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[THREAD] Estate planning is an uncomfortable but important step you need to take to ensure your family is taken care of and protected once you have passed away.
Let’s look at some factors that affect your estate and how to plan, when you are no longer around to intervene
![[THREAD] Estate planning is an uncomfortable but important step you need to take to ensure your family is taken care of and protected once you have passed away. Let’s look at some factors that affect your estate and how to plan, when you are no longer around to intervene](https://pbs.twimg.com/media/EiWneKlX0AIY8ls.png "[THREAD] Estate planning is an uncomfortable but important step you need to take to ensure your family is taken care of and protected once you have passed away. Let’s look at some factors that affect your estate and how to plan, when you are no longer around to intervene")
Let’s look at some factors that affect your estate and how to plan, when you are no longer around to intervene
1. Drafting a will
Firstly, you can legally draft a will in South Africa from the age of 16. So, do not let this hang until you are 65 and realising you need to plan. A will ensures that your assets are distributed to your beneficiaries according to your wishes.
Firstly, you can legally draft a will in South Africa from the age of 16. So, do not let this hang until you are 65 and realising you need to plan. A will ensures that your assets are distributed to your beneficiaries according to your wishes.
When drafting a will, you can choose the proportion of inheritance of each person; nominate an executor and negotiate an executor fee; include special instructions in your will; nominate a guardian for your minor beneficiaries among other things.
If you pass away without a will, you pass away “intestate”, and you have no control over how your assets are distributed. Specific persons may inherit from your estate and the share of your estate is distributed according to the rules of the Act.
Drafting a will may incur a cost between R500 to R1500. This mainly depends on the complexity of the will being drafted. The use of professional services may ensure that your will is not declared invalid by the courts due to rookie errors, e.g. a witness cannot inherit.
Typical places to draft a will: your local bank such as @AbsaSouthAfrica , @StandardBankZA and trustee company’s like @sanlam , Momentum, etc. There are some places that may draft a will for free.
National Wills Week is coming up in October. Use this opportunity to approach law firms that may assist with drafting a will free of charge or at a discount. Here is a list of South African attorneys participating in national wills:
https://www.lssa.org.za/our-initiatives/advocacy/national-wills-week/
https://www.lssa.org.za/our-initiatives/advocacy/national-wills-week/
2. How are my accumulated retirement benefits distributed to my beneficiary's?
The Pension Funds Act distinguishes between a ‘nominated beneficiary’ and a ‘dependent’. Dependents are prioritised when trustees decide how to distribute your funds. Your nominee may also inherit.
The Pension Funds Act distinguishes between a ‘nominated beneficiary’ and a ‘dependent’. Dependents are prioritised when trustees decide how to distribute your funds. Your nominee may also inherit.
To put this into perspective, you have a spouse who you are separated from and he/she receives maintenance from you. You have decided to nominate your best friend as 100% beneficiary of your retirement.
The trustees of your retirement fund will mostly likely pay all or most the benefits to your estranged spouse, despite you nominating 100% of the fund to your best friend. Those who are financially dependent on you, take precedence over those who are not.
(Please remember not to confuse the above rules with a Living or Life Annuity which pays you pension income AFTER you retire).
The investigation into the deceased’s dependents can take up to 12 months, thus it is important to make additional provisions to ensure your family is taken care of during this long process, i.e. life insurance policy’s may help and a will to wind up other assets in the meantime.
3. What happens to my investments?
If you have a unit trust, fixed deposit, ETF etc., these kinds of investments are paid into your estate. Your will provides instructions on how each investment product needs to be allocated to each beneficiary.
If you have a unit trust, fixed deposit, ETF etc., these kinds of investments are paid into your estate. Your will provides instructions on how each investment product needs to be allocated to each beneficiary.
A Tax-Free Investment is a great estate planning tool, as you can nominate beneficiaries. The proceeds are paid directly to beneficiaries, thus not incurring any estate tax. An added ‘plus’ is that you also save on taxes during your lifetime too – hence “tax-free” investment.
4. Life Insurance policies and your estate
There are strategic ways to ensure that the benefits from a life insurance policy are fully enjoyed by your heirs. You can take out a life insurance policy for the sole purpose of settling any debts you have when you pass away.
There are strategic ways to ensure that the benefits from a life insurance policy are fully enjoyed by your heirs. You can take out a life insurance policy for the sole purpose of settling any debts you have when you pass away.
This means nominating your estate as the beneficiary of your policy. The proceeds pay into your estate. The funds are used to settle any debts, taxes (including estate duty tax), penalties, and liabilities you may have, and distribute the remainder to your heirs.
A life insurance policy which is taken out for the benefit of your spouse will not attract estate duty or executor fees. Life insurance policy’s taken out for the benefit of your children, siblings, and other relatives, will attract estate duty of 20%.
Make sure you disclose all important information to the insurance company to avoid any non-payout at death, i.e. you do not want another Momentum saga: https://bit.ly/3mEqNkP
5. Budget for the expenses your family will incur when you pass away.
Your funeral is not the only cost that needs to be covered when you pass away. There are many administrative costs that need to be recovered to wind up your estate.
Your funeral is not the only cost that needs to be covered when you pass away. There are many administrative costs that need to be recovered to wind up your estate.
Few common costs:
-Executor’s fee of 4.025% incl VAT.
-Master of the High Court charges a fee starting at R600 and maximum R7000.
-Bank charges for your estate’s bank account.
-Transfer costs of the property you own.
-Costs relating to your bond, rates, and taxes.
-Executor’s fee of 4.025% incl VAT.
-Master of the High Court charges a fee starting at R600 and maximum R7000.
-Bank charges for your estate’s bank account.
-Transfer costs of the property you own.
-Costs relating to your bond, rates, and taxes.
6. Consider setting up a Trust
Yes, turn your children into trust fund babies! There is a common misconception that trusts are for the rich and wealthy. Yes there are costs, but they may be worth the expense if your assets exceed R3.5m.
Yes, turn your children into trust fund babies! There is a common misconception that trusts are for the rich and wealthy. Yes there are costs, but they may be worth the expense if your assets exceed R3.5m.
If you fall into the middle class with assets around R3.5m and above, this is also may be suitable as it ensures your assets are protected against creditors and your beneficiary’s, especially minors, have assets that are safeguarded until they are of legal age.
The R3.5m seems high, but this includes your house, your cars, your unit trust investments, money market accounts, tax-free investments, retirement funds, life insurance policies that will pay out when you pass away etc.
You can set up something known as a ‘testamentary trust” which only comes into existence on your death. Your last will and testament will state which assets are to be inherited by this trust and you may nominate an independent trustees to look out for your beneficiary's.
@sanlam also has a really cool article about setting up a family trust: https://bit.ly/2FJuq8E
and that's all from me folks!
and that's all from me folks!
