15 October 2021
The last thing we want is more admin, but here are six boxes worth ticking in the near future to make sure that the taxes you need to pay in death don’t erode the wealth and lifestyle you hope to leave for your loved ones.
Whether you have children or not, one of the most important parts of estate planning is to make sure you have a will, which is a legally binding way of nominating beneficiaries and guardians. Once you have written a will, it is important to update it when the need arises. As the years go on and your situation changes, you may wish to change the names of beneficiaries in your will, life insurance policies, trust deeds and group life funds.
It’s also important to make sure that your loved ones know exactly where to locate all necessary documents in the event of your death.
It’s a good idea to draw up a living will, which is written evidence of your wishes regarding the type of medical care you would (or would not) want if you don’t have the physical capacity to communicate your needs.
Deciding who would raise your children if you and your partner both die is a difficult task that many parents avoid doing. However, it is essential to nominate a legal guardian for any minors in your will if there is ever a tragedy that would leave them orphaned. The legal guardians you choose for your kids will be responsible for looking after them until they are 18 years old. You should consider several factors, such as the guardian’s age, location, financial situation, and existing responsibilities.
You can also set up a trust in your will to provide an income and capital for your children, and you can make additional provisions for their guardians. Furthermore, you should appoint a trustee in your will — their role is to administer your children’s inheritance to them, while a guardian’s role is to care for them. You must appoint a trustee for inheritances by minors, as in the absence of such provisions in a will, your child's inheritance will be kept until they reach adulthood in the Guardian's Fund, which falls under the administration of the Master of the High Court.
You can donate a maximum amount each tax year to children or a trust, without needing to pay any donations tax; and there is no limit on the amount you can donate to your spouse tax-free.
You can reduce your estate and avoid significant estate taxes by making donations. There are various other ways to limit certain taxes, such as estate duty and capital gains tax, depending on your family situation and the size of your estate, so don’t hesitate to arrange a meeting to discuss the options.
If you intend to keep any offshore assets, it means you have a foreign estate that needs to be administered too. Each country has its own legislation when it comes to dealing with inheritance, and a South African will won't necessarily meet another country’s legal requirements, so you’ll need to execute a separate will in the jurisdiction that deals with the assets.
When it comes to winding up an estate, many people are faced with liquidity issues, which is when there is not enough money to settle the estate's liabilities — be that a bond, vehicle finance, taxes, executor's fees or conveyancing costs.
If this is the case, your loved ones could be forced to sell assets, such as the family home, to cover the expenses. For this reason, it is important to get comprehensive life insurance, which will provide estate liquidity in the event of your passing.