Services
1. LAST WILL AND TESTAMENT
A last Will or Testament is a legal document that regulates what happens to a person’s estate (assets and liabilities) after his or her death. It is a key instrument to ensure that your life’s endeavours leaves a lasting legacy much bigger than yourself.
WHEN SHOULD YOU UPDATE YOUR WILL OR HAVE ONE DRAFTED?
You recently got married or you are living with someone.
You want to appoint a guardian or set up a trust fund for your children to ensure they are protected and cared for.
Alternatively, your child/children have now reached the age of majority and no longer need the provisions you put in place while they were still minors.
You have started a business, or your business has expanded, and you need to make provision for its future, ensuring it does not lose value and burden your estate.
You have pets and would like to ensure that they are not put down.
You were recently, or are in the process of getting, divorced, or are now separated from your partner.
You want to protect your estate from paying excessive taxes or debts, or becoming insolvent.
You want to support your favourite charity or donate your organs after death.
2. TRUSTS
TYPES OF TRUSTS IN SOUTH AFRICA
Living (Inter Vivos) Trust:
This is a trust which is created during the lifetime of the founder. There are two types of living trusts in South Africa, namely vested trusts and discretionary trusts. In vested trusts, the benefits of the beneficiaries are set out in the trust deed, whereas in discretionary trusts the trustees have full discretion at all times about how much each beneficiary is to benefit. A living trust is created by the drafting of a trust deed and registering the trust (along with various prescribed forms) with the Master of the High Court. The trust becomes effective as soon as it is registered.
Testamentary (Mortis Causa) Trust:
As the name suggests, a testamentary trust is one which is provided for in the will of the deceased person. The will itself will stipulate that a trust must be set up upon that person’s death. Testamentary trusts are usually created to hold assets on behalf of minor children for example.
WHY SHOULD WE CREATE A TRUST?
For estate planning purposes, there are a number of advantages in placing assets in a trust. Below is a list of the most important advantages:
The growth on assets transferred to a trust is not subject to estate duty, because the growth belongs to the trust. If you have made use of a loan to the trust, the value of the assets as at the date of transfer remains an asset of your estate because of the loan account in your estate.
A trust does not die. This means that the trust is not liable for estate duty, other taxes or costs, such as transfer duty, executor’s fees, or conveyancing fees, that would otherwise be payable in the hands of the estate or the heirs. Also a trust does not pay CGT as long as an asset is not sold.
Assets / benefits in a trust continue to be paid to the beneficiaries after you die. Assets in the estate may not be freely available to your dependents because the estate is frozen during the winding up process. This means that dependants may only receive an income after your estate is finalised.
Protection of assets. A beneficiary cannot sell a right in a trust (unlike shares in a company for example). If a beneficiary becomes insolvent, the assets in the trust continue to be protected. Likewise, if you as the donor or trustee become insolvent, the trust’s assets remain protected.
Income from a trust can be structured in such a way to provide tax efficiency. For example, R100 000 earned by a trust can be split between five beneficiaries so that they earn R20 000 each. Assuming that they earn no other income, they would pay no tax as this amount is below the threshold. This is the so-called split income principle i.e. income tax is levied against the trust, but income distributed is taxed in the hands of the beneficiary.
Creditor protection in the event of the trust beneficiary’s insolvency. As mentioned before, in the case of a living trust, the assets are not owned by the trustees or beneficiaries and the creditor therefore has no claim against them.
3. ESTATE PLANNING
ESTATE PLANNING IS ESSENTIAL
Estate planning is the process of arranging your financial affairs in such a way that the legacy you leave is as large and as well-structured as possible. This needn’t be overly complicated or expensive, and everyone should have their own estate plan regardless of age, health or financial position. In a nutshell you are looking to maximise assets, to reduce estate costs and the taxman’s cut, and to streamline the process of winding up your estate so your heirs are paid out as quickly as possible.
GUIDELINES FOR DRAWING UP AN ESTATE PLAN
Make a will
The consequences of dropping the ball on this one is so serious, and it is so easy to make a proper will, that endangering your family’s security and happiness by not having one just makes no sense at all.
Don’t Procrastinate
Procrastination is human and, when it comes to contemplating one’s own mortality, entirely understandable. But it’s not forgivable – death is inevitable, and absolutely no one, no matter how healthy or young, can assume that they will be alive tomorrow. All too often death comes without knocking, so don’t fear it – plan for it. Now.
Beware the DIY route
As tempting as it may be, going the DIY route (online will templates are easily found) is a bit like packing your own parachute for your first jump without assistance – great if you are an expert, but for most of us getting professional help makes a great deal more sense. It’s not you but your loved ones who have to live with any mistakes you make now!
Ensure validity
Your will to be valid must comply with all legal formalities, and although the courts have a discretion to declare a “defective” will valid that process is uncertain, slow, and expensive. Rather get it right upfront.
Avoid ambiguity and dispute
Any lack of clarity in the wording of your will is fertile ground for dispute, and our courts are regularly called upon to sort out bitter, divisive, and expensive family feuds that could have been avoided with a professionally drafted will setting out clearly and concisely exactly what the deceased’s wishes and intentions were.
