It’s National Wills Week 11-15 September and a Will is for every South African, not just the super-rich. The terminology can be misleading, so Craig Torr from Crue Invest helps us understand the terminology behind the testament.
A system designed to create and protect your wealth, and ensures an advantage for your beneficiaries. The goal of an Estate Plan is to protect your wealth while you’re still alive, and to ensure that the maximum amount of wealth is transferred to your heirs on your death.
It is a multi-disciplinary approach to structuring your financial, economic, social and psychological needs in relation to your estate, spouse, loved ones and beneficiaries. It’s a complex and requires financial, legal and tax expertise.
Last Will & Testament
Every South African should have a Will as this forms the cornerstone of an Estate Plan. A nominated beneficiary in a Will cannot be a witness to the Will, and doing so could disqualify him from inheriting in terms of the Will.
It is important that your loved ones know where your Will is kept, as searching for a Will can delay the winding up of the estate. Ensure that previous copies of your Will are destroyed to avoid confusion.
A client is able to nominate an Executor to his estate in his Will. A family member, a professional attorney or accountant can be appointed as the Executor, and that the client has full trust that this person will execute his wishes.
It is legal for a nominated Executor to inherit from the Will. The powers of the Executor can be set out in terms of the Will. Where a family member is nominated as Executor, it is acceptable for them to outsource this function to professional Executors who are able to charge a fee of up to 3.5% of the gross assets in the estate. The Master of the High Court is required to confirm the appointment of the Executor and this can take up to a month.
If the client has a trust or includes a testamentary trust in his Will, he will need to appoint Trustees to the trust. Trustees are able to inherit or benefit from the Will, and there is normally a clause in the Will which makes provision for this. The role of the Trust should be carefully set out in the Will.
If you have minor children, it is imperative to name and appoint a legal guardian to your children in your Will. Should you die, the appointed guardian would take custody of your children and would be legally entitled to care for them until they reach adulthood. Leaving the guardianship of your minor children to the judgement of government authorities is less than ideal, and can be avoided by making provision for a guardian in your Will.
Heirs and Legatees
A legacy and a special bequest are two different things. In the event of a special bequest a testator may, for instance, bequest that an amount of R100 000 be bequeathed to the SPCA, who would be the legatee. Another example would be where a testator specifically bequeaths his hunting rifle to his first-born son (the legatee). On the other hand, an heir is someone who would inherit the residue of the estate. Therefore, once the legatees have received their bequests, the heir would inherit whatever is left in the estate after debts have been paid and all bequests have been distributed.
A testator can give a person the right to the income or the use of a specific asset by including a usufruct in his Will. For example, a testator might leave the family home to his children, but provide his wife with usufruct over the property for the remainder of her life. On his passing, the property would transfer into the names of the nominated heirs, but his wife would have a lifetime right to use the property.
All bequests to a surviving spouse and certain public benefit organisations are exempt from Estate Duty. The value of these assets is excluded from the estate for Estate Duty purposes. Where a testator bequeaths a cash legacy to a beneficiary, he must ensure that the estate has sufficient liquidity to accommodate the request.
Testamentary Trust: A Testamentary Trust is created in terms of the testator’s Will and only comes into being on the death of the testator. Upon his passing, the assets bequeathed to his beneficiaries will be transferred into the Testamentary Trust, which will then be managed by his appointed trustees in accordance with his wishes. For instance, if a testator has three minor children which he bequeaths to, upon his death his assets will be transferred into the Testamentary Trust. The trustees will then ensure that his minor children are provided for from the trust in accordance with the express wishes of the testator. It is important that a testator deals comprehensively with the Testamentary Trust to ensure that there is no confusion over the powers of the trustees and who the nominated beneficiaries are.
Inter Vivos Trust: These are trusts which are set up during the lifetime of the testator to achieve specific purposes. A client may have a charity trust, or form a trust in which to house certain properties.
Special Trust: A testator can set up a special trust to ensure that the care of a mentally ill or physically disabled person is provided for after his death.
