Getting Married - Why should you think about a will and trust now?
Congratulations on taking the big step to get married. There are so many things for you to consider at this stage and unfortunately we will not lighten that specific burden. But this document will be of utmost value in your life together and we urge you to read it with care.
What is estate planning?
Estate planning involves the application of recognised techniques to protect, preserve and grow an individual's or family’s estate during and after their lives. Estate planning is a mufti-faceted exercise that requires the professional input of a number of specialised disciplines, such as lawyers, financial planners, insurance and assurance brokers, and tax experts. Estate planning is an ongoing process and there are certain recognised stages in a person's personal and business life that require you to reassess your estate plans, such as:
· The start of a relationship union or marriage
· The birth of a child or children
· The termination of a relationship or divorce
· A new business venture
· A subsequent marriage
· Acquiring or selling a major asset
· A change in financial circumstances (inheritance and insolvency)
· Emigration and relocation
Some important and well-known techniques a professional estate planner employs are:
· Antenuptial contracts
· Post-nuptial contacts
· Inter-spouse donations
· Family loans
· Income splitting mechanisms
· Inter Vivos Trusts
· Testamentary Trusts
· Disability and life cover
· Partnership agreement cover
· Key man agreement cover
· Offshore investments
· Last Will and testament
· Appointment of executors and trustees
· Inflation beating or inflation saving mechanisms
What is an Inter Vivos Trust?
An Inter Vivos Trust remains one of the most valuable mechanisms to protect and grow assets. Inter Vivos Trusts are often recommended for saving estate duty, but there are other reasons, such as:
· To protect your assets from creditors or relationship claim
· To provide continuity after death
· To protect your assets if a beneficiary is a minor or disabled
However, an Inter Vivos Trust is not suitable for every individual or family and you need to consult a lawyer in this regard.
A trust can be created to benefit grandchildren or a subsequent generation as the ultimate beneficiaries. This allows the generations in between to have limited access to the trust funds and avoids unnecessary estate duty. Obviously, factors such as the age of the next generation and their current financial standing and means will be important in the decision to create an Inter Vivos trust.
Trusts are also not favoured by the authorities and the South African Revenue Services (SARS) and courts are increasingly scrutinising them. It is imperative that the form and governance of your trust is above reproach. Once again it is strongly recommended that you obtain expert legal advice in this regard.
Why do I need a Will?
Having a professional Will prepared is an unpleasant experience for many people, and one which is often delayed. But a Will is an important legal document that has a significant impact on how your family, or those dearest and dependant on you, live after you die. The task of drafting an appropriate, viable and valid Will should be entrusted to the care of an experienced practitioner because, unlike most other errors, this is one that cannot be remedied. A Will should be reviewed and updated from time to time. A change in your personal and financial circumstances should automatically trigger a review. Legislation or decisions made by the courts also impact on Wills and estate planning and it is therefore extremely important to obtain expert advice when drafting a Will.
When drafting a Will the following is taken into consideration:
· Your unique personal and family circumstances
· Particular obligations you may have (eg divorce order and dependants)
· Tax efficiency
· The liquidity of your estate
What are Testamentary Trusts?
Testamentary Trusts are created in a person's Will and only come into effect on the death of that person. The Will then operates as the trust deed spelling out the terms of the trust. The terms would state for whom and under what circumstances beneficiaries are to benefit and when the trust is to terminate. There are various reasons and circumstances to consider when deciding whether to create a Testamentary Trust, some relating to family issues and others to monetary and tax considerations.
Circumstances where a Testamentary Trust would make sense are:
· Minority or youthfulness
At the time of the testators’ death, their beneficiaries are minors (under the age of 18), or are of age but lack the necessary maturity or experience to take full responsibility of their inheritance. This type of trust usually terminates when the individuals reach a certain age. Depending on the size of the inheritance, the individuals may have access to capital and the termination may be staggered.