Foreign assets
If you have assets in another country, you may need a foreign will as well as a South African one – ask a professional.
Consider business continuity
If one of your assets is an operating business, or an interest in one, put a continuity plan in place so it can be carried on without interruption.
Review your will regularly
This one is easily (and commonly) overlooked. You finally get a will in place and think “great, that’s it then”. Not so! Personal circumstances change, laws change, taxes change – diarise to review and if need be, update/replace your will no less than annually.
Choose your executor wisely
This can be make or break for your family. Choose someone you can depend on to wind up your estate quickly and professionally.
Pay special attention to your minor children’s needs
Firstly, this is your chance to leave each of your children what they will need financially. You could split your estate in equal portions, or you may decide to differentiate based on each one’s situation and needs (a tip here to avoid a family feud – explain to everyone upfront the reason for your decision). Now is also where you nominate your choice of guardian for your minor children – don’t leave that choice to others! Ensure also that your minor children’s’ inheritances are held in trust for them, with your choice of trustees.
Reduce costs and taxes
To maximise what your heirs receive you need to look at all the costs your deceased estate will have to pay out. A professional can guide you through the process of minimising estate duty, executor’s fees and costs (beware of false economy here – “cheap” could also be “nasty”!). Taxes – income tax and capital gains tax in particular – can take a sizeable chunk of your estate without proper planning.
Nominate beneficiaries whenever you can
Where you are able to, nominate beneficiaries for your life policies, annuities, tax-free investments etc to ensure payout directly to chosen recipients, without all the delay inherent in the process of winding up your estate and in many instances reducing costs and taxes. Take professional advice here – different rules apply to each of these categories.
Plan for liquidity issues. Plus, what will your family live on?
You don’t want the executor to be forced to sell an asset (your house or business perhaps) that you have left to a particular heir, but that will happen if there is insufficient cash in the estate to meet the various costs and taxes of winding it up. Similarly, your bank accounts and the like will be frozen once the bank becomes aware of your death, so you need to find another way to ensure that your family has cash to live on whilst your estate is being wound up (it can be a lengthy process with all the red tape). Separate bank accounts, life policies (see above), family trusts and the like might work in your particular circumstances, but specific professional advice is key here.
Leave your loved ones an “Important Information” file
This is critical. There are too many heartbreaking stories of grieving spouses and children floundering in a sea of confusion and worry because they have no idea where the deceased’s will is, how the estate is structured, what assets there are, what debts, how to access password-protected computers, where important documents are kept, who they should contact for help. Sometimes they are even at sea as to what assets they have in their own names. The list is endless.
What should be in the file?
In short, everything that your survivors might need, starting of course with details of where your will is. Put yourself in their place – what would you need to know if you were the survivor? What information and documents would make it easier for you to get on with life? Once again, professional advice and assistance will save your loved ones a mountain of trouble and concern.
A last thought on this aspect – have “that conversation” with your family as soon as possible. It’s not easy but they deserve no less. Ideally bring them in at the start of your planning and the creation of your “Important Information” file. At the very least they must know about it, where it is and how to use it.
What else?
No generalised estate planning checklist can ever be comprehensive. Tailor your plan to your particular needs. Brainstorm, ideally with family and professional input, what else needs attention.
4. SUCCESSION PLANNING
What is a succession plan?
A succession plan is a strategy to safeguard the future of a business by replacing key employees should death, disaster, or any other exit require it.
During the process, employees are groomed to fill the shoes of the current heads of the business. Corporate skills and knowledge are imparted to the potential replacement, providing them with the experience they require for future opportunities.
Why should small businesses have a succession plan?
Good succession planning acts as a business’s insurance policy for sustainability. Top roles are often difficult to fill – especially at short notice – and small businesses need to be prepared to react to departures, whether they are planned or not. Finding someone who knows the business inside-out from the get-go is impossible, and the only way to navigate an immediate replacement of a crucial role is to groom someone to take over.
Succession planning benefits you, your staff, customers, the business itself, and all relevant stakeholders. It means that the company will suffer minimal disruption in providing the goods and services that your clients rely on.
Succession plans, like business plans, must be reviewed regularly to ensure that they are up to date and serve the business as they should.
What happens to a business without a succession plan?
Without a clear succession plan in place, the business is at risk of being ‘in limbo’ while the search for a replacement is on. This could result in significant losses to the company and an unmotivated and fear-driven workforce. Current employees could compete for the vacancy, and there could even be animosity towards a new hire if they weren’t part of the original workforce.
Worst case scenario is that the business could fail without its leader or a suitable replacement at the helm.
What to include in a succession plan?
A succession plan should include:
• A list of short- and long-term goals for you and your business
• A list of possible successors, including their strengths and weaknesses
• Timelines for the succession events
• Exit options and the pros and cons of each
• A copy of Standard Operating Procedures
• A professional business valuation
• Key employees, plus their roles and duties
• Financing options for the transfer of the business
• Tax consequences for each transfer option
Good succession plans also include contingency plans should the preferred plan become untenable.
