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Why wait until you die? Living inheritance now!

When and how to give a living inheritance, and the advantages and disadvantages thereof.

The unfortunate events of life may leave you in a tricky situation and in dire need of money. We often find ourselves scrambling to make ends meet due to the ever-changing economy. As we live through different economic cycles, the most common struggle we all face is the high cost of living.

While facing difficulties in keeping up with the changes in the economy, you may wonder how members of a family are carrying each other’s burdens. Such circumstances could be one of the reasons why one would want to bequeath their assets while they are still alive.

Research has shown how a ‘living inheritance’ could be an option to ease the struggle of today’s cost of living although our parents and grandparents are not obliged to help us. Living inheritance is the act of passing on assets while the person still lives. It recognises that children or grandchildren often need the funds now rather than later in life when they are more self-sufficient. Through this method families of different generations can carry each other’s burdens and offer a helping hand to help during this difficult time.

Below we discuss when and how to give a living inheritance, and the advantages and disadvantages thereof.

Firstly, if you are to help your child or your grandchild the first thing to consider is if you currently can afford your own needs and if you already have enough means to live comfortably. So, if you already have a steady income, a few retirement annuities, and investments and properties you might be able to help. The aim is to use disposable income or goods. Something else to consider is that you have enough liquidity in your estate to cover the costs of winding up your estate.

One way to help your family is by gifting them a portion of your investment portfolio, it is possible to transfer some of your investments that were already in your will to another person. If you also happen to have a unit trust you could withdraw some funds from that unit trust and donate them to your loved one.

An advantage of bequeathing the assets in your estate while you’re still alive is easing some of the costs that come with winding up your estate. Therefore, if you have provided a living inheritance, at death the estate duty fee and other relevant tax will not be as high as they normally would be. So, costs like master’s fees, executor’s fees, and advertising costs could be a bit less. We all understand that releasing a part of property or assets may not be easy but there are experts that can guide you.

However, when donating to your family, you should be aware that such an action could trigger a donations tax. A donation is considered as disposing of an asset, tangible, or intangible with no expectation of compensation or being compensated for less than the value of the asset. Therefore, when you do find yourself donating or gifting someone an amount that is more than R100 000 or assets that are worth R100 000 or more, it will trigger a donations tax of 20%.

When your family has received your living inheritance, you will have the opportunity to view how they have utilised your generosity. This can be building a house, paying off your bond, helping with grandkids’ school fees, paying rent, vehicle financing, funding your child or grandchild’s rehabilitation, and medical costs for chronic diseases, or even airfares for families overseas to visit. It can also provide the benefit of seeing your loved ones prosper through the financial backing they need.

Therefore, after careful consideration, helping a loved one in their time of need by bequeathing some of your assets from your estate while you are still alive would not be such a bad idea. That is if it is well thought through and you have made sure that you have enough money to make ends meet, and that you have enough liquidity in your estate to cover the costs of winding up your estate. The goal is to make sure that you can help in a way that can give you tax benefits and you will not leave your loved ones with a burden after you die.

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Michael Haldane

Global & Local The Investment Experts

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