estate t planning & estate duty savings Alec Riddle CFP
what is estate planning? includes succession planning process to minimise taxes and costs most beneficial tax structure on death (estate duty etc.) planning around the death of a client protects the assets being passed on maximum enjoyment of assets during life
estate planning not a luxury -an essential component long-term view - consider all parties to the plan focus on the practical issues of the estate plan keep it simple even if it is a large estate!
executing ecut your plan: beware e a person may bequeath assets to whomever he/she chooses, but.. Maintenance of Surviving Spouses Act complicated family/matrimonial relationships - failure to provide adequately for: surviving spouse minor child/ren maintenance claim possible consequences?
beware e further bequest of loan account to a trust bequests of assets to spouse (CGT and estate duty) implications effects of CGT
and insufficient liquidity in estate adequate cash for surviving spouse - 6 months role of life insurance policies insurance proceeds may take time to finalise own banking account / unit trusts / family trust if in COP
your will only people with no assets can afford to have a free will a will is the most basic estate planning mechanism ties the planning together if there is no will, there can be no estate planning as assets are distributed in terms of law of intestate succession this applies if there is no will or if the will is invalid!
your will is your will valid? is your will current? when was it drafted? be aware of legislative changes where is your original will? wills and beneficiary nominations 3-month rule relating to divorce
the executorecuto trust company/bank versus family member trusted professional? professional and a family member jointly? surviving spouse? good idea? provision of security
the executor ecuto executor s duty only to realise assets to extent that need to settle liabilities, unless will directs otherwise executor should not sell assets if heirs and legatees are prepared to settle liabilities
executor s ecuto fees maximum at 3,99% (including VAT) levied on all assets handled by executor nominate beneficiaries on policies keep proceeds outside estate what about a trust? no longer your asset, only loan account what about retirement funds? capital and annuity income exclude
requires a knowledge of estate duty capital gains tax donations tax income tax executor s fees matrimonial regimes wills trusts
methods to save estate duty bequests to spouse estate duty abatement donations allowance/s retirement t annuities limited rights e.g. usufructsucts preserving your living annuity estate freezing or pegging
trusts method of formation e.g.. inter vivos or testamentary trust the right they confer on beneficiaries e.g. discretionary or vesting trusts their purpose (types of trusts)
establishing a trust trust set up with a small donation trustees (3) normally a discretionary trust sell growth assets to the trust create an interest t free loan account loan account repayable on demand income and capital beneficiaries (including capital gains)
testamentary trust established in terms of your will no transfer duty on property to such a trust flexibility, smooth administration and control of your assets, in particular after your death an independent group of trustees assist in preventing the wealth being squandered after your death pegs the growth of your assets, without creating any future estate duty problem for your heirs
caution the Katz commission i frowned upon the use of trusts as a generation skipping tool any estate plan, utilising a trust, needs to take this into account.
succession planning Mr. Jones (75) leaves his R3 million house to his only son, Rob (40), who has 3 children aged 1 to 4 Rob keeps the house and earns rental income of R120,000pa. 000pa Will Rob be taxed on the rental income? tax rate 40% Thus R48,000pa tax
another option Mr Jones leaves the property p to a testamentary trust (discretionary) no transfer fees are payable Mr Jones son, Rob and the 3 grandchildren are the beneficiaries the trust earns R120,000pa rental income the trustees, in their discretion, distribute the income equally to the 3 grandchildren
R120,000 distributed (R40,000 ea) who pays the tax? the minor children will be responsible R40,000 is below the tax threshold thus no tax on total of R120,000 additional R48,000 escalating annually. over 15 years (R1,680,000 000 @ 10%pa)
additional benefits no additional estate duty when Rob dies no additional CGT when Rob dies potential savings after 30 years estate duty R10 million CGT protection from creditors
Smith case study Mr Smith (40) is a successful entrepreneur, married ANC excluding accrual home R3,000,000 Rental properties R3,000,000 business R5,000,000 unit trusts R2,000,000 R13,000,000 less: debt R2,000,000 net estate R11,000,000
dies at age 55 (no planning) assets now worth R54 million Assume liabilities of R3 million includes R1,5 million CGT net estate is R51 million less R3,5 million abatement estate duty is R9,500,000 000
Smith case study Mr Smith (40) is a successful entrepreneur, married ANC excluding accrual home R3,000,000 rental properties R3,000,000 business R5,000,000 unit trusts R2,000,000 R13,000,000 less: debt R2,000,000 net estate R11,000,000
subtle changes growth assets into trust (R10 million) loan account in trust R10 million excludes home, preservation fund (R4 m) 15 years time, loan account is R7 million trust s s assets valued at R42 million home valued at R12 million trust assets not dutiable (only loan account)
estate duty? home R12,000,000 plus loan account R7 million total R19 million less R3,5 million abatement estate duty R3,100,000 saving R6,400,000, if Mr Smith died at 70, the saving would be. R33 million
Key Lessons start planning early in life think long term true benefits decades later consider your options o when investing private capacity or trust? based on current legislation
thank you Alec Riddle CFP