What are succession plan options for small businesses?
When drawing up a succession plan, it’s essential to review all the options to make the best choice for you, your business, and your family.
These are the most common succession plan options for small business owners:
1. Transfer to a family member(s)
Many small business owners build their businesses for years, intending to pass it on to the next generation. The trouble is, sometimes family members don’t want to – or aren’t able to – run the business.
Or, there might be multiple family members who want to take the reins. How will ownership and profit share be structured in that case? These are all issues to consider when transferring your business to family members.
2. Selling to a key employee or business partner
You may consider selling your business to a key employee. If you do, you can finance the sale over several years and upskill the employee as required. There are many ways to finance the purchase.
If you sell to your business partner, you could have limited choice on how to transfer your interest in the business as the partnership agreement typically dictates this.
3. Selling to an outside party
Selling your business to an outside party could be the best way to get the most value for your business, but it’s not always easy to find an interested party who ticks all the boxes. What’s more, you need to take numerous steps – like getting a business valuation – to sell it. It is advisable to get a business attorney to help you with this task.
4. Close and liquidate the business
You’ll need to jump through similar hoops to liquidate your company, but this is another way to maximise your value.
5. ADMINISTRATION OF DECEASED ESTATES
The Estate Administration Process
The administration process for estates of a gross value of R250 000 or more is defined in the Administration of Estates Act, in terms of which executors must follow these guidelines:
Notice of estate and appointment of executor
To appoint an executor of an estate (all your assets; property & debts including bank accounts; businesses and personal items), the Master of the High Court must be notified of the death through certain prescribed documents.
To appoint an executor of an estate (all your assets; property & debts including bank accounts; businesses and personal items), the Master of the High Court must be notified of the death through certain prescribed documents.
He or she then examines them and once satisfied with the validity of the will the Master appoints the executor by issuing a "letter of executorship".
This process takes six to ten weeks
Preparatory work for compilation of liquidation and distribution account
The executor will contact all relevant banks & financial services companies.
When the executor receives the letter of executorship, he or she is obliged to place a notice in the Government Gazette and in one or more local newspapers, requesting the creditors of the deceased to notify the executor of any claims against the estate within 30 days. During this 30-day period, the executor continues to obtain valuations of fixed and movable assets in the estate, as well as particulars of the deceased's investments.
As soon as all this information has been received, the executor determines if the estate has sufficient cash (or money in the bank) to meet its obligations. If not, the beneficiaries are consulted about the way in which they intend meeting the cash shortfall. If they are unable to do so, the executor will sell assets from the estate to cover the cash deficit. Selling of assets often leads to lengthy negotiations with beneficiaries, auctioneers and others, which can delay the administration of the estate.
At this stage, the executor also determines the tax position of the deceased by submitting the necessary returns to the South African Revenue Services.
Compiling a Liquidation and Distribution Account can take up to six months, depending on the size and complexity of the estate. In terms of the Administration of Estates Act, the executor must submit the account within six months of the issue of the letter of executorship, unless the Master of the Court has given permission in advance for a time extension.
Investigation of liquidation and distribution account by the Master
On the basis of the information obtained, the Liquidation and Distribution Account sets out all assets, liabilities and administration costs, explains how assets are divided and determines if estate duty is payable. The account therefore sums up the entire administration process.
The account is submitted to the Master of the Court for examination against certain legal rules. The Master may request further information and proof from the executor.
The examination process takes four to eight weeks.
Liquidation and distribution account lies for inspection
Once the Master is satisfied with the account, the executor makes it available for inspection by concerned parties for at least 21 days. This is achieved by placing a notice in the Government Gazette and in one or more local newspapers, indicating where the account will be open for inspection for the required period. Anyone who has an interest in the estate and who has an objection to the account may lodge an objection with the Master or, when applicable, a Magistrate, during the 21-day period.
The Master refers any objections to the executor for a response. Once the Master has received the executor's response, he will make a decision which is binding on the executor.
If the executor or the person who raised the objection doesn't agree with the Master's decision, they can, within 30 days or any further period of time the Court allows, apply to Court for an order to set aside the Master's decision. This could result in the administration process being postponed until conclusion of the court case and the finalisation of the estate taking place only after the objection has been settled.
Settlement of an objection against the Liquidation and Distribution Account may take a long period of time depending on the negotiations and if the matter is referred to Court to be settled.
If there are no objections, the executor may proceed to finalise the estate.
This process takes four to six weeks
Finalisation of the estate
If no objections are made against the Liquidation and Distribution Account, or if an objection has been settled, the executor can finalise the estate. He or she pays the creditors, hands over inheritances to the heirs and arranges for the transfer of fixed property in the names of those entitled to it. The process of transfer can take a few weeks, as there are various legislative requirements to be met.
As soon as proof has been provided to the Master that all creditors have been paid, that the heirs have received their inheritances and that the fixed property has been transferred, the estate is regarded as finalised and the executor's duties come to an end.
The process of finalisation (after inspection period and no objections lodged) takes four to eight weeks.
Copyright © 2021 VG Estate Planning Solutions. All rights reserved.