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Death is a certainty we prefer not to consider too deeply, but we should plan for it responsibly. It’s important to consider the financial consequences of our death on loved ones and to put into place the most efficient plans for dependants.
On death, your loved ones may need liquid cash for living costs or last expenses. We must also consider executor’s fees of up to 4.025% may apply to your investments, as well as Estate duty of up to 25%.
We draw on a recent Allan Gray article where they examine the death claims process for each investment product and the best ways to get your affairs in order.
Have a valid Will
The Will needs to comply with certain legal requirements. Consult with a professional and update your Will every time there is a life-changing event. Not having a valid Will would see your assets distributed according to the Intestate Succession Act.
There are certain assets, such as unit trusts, that are dealt with in your Will, but others, such as retirement funds, that have different legal requirements.
Investments that are included in your Will
Unit trusts will form part of your estate and will be distributed by the executor per your instructions in your Will.
Offshore Investments should be detailed in your local Will but may require a separate foreign Will to comply with estate laws in offshore jurisdictions. These investments will form part of your estate and are subject to estate duty. But does not include investments held in an International Wrapper.
Investments that are not required in your Will
Retirement funds: Pension, Provident, Preservation funds, and Retirement Annuity funds.
On passing, the fund trustees will determine how your benefit is distributed to your dependants and nominees. This process could take up to 12 months. Thereafter the beneficiaries can decide to either transfer the benefit to a living or life annuity, take a cash lumpsum – which may be taxed – or select a combination of cash and living or life annuity.
Living Annuities
A key feature of a living annuity is that your investments can be left to your beneficiaries, which may include a Trust. Beneficiaries will be entitled to:
- Transfer the benefit to another living annuity, which will pay them an income
- Take a lumpsum, which may be taxed as a retirement lump sum withdrawal
- Take a combination of lumpsum and transfer to another living annuity
These options have different tax consequences, which first need to be considered.
Living Annuities are not included in your estate for the purpose of calculating estate duty or executor fees.
Endowments
Endowmwnts are suited to investors that have a marginal tax rate higher than 30%. There are restrictions on accessing the capital in the first five years. In an endowment, the proceeds will pay out directly to the nominated beneficiaries, similar to life insurance. In a sinking fund, the nominated beneficiaries will take over the policy on death and have immediate access to the investment.
Endowments and sinking funds are included in your estate for the purpose of calculating estate duty. If there is a beneficiary nomination, no executor’s fees would apply.
Offshore Wrapper
Essentially, an offshore wrapper is a sinking fund policy allowing for multiple withdrawals. The main benefits are paying only 12% CGT on withdrawals, not being taxed on the Rand’s depreciation, and saving on potential offshore death taxes that can be as high as 40%.
Estate planning benefits include nominating beneficiaries and avoiding probate, foreign estate complexities and executor fees.
Tax-free investments
Some are structured as life policies, as is the case at Allan Gray, therefore appointed beneficiaries will receive the proceeds of the investment on confirmation of death and no executor’s fees apply.
The investment is included in your estate and subject to estate duty.
These vital steps ensure responsible planning:
- Your Will is up to date and valid
- Your retirement fund nominees’ details are up to date
- Your beneficiaries of various policies are up to date
- Plan for immediate needs, such as covering funeral costs, as dependants may not have access to your investments for some time.
- Share your plan with your dependants, nominees, and beneficiaries so they know what to do upon your death and to make the process as seamless as possible.
Partner with a qualified financial advisor who can assist you with a personalised financial plan.
Or click here to update your Financial Plan.