Estate Planning

Estate planning is the collection of preparation tasks that serve to manage an individual’s asset base in the event of their incapacitation or death, including the bequest of assets to heirs and the settlement of estate taxes. Most estate plans are set up with the help of an attorney experienced in estate law.

Some of the major estate planning tasks include:

Creating a will
Limiting estate taxes by setting up trust accounts in the name of beneficiaries
Establishing a guardian for living dependents
Naming an executor of the estate to oversee the terms of the will
Creating/updating beneficiaries on plans such as life insurance, IRAs and 401(k)s
Setting up funeral arrangements
Establishing annual gifting to reduce the taxable estate
Setting up durable power of attorney (POA) to direct other assets and investments

BREAKING DOWN ‘ Estate Planning’

Estate planning is an ongoing process and should be started as soon as one has any measurable asset base. As life progresses and goals shift, the estate plan should move to be in line with new goals. Lack of adequate estate planning can cause undue financial burdens to loved ones (estate taxes can run higher than 40%), so at the very least a will should be set up even if the taxable estate is not large.

Top 10 Estate Planning tips

1. Review/Update your will:
Having a Will is the cornerstone of any estate plan. For anyone with children the consequence of not having a Will may be devastating. Once you have a Will, it is important to review it regularly, and also to ensure that your family know where to find your Will when you aren’t around to show them.


2. Appointing guardians for minor children:
This issue is often overlooked by parents, especially as a surviving parent remains guardian in the event of the death of the other parent. However, couples should always stipulate a guardian for their children to cover the eventuality of their simultaneous death. Deciding who will raise your young children should you die is a tough task – so tough that many parents never do it. Some just procrastinate, while others find themselves deadlocked, unable to agree with their partner over a suitable candidate. For parents who have minor children, it is imperative to take time and special consideration when deciding who will take guardianship of their children in the event that they die. Your nominated guardian should be stipulated in your Will.

3. Review beneficiaries:
As your family situation changes over the course of a lifetime, you may need to change the names of beneficiaries not only in your Will but also in life insurance policies and other documents that list beneficiaries, such as trust deeds and group life funds.

4. Appointing trustees for minor children:
Trustees should not be confused with guardians trustees are appointed in a Will to administer monies inherited by young children, or heirs who are not capable of doing so. Guardians look after and care for minor children. The appointment of trustees is crucial for inheritances by minor children (i.e. under 18 years) as in the absence of provisions in a Will creating a trust, a minor child’s cash inheritance must be paid over to the Master of the High Court’s Guardians Fund for safekeeping.

5. Record-keeping:
It is a traumatic time for the surviving family when someone passes away. This trauma can be exacerbated when your loved ones cannot find important documents, keys to safety deposit boxes, financial statements and other necessary information. It is essential to create a list of where all-important information can be located and give the list to someone you trust.

6. Donations:
In terms of current legislation, a person is allowed to donate up to R100,000 each tax year, free of donations tax, to children, trusts or other persons. There is no limit on the amount that spouses may donate to one another tax free. By making donations, large estate can be reduced to avoid significant estate taxes.

7. Estate taxes:
There are various ways to limit the taxes payable on your estate (such as estate duty and capital gains tax), depending on the size of your estate and your family situation. It is worth-while to discuss the options with your financial advisor.

8. Liquidity:
One of the most common problems in winding up an estate is the situation where there is not sufficient cash to settle the estate’s  liabilities, such as mortgage bonds, vehicle finance, taxes and winding-up costs such as executor’s fees and conveyancing costs. In such a situation the outcome can be a forced sale of assets (such as the family home). Life insurance is an easy and affordable way to provide estate liquidity.

9. Off-shore assets:
If you should have offshore assets when you die, you’ll also have a foreign estate that will have to be administered. Each country has its own legislation dealing with inheritance and the signing of Wills. Your South African Will won’t necessarily meet with the legal requirements of the country where your assets are situated. A solution is to execute a separate Will in the foreign jurisdiction dealing only with those assets.

10. Make a living will:
Many people today draw up living wills. A living will is an advance document reflecting a person’s wishes regarding the type of medical care he or she would or not want if the person lacks the physical capacity to communicate his or her needs, especially where there is no hope of recovery or significant improvement. One of the most important roles of a living will is that it may be the only written evidence of what a person’s wishes are.

Setting up a Trust

One of the ways to minimise estate duty, protect underage inheritors and defer capital gains tax is by setting up a trust. A trust allows you to transfer assets to appointed trustees who control, manage and dispose of those assets in favour of the trust’s beneficiaries and according to the trust deed. The trust deed is set up according to your wishes and in terms of the law.

There are a variety of trusts to suit your needs and circumstances. Generally, there are two kinds of trusts to look at:

  1. Testamentary trust: specified in your will, this trust only comes into effect on your death. It’s used to look after minor children if one or both parents die while the children are still minors.
  2. Inter-vivos trust: this trust is set up while you’re alive. On donating or transferring your assets into the trust, you no longer own or control the assets.

Whether you leave behind a simple will or have complex intricate financial circumstances, your estate planning is personal and important – and we treat it as such.