An estate plan looks tax in the eye
Death is inevitable, and so are taxes. But you have ample flexibility to decide how much you pay the taxman — and what your loved ones get to keep — after you die. The trick lies in planning your estate, creating a plan of what will happen with everything that you own or control.
People often conflate the drafting of a will with proper estate planning. A will is a legal document and it gives your family and the executor of your estate a good idea of what they should do with everything you own.
But to use an analogy: if your will is the final destination of all your assets, an estate plan is a road map on how to best reach that destination.
Everyone who earns money should have a will and an estate plan. You never know when you will die and even if you do not have dependants, you are still going to leave someone with the unenviable task of winding up your affairs, so have a will drafted.
A will, and especially an estate plan, forces you to take stock of your financial affairs. Often people make significant changes to their lives when they take stock, assess their assets and debts and consider who they need to care for when they die.
In the Downloads section of our website (www.ascor.co.za) we have an estate directory you can download for free. This directory guides you through everything you need to have in place when you pass away.
This not only includes the big things, like your life insurance and pension fund details, but also small things like your social media passwords.
Tax breaks
Once you have done this, you can structure your estate with the help of an adviser with the Certified Financial Planner accreditation.
As part of your estate planning, you should structure your affairs to be tax-efficient. This could include balancing your estate with that of your partner or spouse to make best use of the combined tax breaks to which you both have access.
You could also consider making donations, up to R100,000 a year, to reduce the tax burden at death and to grant usufructuary rights — rights that endure for life — to family members to escape punitive capital gains tax (CGT) on the sale of your properties when you pass away.
Remember, the taxman regards death as a capital gains event, so your estate will pay CGT on your assets before they are transferred to your beneficiaries or family, unless you plan ahead.
Estate planning could also include setting up an inter vivos or testamentary trust to care for your children or to prevent spendthrift family members from burning through your savings.
Trusts can be a very efficient way of caring for your assets and your family after you die, but if you structure them incorrectly you may pay a lot more tax or even give up control of your estate or assets before you pass away.
When planning for your estate, you should also consider adding life insurance to fill any gap between your assets and your debts.
Life insurance
Like any other monies that become available at your death, different types of life insurance have different tax implications for your estate after your death, so it is best to consult a professional when buying life insurance.
You should also consider the implications on your business or any enterprise that you are involved in.
Structured correctly, an estate plan and the right types of life assurance could help your family maintain control over your business.
Even if your family decide not to continue with your business, having the right type of assurance will at least provide value for your lifelong efforts in building and establishing the business.
Ultimately, estate planning could be used as the most efficient way of taking stock of your current financial situation, help you plan better for the day of your death and even help you live better now.
Fourie is CEO of Ascor Independent Wealth Managers and a former winner of the Financial Planning Institute of Southern Africa Financial Planner of the Year award