Passing on before passing away

Fiduciary specialists have always played an integral role in drawing up holistic estate plans for clients.

This role includes providing advice on how to structure their estate in a way that is most beneficial for the next generation. This would typically entail drafting a will for the client or forming a family trust, in order to continue the client’s legacy.

Importance of legacy

Legacy planning has, at times, been overshadowed by what was viewed as ‘tax benefits’ and the wish to reduce estate duty implications on the estate. This enabled the testator/testatrix to leave more funds and assets to their family to provide them with an income and maintain the lifestyle that they had enjoyed before their death.

The ‘old norm’ in the context of wills was for a married person to leave all assets to their spouse to use the estate duty exemption provided for in the Estate Duty Act 45 of 1955 (section 4Q). This would effectively mean that the surviving spouse was left with additional assets in order to provide for the family. The disadvantage however was that ownership of the assets would vest with the surviving spouse’s estate, giving the surviving spouse the final say on how to ultimately distribute those assets. They could, for example, choose to leave the assets to a new spouse.

In 2010 there was a welcome change to the Act, making the section 4A abatement transferable to a surviving spouse, where the deceased spouse left all assets to his or her surviving spouse. The effect was that the first to die would leave all assets to the spouse at death, the unused abatement (due to section 4Q being used) would then roll over to the surviving spouse, which meant that the surviving spouse could then use a R7 million abatement against their estate, i.e. their predeceased spouse’s abatement, as well as their own.

Trusts

The old norm with trusts was to leave the section 4A abatement amount only to either an existing inter-vivos trust or to a testamentary trust for the benefit of the children. The residue of the estate would then be bequeathed to the spouse, and in essence have no estate duty implications.

Fast forward ten years

There have been several changes to and discussions around estate planning, as well as trusts. The Davis tax committee, for example, was appointed to assess South Africa’s tax policy framework. Various recommendations have been made, which could impact on planning going forward, especially if taxation is the main concern.

There have also been changes in societal norms. Clients today are more interested in passing their legacy on to the next generation. More and more people are leaving assets directly to their children, as they worry that their children might not get the benefits on their passing if left in the hands of the surviving spouse.

In some instances this can also be found where both parties earn an income and thus do not see a need to make provision in the form of leaving assets for a surviving spouse, as they will continue to earn an income after their partner’s passing. When minor children are involved, they prefer to leave assets to a Testamentary Trust where the children are the only beneficiaries.

Estate duty savings are no longer a focal point, which means people make ‘peace’ with the payment of death duties, provided their legacy is passed on to those who are most important to them. It is therefore of the utmost importance to support the client by ensuring that they have sufficient liquidity in their estate to cater for any fees and taxes.