Market jolt triggers smart estate planning – BJM PCS

Demand for efficient estate planning by affluent South Africans has moved sharply higher following recent jolts to the financial system, says Barnard Jacobs Mellet Private Client Services (BJM PCS), a wealth management company that specialises in bespoke services for high net worth individuals.

In upper income groups, a ‘will review’ is a highly recommended response to market loss to ensure remaining wealth is efficiently managed, but this time around the process is much more holistic as a range of instruments and structures may have to be recalibrated to optimise tax, cost and administration efficiencies, says Tony Barrett, head of Wealth Management at BJMPCS.

The BJM Group recently launched an estate planning arm to address growing demand for expert review of generational planning arrangements.

Barrett points to three key changes that make a review urgent:

1. Exchange control liberalisation since the previous market correction: Grey assets held offshore have been legitimised in recent years. Offshore trusts, wills and structures may require simplification or consolidation to save costs and remove duplication.

2. Raising the estate duty bar: Changes to legislation have increased the estate duty abatement to R3,5 million per person or R7 million for a married couple. Until recently, the abatement was only R1 million, which led to elaborate arrangements to optimise every tax break. With a R7 million abatement now available to spouses, the need for complex arrangements across various entities and parties may fall away – creating opportunities for simplification and savings. The size and nature of bequests may also be affected.

3. Removal of retirement funding structures from the net: Assets held in pension, provident and preservation funds, retirement annuities and living annuities are no longer liable for estate duty and are no longer subject to executor’s fees. Both retirement and generational planning strategies may be affected; for instance, decisions about the size of the lump sum to be taken out of retirement funding structures and the amount to be left in to generate an ongoing income.

“Some important changes were made as recently as the last Budget,” says Barrett. “So a review is timely. But to look simply at isolated elements such as the will and the new level of estate duty abatements misses the point.

“To optimise efficiencies and create appropriate arrangements in today’s economic climate it is necessary to take a much broader view and look at generational planning, trust structures and retirement – all seamlessly integrated into one’s wider wealth management and investment planning.

“A broader view reveals wider opportunities. Draw up a will by all means, but draw up a properly integrated strategy while you’re at it.”