Legislation permits a person to donate assets or cash to certain individuals up to R100 000 per year withpout incurring any donations tax. In addition, donations between spouses are permitted on a tax-free basis. Donations are also able to be made to charitable, education and/or religious institutions subject to certain maximum levels.
The marital regime of the testator is significant when it comes to bequeathing his estate. If the client was married in community of property, the couple’s estate is viewed as a joint estate in terms of the law. One half of the testator’s estate will go to the surviving spouse as a consequence of marriage, and the other half of the estate will be bequeathed according to his wishes.
In community of property: Where a couple do not enter into a marital contract prior to getting married, they are automatically married in community of property and their estate is effectively combined and viewed as one estate.
Out of community of property with ANC: An ante-nuptial contract is signed by the couple before getting married. This contract is drafted by an attorney and, in terms of the contract, all property owned by each spouse before the date of marriage remains the property of each spouse.
Out of community of property with accrual: Where a couple sign a marital contract which does not expressly exclude the accrual system, the accrual will automatically apply. The accrual system provides a more equitable way of calculating the value of each spouse’s estate should be marriage be dissolved. It allows for the growth in each spouse’s estate from the date of marriage to the date of divorce to be shared equally, subject to certain exclusions.
A client can use an insurance policy very effectively to ensure that his loved ones are provided for after his death, although it is essential for the client to nominate his beneficiaries carefully to ensure that his intentions are met. If he does not nominate a beneficiary, the proceeds of his policy will be paid directly to his estate and could end up being inherited by an unintended person. If he nominates a beneficiary, the proceeds of the policy will be paid directly to the appointed person when he dies. The primary aim of an insurance policy is to provide liquidity in the estate, for instance, to provide his spouse and children with an income, settle the home loan, pay-off the vehicles and cover the Executor’s Fees. Bear in mind that a testator cannot change the beneficiary nomination of a policy in his Will, but will need to do so in terms of the actual policy document.
A living annuity is an excellent way to provide a continued income for a spouse after one’s death. It is designed to provide a pension income which can be adjusted on an annual basis based on the value of the underlying investments. Living annuities do not attract Estate Duty, although the income received by the spouse will be taxed. Effectively, setting up a living annuity allows the client to provide an income for his spouse that will not from part of his estate for Estate Duty purposes.
Each person’s estate is entitled to an exemption or abatement from Estate Duty up to R3 500 000. Estate Duty, which is levied in terms of the Estate Duty Act, is currently levied at 20% of the gross value of the estate on death that exceeds this amount. There are intricate rules as to what assets form part of the estate for Estate Duty purposes, and it is vital that these calculations are performed by experts. Besides for immoveable and immoveable property, legislation also permits deemed property, such as insurance policies, donations and accrual claims, to form part of the estate. On the other hand, it is important to know which items, such as funeral expenses, debts and foreign assets, can be excluded when calculating the gross value of the estate. The Act allows for the R3 500 000 abatement to roll over from the deceased spouse to the surviving spouse. Upon the death of the second spouse, he/she can use a R7 000 000 deduction.
Capital Gains Tax
Capital Gains Tax was introduced to South Africa in October 2001, and the method of calculating CGT is set out in the Income Tax Act. CGT is essentially tax paid on the disposal of an asset by a South African resident, with a capital gain or loss being determined by calculating the difference between the proceeds of the sale of the asset and the base cost. Another significant exemption is that the first R2 000 000 of the capital gain incurred when selling your primary residence will not be taxed. Individuals have an inclusion rate of the capital gain of 40% in their taxable income. Annually individuals also have an exclusion of R40 000 of gain with an exclusion of R300 000 on death. Certain assets, such as proceeds from life assurance policies, retirement fund interests and small business assets, may be excluded from attracting CGT. Once again, this is an intricate field of estate planning and it is worth consulting an expert who will assess whether CGT will place a liquidity burden on the deceased estate.
