SOME POINTERS FOR PLANNING YOUR ESTATE

“Estate planning” has been defined as the process of creating and managing a programme that is designed to:

  1. Preserve, increase and protect your assets during your lifetime;
  2. Ensure the most effective and beneficial distribution thereof to succeeding generations.

It is a common misconception that it revolves solely around the making of a Will, or the structuring of affairs so as to reduce estate duty. Each person’s estate is unique and should be structured according to his/her own unique set of circumstances, goals and objectives.

Sound estate planning will address the following problems:

Liquidty

The lack of liquidity on the date of death may cause the deceased’s family members and dependants to suffer hardship in that bills still need to be paid. Technically the estate is frozen until such time as the Master of the High Court has issued Letters of Executorship. In addition, certain assets might have to be sold by the executor to generate the cash needed during the administration of the estate.

Liquidity means that there should be enough cash funds to provide for:

  1. ESTATE DUTY; Where the value of the estate exceed R3,5 million, estate duty will become payable on the balance in excess of R3,5 million, with the exception of the property bequeathed to a surviving spouse, which is exempt from estate duty and/or capital gains tax.
  2. estate liabilities
  3. administration costs; An executor is entitled to remuneration fixed by the deceased in the Will, or a fee equivalent to 3,5{31fc6f1f044649ba2b612cdcc51b4f95d98f47a1e9704295258ff593f29362d5} of gross assets and commission equivalent to 6{31fc6f1f044649ba2b612cdcc51b4f95d98f47a1e9704295258ff593f29362d5} on income accrued and collected from date of death. Executor’s remuneration is subject to VAT where the executor is registered as a vendor.
  4. taxation liabilities ARISING AT DEATH such as capital gains tax

Intestate Succession

Dying without executing a valid Will means your estate will be dealt with as an intestate estate, and the laws relating to intestate succession will apply. The Intestate Succession Act determines that the surviving spouse will inherit the greater of R250 000 or a child’s share. A child’s share is determined by dividing the total value of the estate by the number of children and the surviving spouse. If the spouses were married in community of property one half of the estate goes to the surviving spouse as consequence of the marriage, and the other half devolves according to the rules of intestate succession. If there is no surviving spouse or dependents, the estate is divided between the parents and/or siblings. In the absence of parents or siblings, the estate is divided between the nearest blood relatives. This might not be what the deceased intended.

Agricultural Land

Section 3 of the Subdivision of Agricultural Land Act, prevents the subdivision of agricultural land, and such land being registered in undivided shares in more than one person’s name and is subject to Ministerial approval.

Minor Children or Grandchildren

A minor child is a person under the age of 18 years of age, and any funds bequeathed to a minor child will be held by the Guardian’s Fund, which falls under the administration of the Master of the High Court. These funds are not freely accessible, and are usually invested at below market interest rates. It is thus advisable to provide for minors by a means of a trust.

Close Corporations

The Close Corporations Act provides that, subject to the association agreement, where an heir is to inherit a member’s interest (in terms of the deceased’s Will), the consent of the remaining members (if any) must be obtained. If no consent is given within 28 days after it was requested by the executor, then the executor is forced to sell the member’s interest.

Inter Vivos Trusts

Section 3(3)(d) of Estate Duty Act determines that where an asset is transferred to a trust during an estate planner’s lifetime, yet the estate planner, as trustee of the trust retains such power as would allow him to dispose of the trust asset(s) unilaterally for his own or his beneficiaries benefit during his lifetime, then such asset(s) may be deemed to be property of the estate planner and included in his estate for estate duty purposes.

Marriages in Community of Property

Where the parties are married in community of property, the surviving spouse will have a claim for 50{31fc6f1f044649ba2b612cdcc51b4f95d98f47a1e9704295258ff593f29362d5} of the value of the combined estate, thus reducing the actual value of the estate by 50{31fc6f1f044649ba2b612cdcc51b4f95d98f47a1e9704295258ff593f29362d5}. The estate is divided after all the debts have been settled in a deceased estate (not including burial costs and estate duty, as these are the sole obligations of the deceased and not the joint estate). Only half of any asset can be bequeathed.

Life Sentence

The proceeds from the life insurance policies can be used to solve liquidity problems to :

  1. Generate income to maintain dependents while estate is dealt with;
  2. pay estate expenses: funeral, income tax, estate administration, estate duty.

BUT – -all proceeds of South African “domestic” policies taken out on the estate planner’s life, where there is no beneficiary nominated on the policy, will fall into his estate on his death. Where the beneficiary is nominated on the policy, the proceeds will be deemed property for estate duty purposes, even and although they are paid directly to the beneficiary (subject to partial exemptions based on policy premiums). “Buy and sell, key man policies are exempt from inclusion.

“ Whilst all reasonable steps are taken to ensure the accuracy and integrity of information provided, no liability or responsibility whatsoever is accepted if information or data is, for whatever reason, incorrect. The information does not constitute proper legal advice and should not be relied upon for that purpose.”