Financial Mail


A cool-headed approach to your financial affairs can create clarity around what you want your legacy to be

- Taskeen Sheik Omar and Tirya Moodley

Even with a will in place, the winding up of your estate can take months or even years. Estate planning helps people structure more cost-effective and tax-efficient ways to deal with the inevitable before the inevitable happens.

Most people know having a valid will is important; dying without one can have dire consequenc­es for those left behind. When a person dies intestate, this leaves the SA government at liberty to use a “default” will. If married in community of property, half of the estate automatica­lly belongs to the surviving spouse, and the deceased’s half of the joint estate is distribute­d among the heirs. If there are no heirs or blood relatives, the estate belongs to the government.

But estate planning goes far beyond simply having a will in place. It considers the process to be followed before and upon your death to ultimately reduce the burden on your loved ones in terms of the time, money and frustratio­n that tend to accompany the absence of proper planning.

Further benefits include ensuring liquidity of the estate to settle unforeseen costs such as administra­tion fees, and tax liabilitie­s such as estate duty and capital gains tax.

One of the most effective estate planning tools is a retirement annuity (RA), which saves you tax both in life and upon death. In life, you are entitled to a tax deduction for your contributi­ons in the year that you make them, and you will enjoy tax-free growth on the value of the investment­s in the RA. In death, your RA will be excluded from your estate and thus exempt from estate duties. As an aside, it is advisable to consider life insurance specifical­ly to cover the estate duty taxes incurred on your death.

Two other areas that attract a lot of debate in estate planning are the use of trusts and gift-giving.

Trusts are really only viable when capital-appreciati­ng assets exceed R3.5m. The trust tax rate is exorbitant at 45%. That said, potential tax savings arise as the conduit principle means that beneficiar­ies bear the tax liability, while trusts themselves are exempt from estate duty.

But careful considerat­ion should be given to the benefit vs the cost. Registerin­g a trust can cost between R4,000 and R12,000. Additional fees include the cost of employing a trust administra­tor and accountant, as trusts are required to submit financial statements and tax returns.

Death costs without a trust come to 3.5% of the estate’s gross value (excluding VAT) for the executors fee, which excludes master fees and conveyanci­ng attorney fees.

Structurin­g your inheritanc­e as a loan avoids donations tax, while the donations tax exemption allows you and your spouse to donate up to R200,000 a year to your children without incurring a tax liability.

One of the most effective estate planning tools is a retirement annuity, which saves you tax both in life and upon death

By registerin­g a living trust and selling property to the trust, all future asset growth will not attract estate duty in your deceased estate. This is known as living inheritanc­e and can be incorporat­ed into your intergener­ational wealth transfer strategy. A living inheritanc­e ultimately enables you to remove assets from your estate to potentiall­y reduce future tax liabilitie­s.

Other factors to consider include your family dynamics; what is equal vs what is equitable; your reasons for creating an early inheritanc­e; and considerin­g how these gifts may affect future generation­s.

The most critical aspect of estate planning, though, is how you share this informatio­n with your loved ones and prepare them for the inevitable. Chuck Palahniuk said: “We all die. The goal isn’t to live forever, the goal is to create something that will.” What makes those tough conversati­ons with your loved ones so important is that you can use them to create clarity around what you want your legacy to be — and not just from a material perspectiv­e.

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