Essentially, Transfer Duty is calculated on the value of immoveable property when transferring between two people or entities. The role of an advisor would be to calculate the benefits and financial implications of transferring assets from one entity to another, taking into account all associated costs such as bond registration costs, attorney fees, conveyancing fees and Transfer Duty. Bear in mind that, where a testator bequeaths immoveable property to an heir or legatee in terms of his Will, no Transfer Duty is payable.
The purpose of a Living Will is to guide one’s family and doctors, and comes into effect when its author is in a medical state from which they cannot recover and, due to the condition, are no longer able to make decisions. A Living Will can be ignored by the family and attending doctors if there is the remotest chance of recovery. It is advised that anyone who has a Living Will should tell their family and friends about it to avoid an uncomfortable surprise at a time of great distress. Essentially, a Living Will is a declaration of one’s non-consent to artificial life support in the event of one being unable to communicate one’s wishes when dying. The Living Will can be made by anyone over the age of 18 years who is of sound mind. Bear in mind that Living Wills are not yet recognised in SA statutory law. However, in terms of Section 12 of our Constitution, ‘everyone has the right to bodily and psychological integrity’, which includes the right to have control over one's own body. The law recognises a patient’s right to accept or decline treatment. A Living Will stands as a patient’s non-consent to artificial life support when dying. The Living Will does not form part of one’s Last Will and Testament and is a separate document which your loved ones should be aware of, and know the location of in the event of tragedy.
Organ and Tissue Donation
Many clients have the intention to be organ donors, but do not proactively build this into their Estate Plan. Organ transplants are now so successful that up to seven lives can be saved from each donor, and the sight of two more people can be restored. Registration with the Organ Donation Foundation can be done online at www.odf.org.za or by phoning 0800 22 66 11. Anyone under the age of 70 who is in good health can enrol as an organ donor, and anyone under the age of 18 will need parental permission. Kidneys, heart, liver, lungs, corneas, bone, bone marrow and skin are examples of some of the organs used. It is advisable that one discusses one’s wishes with family and loved ones to avoid any trauma and delay at the critical time. Your wishes can be recorded in your Letter of Wishes (see below) or by the existence of a Donor Card.
Letter of Wishes
A letter of wishes sets out your wishes for the distribution of your estate on death. It is a non-binding letter designed to sit alongside your Will. Its purpose is to provide posthumous guidance to executors, trustees and family members and provides an opportunity to set out your thought process either at the time of making the will or at a later date. In many cases, a letter of wishes will become the most important tool in assisting your executors and trustees in reaching pragmatic early decisions in line with your specific wishes – speaking out where a will cannot. A letter of wishes can be key to assisting your executors to manage family expectations, wealth, the family business, and general family dynamics for many years. Importantly, and unlike a Will, it is a private document.
A Digital Will
In our online environment it makes sense to draft what a Digital Will to ensure that your online affairs are terminated appropriately after your death. Your digital affairs would include your online bank accounts, email accounts, music, Facebook, Twitter, Instagram, saved documents, photographs, online subscriptions, loyalty programmes, chat rooms, blog spots, personal and business communications. Although not a legally recognised document, a Digital Will allows you to express your wishes as to how these facilities should be managed and closed after your death. Although the Executor appointed in your Will is responsible for winding up your estate, it is possible to appoint an ‘online executor’ who would be responsible for closing down your digital kingdom. This would entail providing that person with a list of all the online sites, login credentials, passwords and links that he needs in order to ensure that he has the tools to adhere to your wishes.
Funeral and Burial Wishes
Although most people document their funeral wishes in their Will, this isn’t necessarily the most practical place to catalogue your requests. Depending on the timing and/or circumstances surrounding one’s death, it is possible that your Will is only read after the funeral takes place. To give full expression to your funeral and burial wishes, consider drafting what is known as a Letter of Wishes which details your desires regarding what you would like to take place in the days following your death. While not a legal document, it is a gift to your loved ones who might appreciate your guidance on these personal details. When emotions are running high and your family is grieving, even a simple task such as choosing the funeral hymns can be seemingly overwhelming.