Estate planning, once an afterthought for most people, has suddenly become a matter of urgency for many South Africans.
Covid is one of the reasons for this, says Stanley Broun, head of fiduciary and tax at Sanlam Private Wealth. But there are other reasons for this new-found enthusiasm for tackling a subject full of dread for many people.
Says Broun: “We often find that clients become fixated on wanting to save on tax and estate duty – but it’s about so much more than that. Estate duty is, of course, key, especially if you’ve accumulated some wealth, but it’s paramount to obtain expert advice to ensure that all the elements of proper estate planning are taken into consideration, to ensure that there are no nasty surprises for your beneficiaries when your estate gets wound up.
“There are so many factors to be taken into account – especially if you have both local and offshore investment structures – including your marital regime, and whether your children have ’emigrated’ or intend to do so.”
It’s important in the initial interview to get clients to disclose full details, even seemingly unimportant ones, that could impact the estate planning process.
“When I sit with you as a client, I want to know everything, your assets, your liabilities, including your life policies, pension and provident funds. I want to know where all the assets are both locally and offshore, any business interests, loan accounts, offshore shares, how you are married, whether in community of property or antenuptial, and all of this allows me to do proper estate planning.”
Why is proper and timeous estate planning so important?
The reason for this granular detail is that estate planning is a crucial part of ensuring the smooth transfer of your wealth to the next generation. It’s important to remember that each person’s estate plan is unique – there’s no one-size-fits-all solution, and it involves far more than just pushing around some numbers on an Excel spreadsheet.
Why marital status is so important in estate planning
Clients sometimes bequeath a portion of their assets to their surviving spouse, and the remainder of the assets to other family members or a trust, says Broun.
“But if you’re married out of community of property with the accrual system, and your estate at your date of death is greater than that of your spouse, your spouse will have an accrual claim against your estate. This means that your spouse’s claim will have to be settled before any other distributions can be made, resulting in fewer assets being available for your other beneficiaries.
“People often don’t take the accrual system into account when drawing up their last will and testament.”
Broun illustrates what can happen if this is mishandled. In one case, a client who passed away omitted to remove his ex-wife as beneficiary of his life policy and retirement funds. When he passed away, his current wife and children didn’t inherit what he’d intended them to. “As part of your estate planning, it’s crucial to ensure that your beneficiaries are consistently updated, and that you keep a record of this.”
One reason for ensuring you record the correct beneficiaries in life policies and retirement funds is to spare them the agonising and drawn-out cash flow problems that often eventuate when estates are being wrapped up.
The importance of local and offshore wills
Administering estates with assets in SA and abroad is doubly complicated: a Letter of Executorship from the Master of the High Court is required to handle SA assets, and a similar process is required for offshore assets, particularly in the UK and US. In the UK, for example, a Grant of Probate is required for anyone to administer your last will and testament.
If you have assets both locally and offshore, it’s better to have both a local and a foreign will.
“Although it’s not a legal requirement to have an offshore will, based on our experience, it really helps with the administration of the offshore assets. If you don’t have an offshore will, it can become very time-consuming and complicated to wind up your estate,” says Broun.
What if the will is in Afrikaans?
With regard to the language issue, it also complicates matters if your will is not in English. Many South African wills are drafted in Afrikaans.
Your executor will first have to translate it to English, leading to unnecessary delays.
Remember, it’s not just a matter of using Google Translate – you have to make sure that the core of what is in the will is accurately reflected in the English version, which must then be submitted to the Master of the High Court (and that can take months).
Another advantage of having an offshore will relates to terminology. In South Africa, we in certain cases use different legal terms to those common in other jurisdictions.
How can estate planning help you to structure your assets more efficiently?
Broun says one of the key benefits of proper estate planning is that it provides an excellent opportunity to restructure your wealth.
“For example, what planning opportunities are there to better manage inheritance tax issues in the UK, or US estate taxes? Would an offshore trust or a dry trust be a good option to house your offshore assets? Yes, there may be an immediate capital gains tax impact should you decide to transfer your assets into a trust, however, the future growth of your assets in the trust is now outside your estate for estate duty purposes, which will definitely be more advantageous for your beneficiaries at your date of death. In addition, there are ‘wrappers’ such as the Glacier Global Life Plan that may be beneficial to combat US and UK estate taxes. It will, however, remain a dutiable asset in you estate.”
Your estate plan must align with your financial and life objectives, and tax should never be the driving force in estate planning because tax laws can change. Certain events may well result in you having to pay some taxes, but your plan will at least be aligned with your objectives, so that when you pass away, your beneficiaries will inherit the way you intended them to.
It’s one thing to grow and preserve your assets while you are still around, but it’s equally important to ensure that you don’t wipe out a significant portion of your returns and potentially miss your objective by not taking into account all the elements that are crucial in drawing up a proper estate plan, or making small, easily avoidable mistakes that can have a major impact in the long run.
This article was published on the Moneyweb Website on 29 October 2021