Estate planning is an essential part of the financial planning process. One needs to consider several important facets when ensuring your estate is in a good position both financially and beneficiary wise upon ones passing.
An estate liquidity analysis is crucial for ensuring there is sufficient financial liquidity to settle any outstanding debts and costs and fulfill any financial wishes you may have to loved ones. If one does not ensure there is sufficient liquidity in their estate upon passing away, it may invoke the unnecessary sale of assets meant for inheritance or the request of beneficiaries to pay the outstanding liabilities themselves to ensure assets are maintained and not sold.
The most important aspect is your will. An often forgotten about priority is ensuring you have a will in place and ensuring it is regularly updated to include any significant lifestyle changes. Passing away intestate (without having a will in place) means that your estate will be divided according to the Intestate Succession Act, 1978. This means that your estate will devolve upon your surviving spouse, children, siblings, and parents and that the people who you wish to have inherited may be excluded from inheriting, while those you wish to not have inherited may inherit assets that you would not have bequeathed to them.
The costs involved with passing away can add up quickly and can be overwhelming both for yourself and your loved ones when winding up your estate. These can include executor’s fees, master’s fees, income tax, capital gains tax and personal debt such as loans, mortgages and asset financing to name a few. There are several ways to ensure these costs are limited to minimize any unforeseen costs.
Taking out a life insurance policy and having your estate as the beneficiary is a quick and easy way to inject additional liquidity into your estate without having to sacrifice too much of your financial income streams. The earlier you start the lower this cost will be. One would need to keep in mind to adjust the amount accordingly to account for the estate duty calculation.
Consider transferring certain growth assets, such as property, into a trust. This means that the growth will take place within the trust and not the estate which in turn will reduce your estate duty liability. One should consider trustees carefully and clearly set your wishes in a trust deed.
All individuals have a R100,000 a year donations tax exemption. This means you can transfer this amount to loved ones up to this amount tax-free without attracting the 20% donations tax.
If you have a lifelong partner, marriage is a strong consideration. Upon death you are entitled to R3,500,000 estate abatement. If you have a surviving spouse, this can be rolled over to them and, when the surviving spouse ultimately passes away, they can claim a maximum R7,000,000 abatement against their estate (whatever portion that was not used by the first dying spouse). This is known as roll-over estate duty. The same roll-over principle applies for leaving assets to spouses for Capital Gains Tax purposes in that they will inherit your tax liability upon your death and is only payable upon their passing.
PWH Wealth Group Independant Wealth Planners can assist with the appropriate tax and estate planning to mitigate these costs and ensure your family is left in the most optimal financial position when you pass away.