Create a financial legacy for your children

Product type

Key factors to consider

Tax Free Savings Account

• All investment returns within a tax-free savings account are exempt from tax. This makes these vehicles attractive for long-term saving.
• A tax-free savings account issued by a life company allows you to nominate beneficiaries. This may be useful for estate planning purposes, since it allows faster payment to the nominated beneficiary and also provides savings on executor’s fees.
• You can start a tax-free savings account as a savings vehicle for your children. However, keep in mind that children are hardly ever liable for tax and therefore, it is important consider the purpose of opening up a tax-free savings account for your children. For example, if you are saving for their university tuition a tax-free savings account may not be ideal. But if you’re saving for them to take the tax-free over as part of their long-term savings, it may make more sense.

Retirement annuities

• Retirement annuities have been designed to help you save specifically for retirement. However, it is possible to take out a retirement annuity in your child’s name, but note that the contributions will not be tax deductible.
• It is important to note that, on your death, your benefit does not form part of your estate but is dealt with according with the provisions of section 37C of the Pension Funds Act. The proceeds are taxed as per the South African Revenue Service retirement fund tax tables.
• Your retirement annuity beneficiary form is a guideline to the trustees in distributing your death benefit. It is therefore important that you review your beneficiary form regularly. The beneficiary form serves two purposes, i.e. to advise the trustees of your dependants and to nominate non-dependants if you wish.

Endowments

• An endowment provides a tax-efficient investment vehicle, enabling clients that fall into the higher tax brackets to benefit from the lower tax rate applied to endowments.
• Keep in mind that endowments have restrictions on withdrawals within the first five years.
• With an endowment you can nominate beneficiaries. This will speed up payment to the beneficiaries (by not being dependent on the wind-up of your estate) and also save on executor’s fees.

Discretionary investments (unit trusts and share portfolio investments)

• Discretionary investments do not carry any built-in estate or tax benefits. However, they still constitute a key component of the overall investment product arsenal.
• You may want to consider opening a unit trust savings account for your children. This is especially useful if you have specific savings goals in mind for them, for example saving for their university tuition.

Living annuities

• Typically, when drawing from a living annuity, you will be at an age where you no longer have dependent children.
• Nevertheless, given that a living annuity has an investment amount, you may nominate dependants or have a trust into which the remaining investment amount can be paid upon your death.