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.

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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.

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 -

1. 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;

2. 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;

3. 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);

4. 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;

5. 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;

6. 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

7. 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).

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.