A testator may wish to or has an obligation to provide for a beneficiary who has a physical or mental impediment which renders the beneficiary unable to manage his or her own affairs. A trust is then set up to provide either partially or fully for the individual's maintenance and other requirements for the duration of their life or the impediment.
· Section 4A - estate duty abatement
Bequests made to surviving spouses are exempt from estate duty. It is therefore not uncommon for a testator to wish to leave a large portion or entire estate to their surviving spouse, but depending on the size of the estate and other factors, this may not be the most sensible approach. Although the estate of the first dying in such circumstances will not attract estate duty, the estate of the second dying could be subject to substantial estate duty. The Section 4A abatement (currently R3.5 million) can be used to overcome this, by leaving this amount to beneficiaries other than the surviving spouse. Financial constraints may dictate that the testator does not nominate other beneficiaries directly. A solution is often to place an amount equal to the Section 4A abatement in a trust for the discretionary benefit of the surviving spouse and, usually, any of the deceased's children. In this way the survivor has access to such funds for maintenance while the estate of the first dying enjoys the Section 4A abatement. The residue of the estate is then usually transferred to the surviving spouse.
The viability and practical application of such a trust must be discussed thoroughly with the testator and estate planner to ensure envisaged results are achieved. In particular, the need for such a structure must be reviewed in light of recent amendments to the Estate Duty Act, which introduced the so-called "portable spousal deduction". This deduction essentially allows any unused abatement to be rolled over to the surviving spouse so that on the latter's death, the total abatement (currently R7 million) is available. While this would appear to reduce the need for a Testamentary Trust, the further benefits, ie the pegging of the assets in light of their future growth, as well as other considerations, may render the use of a Testamentary Trust imperative.
What does Estate administration entail?
The process of estate administration is burdensome and technical. In brief, it entails the following:
· Assessing the validity of the Will
· Interpreting the Will and explaining its application to the interested parties
· Identifying the assets in the estate, placing values on the assets and, where necessary, taking physical control
· Identifying and making contact with the creditors, and assessing the liabilities of the estate
· Determining the solvency and the liquidity levels of the estate
· Realising assets
· Finalising and lodging the outstanding income tax returns with SARS
· Calculating the base costs of assets and the capital gains or losses in respect of the assets held by the deceased
· Calculating estate duty and claiming the relevant rebates
· Placing the debtors and creditors adverts in the local press and Government Gazette, arranging for the opening of the estate late banking account
· Complying with the Master of the High Court's requirements
· Communication with the beneficiaries
· Drafting the Liquidation and Distribution Account and arranging for the accounts to lie open for public inspection
· Settling the obligations of the estate and payment of creditors
· Transferring the remaining assets to the beneficiaries
· Transferring the immovable property at the Deed's office
· Drafting and preparing redistribution agreements
· Obtaining the Master's discharge on finalisation of the estate
Louwrens Koen Attorneys can assist you in the drafting of a valid Will and the registration of Inter Vivos Trusts. Our team of dedicated professionals will guide you through this difficult process and be available to answer all your questions.
In cases where an Inter Vivos Trust is created and assets are transferred to it, or a Testamentary Trust is created in a Will, we can help by:
· Advising on registering trusts and appointing trustees
· Advising on governance issues to ensure that the trustees are at all times acting in accordance with the relevant trust deed and the laws, which are onerous in respect of individuals acting in a fiduciary capacity
· Preparing all documents to comply with the Wills Act and Trust Property Control Act
· Administering the trust as a trustee or agent to ensure compliance with all formalities and regulations, attending on the tax returns of the trust, preparing the statements of the administration, the necessary trustee resolutions, attending trustee meetings and communicating with the relevant parties
Louwrens Koen Attorneys
Loftus Versveld Northern Pavillion (Gate12), 2nd Floor Office 4, 416 Kirkness Street, Arcadia, Pretoria
Tel: 087 001 0733