Estate planning is not just about wealthy people who avoid tax evasion. It’s rather a way to ensure that your dependents are taken care of when you cannot take care of them anymore.Most of our lives are devoted to collecting assets and one of the drivers behind it are the desire to provide for our children. A well-planned estate protects the hopes and dreams that you care for your dependents. The following ten points must be taken into account when planning your finances:
1. A valid testament: Keep your will simple to make sure it makes sense. For example, make sure that it is written that you understand it. Many people make the mistake of trying out the “grave rule”. It complicates the will and makes it difficult to execute.
2. A Testament trust: A testamentary trust is an essential part of your will if there are minor children involved. If you are divorced, a testamentary trust also prevent your former spouse to have access to your children’s bequest.
3. Provide tax: Make sure that there is sufficient liquidity in your estate to cover your death tax. Many people bequeath assets like vacation homes to their children without thinking about it, if they can not pay the tax or debt, the assets will have to be sold.Ensure that you have liquid assets or specific life cover in your estate for this to cover taxes and to comply with obligations.
4. Your marriage contract: If you are married in community of property, there are certain legal provisions that you have must understand before you relinquish your assets. For example, if you bequeath your home to a child from a previous marriage, but you are married in community of property your current spouse entitled to half of it. Even if you’re out of community goods are married, but in terms of the accrual system, your spouse will for example be entitled to R500 000 if your estate increased by R1million during the marriage it in value. Another important aspect of the community of goods married to be what is your estate. When your husband dies, the estate will already include your assets and liabilities as well as your spouse’s Therefore, the executor’s fees will be payable of 3.5% plus VAT also apply to your assets. The entire estate will be frozen and therefore it is important that you and your spouse take life cover for ensure immediate liquidity to the surviving spouse as well as the potential to pay executor fees for the entire estate.
5. The choice of an executor It is important to find an executor who is knowledgeable in the area of estate legislation. To save costs by choosing a relative, your dependents may eventually be expensive because it can take longer to settle the estate.
6. Liquidity through your policies A life insurance policy that provides immediate cash flow to your dependents is a necessity. It may take between 12 and 18 months to settle an estate. A life policy will take place immediately paid out and does not fall under the executor. Furthermore, the return of a life policy can be achieved Also not claimed by creditors if your estate is insolvent. (However, it does not apply if you married in community of property, or if you signed up for your spouse’s debt). A pension fund or retirement annuity is not a substitute for life cover if the final decision of whom the proceeds are to be left to the trustees. They can take up to 12 months to conclude.
7. Use your discount: A discount is a part of your estate that is excluded from estate duty. Individuals currently qualify for a discount of R3.5 million. From 2010 you will receive R3.5 million estate tax discount is transferred to your spouse’s estate if you do everything left him / her. This means that your spouse will be entitled to estate tax deductions of R7 million on his / her estate. However, it is still worth considering to use your discount to leave assets to your children since your spouse can get married again. No Estate tax is payable on any assets you leave to your spouse.
8. Consider your foreign assets: Foreign assets are counted as part of your South African estate. You need to know if the country where your assets are held has a double tax agreement with South Africa. It is also practical to have a separate will in the other country as it will assist with the estate preparation.
9. Tax on retirement funds: Since 2009, estate duty is no longer applicable to retirement funds, provided that your tax rebate on your contributions has been received. Income tax, however, remains the same application.
10. Understand the tax on capital gains: There are three types of tax payable by your estate: estate duty, income tax and capital gains tax. If you bake your home to your spouse, there will be no tax be payable. However, if you leave your home to your children, both estate duty as well as capital gains tax are applicable, even if the house is not sold.