Appoint an Executor and Trustee: Choose capable individuals or professional firms (like Benaters) to act as your executor and/or trustee. Their expertise ensures your wishes are executed efficiently and legally.
Safeguard Important Documents: Ensure your will, trust deeds, insurance policies, and other critical documents are stored securely and that your executor knows their location.
Regular Review and Updates: Life changes, and so should your estate plan. Regularly review it with your legal advisor to account for new assets, marriages, divorces, births, deaths, or changes in legislation.
Estate Planning FAQs: Your Questions Answered
Here are common questions about estate planning in South Africa:
Q: When should I start estate planning?
A: It's never too early to start. As soon as you acquire assets, have dependents, or even turn 18, basic estate planning (like drafting a will) becomes essential. It’s an ongoing process that evolves with your life.
Q: Do I need a lawyer to draft a will?
A: While it's possible to draft a will yourself, it is highly recommended to use a qualified lawyer. They ensure your will is legally valid, unambiguous, and effectively caters for your specific circumstances, preventing future disputes or unintended consequences.
Q: What happens if I die without a will (intestate)?
A: If you die intestate, your estate will be distributed according to the Intestate Succession Act, which may not align with your wishes. The process is also typically longer, more complex, and more costly for your loved ones.
Q: What is the role of an executor in estate planning?
A: An executor is responsible for winding up your deceased estate according to your will (or intestate law). This includes collecting assets, paying debts, and distributing inheritances. They require a letter of executorship from the Master of the High Court.
Q: Can estate planning help reduce taxes?
A: Yes, strategic estate planning can help mitigate estate duty, capital gains tax, and other taxes, allowing more of your assets to pass to your beneficiaries. This often involves careful use of trusts and understanding exemptions.
Why should you trust Benaters with your estate planning?
The process of planning your Estate, with its values, deductions and exclusions of various taxes is complex and intricate. As with any financial type planning process (especially when it is possibly the most important financial planning process of your life), it is imperative that you consult with both a legal advisor as well as a financial advisor when considering your Estate planning process as a whole.
We have assisted many individuals and families with their estates, from the planning thereof to the administration of same and have been able to successfully support and guide them through the entire process.
We are here to help you. In any way we can!
So please, get in touch today and let us see how we can assist you as you undergo the process of Estate planning. Rest assured that we will undertake your matter, as always, with professionalism and the utmost due care.