Estate Planning

Benefits of early planning

The purpose of estate planning is to ensure that your heirs may reap, after your death, the benefits of your life-long toils.

When a person dies, all the assets and liabilities of the deceased, as at the date of death, form part of the estate. If this estate is not planned early and thoroughly, it may unnecessarily expose the estate to estate tax.

You should at all times try to minimise the potential estate taxes through the proper planning of your will, and also ensure that there is sufficient cash to cover this tax. If not, it may lead to a forced sale of assets.

The help of a professional estate planner is essential. Contact one of our advisers in this regard.

Dangers of no planning

When the estate of a deceased is settled without proper estate planning during the person's living years, his or her heirs may be exposed to several disadvantages:

• The settlement process may be unnecessarily prolonged or delayed.
• The extent of the inheritance may be diminished by a shortfall in the estate.

A cash shortfall in the estate may further cause:

• Interest-bearing claims attracting further interest because they are not completed speedily enough
• Unnecessary taxes such as capital gains tax and VAT to be payable
• Assets to be sold in an economic climate where reasonable prices are not attainable
• Forced sale of assets such as a farming concern, for instance, that may have belonged to a family for generations
• Heirs to be left in a financial crisis while trying to avoid the forced sale of estate assets
• Friction appearing between heirs if, for instance, some assets cannot be divided equally.

The planning process

Any decisions that you make regarding obtaining and use of assets during your lifetime - and the division of these assets after your death - are estate planning decisions. Estate planning is therefore necessary for all persons, regardless of the size of their estates.

If you have complete clarity as to what you want to achieve with your estate, you may start the planning process by collecting the following documents and facts for your financial advisor:

• Your and your spouse's full names, identity numbers, occupations and addresses.
• Your marriage status: in or out of community of property, with or without accrual.
• Family details, including your children's names and dates of birth (all marriages separately).
• Comprehensive information regarding assets and liabilities, including all values thereof.
• Details of group insurance, pension and insurance not payable to your estate.
• Particulars of any limited interest received from the estate of a deceased spouse or any other person, maintenance responsibilities and agreements/contracts.
• Particulars of overseas assets and liabilities.
• Personal preferences for the division of assets.

Draw up a list of your financial needs and wishes for the future, as well as your wishes for the division of your assets after you die. Your asset mix may have to be adjusted, which means that you may have to form a company, a closed corporation or a trust. This may also mean that you would have to draw up a new will or adjust your current will. To do this, you should:

• Make an appointment with your financial advisor, broker or expert and have a practically executable and well-planned will drawn up.
• Take care to correctly sign the will to ensure that it is valid when it comes into effect.
• Select a qualified executor with a proven record to handle your affairs in the interest of your heirs and other involved parties after your death.
• Also plan your estate for the eventuality that you and your spouse die shortly after each other or at the same time. Make provision for preparing a will for the spouse that lives longest.
• Plan for heirs that will not be able to handle their own affairs, such as minors. Consider in such cases the creation of testamentary trusts, from which you can provide for the needs of such heirs.
• Plan the estate in such a way that the effect of income tax, estate duty, capital gains tax and VAT is minimised or eliminated.
• Plan your estate carefully, and with the help of an expert. Take care to include sufficient cash reserves so that your executor may be able to cover all claims, administration costs, taxes and cash inheritances.
• Take care always to safely store important documents and contracts so that they may be easily accessible for the executor. Your close family should know where to find your documents and contracts.

Estate Planning Costs

Before you start with a comprehensive estate planning exercise, you should know what the costs involved are.

There is a fee for professional advice. Negotiate with your advisor about this before you start with the estate planning. During your first meeting already your estate planner will give you an indication of the total costs of a comprehensive estate plan.

The following costs are typically payable from the funds in the estate during the execution of that estate:

• Master's fees payable to the Master of the High Court. The formula used to determine this is: 
• if the value of the estate exceeds R15 000 but is less than R17 000, then R42
• if the value of the estate exceeds R17 000, then a further R6 is charged for each next full R2 000 by which the gross value exceeds R17 000
• subject to a maximum fee of R600 
• Executors' remuneration, of which the maximum tariff is determined from time to time in the regulations to the Administration of Estates Act. The current maximum tariff is: 
• 3.5% on the gross value of the estate, and 
• 6% of all incomes (eg. rentals, interest and dividends) which the executor collects on behalf of the estate from the date that you die to the date of final execution of your estate.
• Valuation costs of assets which have to be valued by the executor for estate purposes. The Master may insist that the assets of the estate must be valued by an appraiser, and for that the appraiser is entitled to a fee, which is calculated according to a sliding scale. The appraiser is also entitled to levy kilometre charges, which are also calculated on a scale determined from time to time. An appraiser is a person appointed by the Master specifically for the valuation of assets in an estate. Amongst other things, the appraiser must have a good knowledge of property values in the area in which he is appointed. Appraisers are appointed to do valuations of assets in specific areas, and may not do valuations outside the relevant area.
• Advertising costs for creditors and for inspection of the Liquidation and Distribution account. The Administration of Estates Act stipulates that, in the case of each estate with a gross value of more than R125 000, the executor must place the following advertisements: 
• Calling upon creditors to prove their debts against the estate. 
• To give notice that the Liquidation and Distribution account will be open for inspection, mentioning the period and the place where the account will be open for inspection. 
• Both the above-mentioned advertisements must appear in one or more local newspapers published in the area where the deceased ordinarily resided, as well as in the Government Gazette. 
• If the deceased resided in another district within 12 months prior to date of death, the advertisement must also appear in one or more newspapers in that district.
• Costs for the provision of security in the form of a bond of security to the Master in cases where the executor does not qualify for an exemption. In terms of Regulation 910 to the Administration of Estates Act, only certain executors are exempted from the provision of security to the Master.
• If a nominated executor does not qualify for the exemption, the Master will insist that the nominated executor must first provide him with the necessary security for the value of the estate before the Master confirms the appointment of the nominated executor. The security must be in the form of a Bond of Security, issued by a short-term insurance company. The current annual rate for this amounts to 0,684% on the value of the security, with a minimum annual premium of R300-00.
• Bank charges in respect of the estate bank account, which, in terms of the Administration of Estates Act, must be opened at a bank in the name of the estate. Professional executors, who administer large numbers of estates, negotiate a favourable rate with the bank.
• Transfer costs of fixed property. Before an estate can be finalised, fixed property forming part of the estate must be transferred into the name of the rightful heir thereof in terms of the Deeds Registries Act. The costs involved are payable from the estate. The transfer costs are calculated according to the value of the fixed property, on a sliding scale.  
• Cancellation costs of bonds registered over fixed property in the estate. The executor must cancel all bonds registered over fixed property forming part of the estate after the outstanding balances on them have been settled in full. The costs involved are payable by the estate. The costs are calculated according to the amount of the bond, on a sliding scale.
• Funeral costs form part of the claims against the estate, and are payable from the funds of the estate.

Olemera Financial Planners - Estate Planning in Johannesburg

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