The importance of estate planning in a retirement plan

Don’t neglect what will happen when you’re no longer around.
Consulting an estate planning professional will ensure that nothing in your estate has been overlooked. Picture: Shutterstock

For many people the prospect of retiring can be rather traumatic. It’s not just the change in their lives it represents, but also the worry about whether they will have enough money to sustain them.

This is such a pressing issue, that sometimes other parts of a comprehensive retirement plan get pushed aside. One of these is estate planning.

Divisional director for sales strategy and transformation at Liberty, Mark Lapedus, believes that this is something that shouldn’t be overlooked. Estate planning can be very important for a number of reasons.

“The main one is to make sure that you manage or optimise any assets that you leave behind for your beneficiaries in a way that they can continue to grow and not have to be liquidated at the worst possible moment,” he says. “Whether it’s a property portfolio, share portfolio, or life insurance policy you are leaving behind, it’s vital to think about how you can transfer those assets with the least possible disruption to their value.”

This starts with thinking about whether there will be estate duties payable on them. At the moment the South African Revenue Service claims 20% of any estate valued above R3.5 million unless assets are left to a surviving spouse.

“You have to consider how you are going to pay those duties,” says Lapedus. “Will the estate have to liquidate assets that may be illiquid or currently undervalued? If that’s the case, all the hard work done to accumulate those assets may be undone if there is a need to sell properties or shares at the wrong time just because there is an estate duty bill.”

You also have to take into consideration how those assets are being used. In a worst case scenario you don’t want your beneficiaries to be forced to sell the property they are living in, to pay taxes.

Estate planning will therefore take into account how much liquid cash will fall into the estate and if it will be enough to cover the duties. If not, it may be necessary to make provision through a life policy that pays into the estate when you pass away.

Secondly, you need to consider structuring your estate to minimise the expenses that will inevitably result from your passing away. This is not just the tax that is payable, but also costs such as executor’s fees and transfer duties on properties.

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“You need to ask what you can do to transition your assets to your beneficiaries in an optimal way,” Lapedus explains. “Even without getting estate planning and tax advice there are many things that can be done to make sure that process is as efficient and smooth as possible.”

The first is to use the estate duty exemption for any bequests to a surviving spouse. In other words, if you grant your entire estate to your spouse in your will, it will not attract any estate duty.

Doing this also rolls-over the R3.5 million abatement. This means that on the death of the surviving spouse, a total of R7 million will be exempt from estate duty.

You can also negotiate the executor’s fees you will pay by approaching a lawyer and agreeing to a rate that you then stipulate in your will. If you do not do this your executor will almost always charge the maximum allowed rate of 3.5% on the value of gross assets and 6% on any income earned after the date of death.

“If you own your own business then you will also need to consider how it will be managed and what processes are in place to ensure that it continues to run, if that is your wish,” says Lapedus. “On the other hand, if you will want to sell it, you need to make sure that it will be managed properly.”

This may require the assistance of a professional who you trust to handle the sale in the best interests of your beneficiaries. An independent third party will also be able to take the emotion out of the process.

Importantly you also need to consider what will happen to any assets you own outside of South Africa.

“As soon as you have international assets you need to make sure that you fully understand all the implications of that,” says Lapedus. “There may be different tax regimes in place in other countries and even if there is a double taxation agreement in place, if those taxes are higher than in South Africa you may have to pay higher taxes first.”

You may, in some instances, even need a second will to cover any assets held offshore. An estate planning professional will be able to assist you in determining whether this is necessary.

“If you are going to invest in any assets outside of South Africa it is very important that you engage a professional advisor who can consider all of the implications, both while you are alive and the tax and other issues that will arise after you pass away,” says Lapedus. “This is the best way to make sure that you haven’t overlooked anything, and that your assets are structured in the best possible way to ensure the best transition from one generation to the next.”

Brought to you by Liberty.


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