Plan your investments and estates this way
W ith the state of restraint and the current economic climate, many South Africans were left without income and most individuals had to stand back and reevaluate their investments. It is essential that individuals pay close attention to the way they invest their money and proper estate planning is therefore crucial.
Before we start discussing the concept of investments and estates, we must first look at the definition of property. It is defined as a right to any property that is movable, immovable, physical or incorporeal in nature. This includes further property defined as deemed assets. The deemed asset is only realized at the time of death and does not form part of the pre-existing assets.
There are different types of investments that an individual can take out during his / her lifetime and can consist of voluntary and non-voluntary capital investments. Each of the assets or deemed assets is unique and is handled in different ways when it comes to its restructuring and review. It is therefore important that the tax implications are also considered for the purposes of estate planning.
A general misperception exists that assets, and more specifically non-voluntary capital, on which a beneficiary has been nominated, do not form part of a person’s estate. This does apply to benefits payable from a retirement annuity, and / or a pension fund and / or provident fund that do not form part of the definition of property.
A living annuity falls outside an individual’s estate and can be paid out directly to a beneficiary on death and is not subject to estate duty, capital gains tax and / or executor fees. In the case where a trust is nominated as a beneficiary, the lump sum is liable to estate duty. If no beneficiaries are nominated, the capital amount will be regarded as an asset that forms part of the deceased’s estate and therefore executor fees will apply.
Life insurance is also considered for estate duty even if the policy proceeds are paid out to a nominated beneficiary. The proceeds are regarded as deemed property and the amount is therefore taxable in an individual’s estate. Individuals are advised to make use of such a policy where the estate does not have sufficient cash assets. The estate is then named as beneficiary and the proceeds are used to settle the liabilities and fees that form part of the estate. If the estate does not have sufficient cash assets, this will result in other assets having to be realized to collect sufficient cash or the heirs having to pay a proportionate portion of the debt to retain the assets. Having the policy paid out to your estate may mean that executor fees will be charged on it.
Voluntary capital such as shares, investment bonds, donations and unit trusts are subject to estate duty even if a beneficiary is nominated. This includes any foreign capital and investments.
Although most of the investments are subject to estate duty, this does not mean that the full amount is taxable. Provision is made for various deductions that may bring relief to high-income individuals. The first R3,5 million of an individual’s estate is not taken into account for tax and you are only taxed for the amount it exceeds. The reduction can also be rolled over to the benefit of the surviving spouse to which he / she will be entitled to a rebate of R7 million at the time of the surviving spouse’s death. Section 4q also provides that all assets bequeathed to the surviving spouse are exempt from estate duty and will only be taken into account when the spouse waives the asset.
Plan in a timely manner how your investments should be structured in order to get the best benefit from it when it comes to your estate planning.
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