The art of estate planning: five essential factors to consider

To ensure the smooth transfer of wealth to the next generation, proper estate planning is essential. Failing to make plans for your estate — and reviewing them regularly — can lead to unintended complications for your descendants.

The purpose of estate planning

The main idea behind estate planning is to structure your affairs in such a way that you achieve these objectives:

• Protection of assets against a forced sale by providing sufficient liquidity during the winding up of the estate; 
• Protection of business interests;
• Facilitation of the administration of the estate;
• Flexibility to enable future adjustments;
• Harmony in the family; and
• Tax efficiency.

Factors to consider

These five factors must be taken into account when you draw up your estate plan:

• Your will: A will is the cornerstone of any estate plan. It helps to ensure that your wishes are clearly stated and makes provision for who will inherit your assets after you die.
  
  
• Marriage regime: Your marital status and regime will have an impact on the division of assets at your death.
  
  
• Estate duty and donations tax: These two taxes have different impacts on both your estate and your heirs. The estate duty rate is 20% on the first R30m of the dutiable estate and 25% on the dutiable amount of estates above R30m in value.
  
  Any donations you may have made over your lifetime are subject to donations tax of 20% on the first R30m (cumulative over your lifetime), and 25% on donations above this amount. You have an annual exemption of R100,000 of the value of all donations made during the tax year, and donations between spouses are exempt from donations tax.
  
  
• Capital gains tax: You will be deemed to have disposed of your assets to your estate at your death, which will have capital gains tax implications. The annual exclusion in the year of death is R300,000. You qualify for a primary residence exemption of R2m, and R1.8m on small business assets with a market value not exceeding R10m on disposal.
  
  
• Liquidity: You need to ensure that enough liquidity will be available for costs, liabilities and taxes to be met without having to dispose of assets at possibly the wrong time. 

Annual review

Estate planning is not a one-off event, and your plan should be reviewed whenever your circumstances change, for example, in the event of:

• Divorce;
• Cessation of tax residency;
• A change in marital regime;
• The addition of dependants;
• Acquiring offshore assets;
• Disability; and
• Retirement.

Since compiling a comprehensive estate plan can be highly complex, it’s crucial to obtain professional advice. If you need any assistance, contact Sanlam Private Wealth Fiduciary and Tax on 011 778 6600 or visit the Sanlam Private Wealth website.

• About the author: Stanley Broun is head of Fiduciary and Tax at Sanlam Private Wealth.

This article was sponsored by Sanlam Private Wealth.