Things to Know About Estate Planning

The benefits of proper estate planning are numerous. Good planning will provide the following:

Saving of income and capital gains tax

To quote a British judge, Lord Clyde "No man in this country is under the smallest obligation, moral or otherwise, to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores."

Saving on estate duty

Estate duty is calculated at the rate of 20% of the total net value of the planner's estate on his death, individual life assurance policies with a primary rebate of 1 and a half million rand. No estate duty is payable where assets or policies are left to the surviving spouse. Upon the death of the last dying however, estate duty will become payable. Assets held in a discretionary trust (in South Africa or off-shore) would normally not be subject to the payment of estate duty. This means the estate duty payable on an estate with a net value of say R3 000 000 will amount to R500 000. With proper and timeous planning this can be reduced to nil.

Protection against insolvency

One usually does not contemplate insolvency. Once trouble looms on the horizon, it is too late to protect assets against creditors. An estate plan should be structured in such a way that at least some of the assets are protected against creditors, and the mechanism of an inter vivos discretionary trust can be useful.

Protection of business interests

The size of the planner's estate will invariably be attributable, at least in part, to the success he enjoyed in his business and it is vital that his business interests be protected after his death. Insurance cover should be provided to ensure liquidity on death and key personnel should be trained to take over the management of the business after the death of the planner.

Consolidation and protection of off-shore assets

Ownership of off-shore assets should be structured in such a way to ensure that estate duty is minimised. Estate duty is calculated on the total value of all assets owned by the planner upon his death, both locally and off-shore. With proper planning, assets held in an off-shore discretionary trust should not form part of the estate of the planner, and the remaining beneficiaries of the trust can continue to enjoy the benefits of such a trust. Savings on income tax and capital gains tax can also be achieved, especially where such assets are invested in a so-called "tax-haven".

< Back to Legal Updates Index