Estate Liquidity

Share on facebook
Share on twitter
Share on linkedin

Life is expensive. Income tax, capital gains tax, property transfer costs, settling of liabilities, administration fees, legal fees, and so on. Unfortunately, dying is no different. Death is an event which triggers multiple taxes and expenses and they need to be settled before your estate is wound up. Any delays also have an impact on when your heirs can receive their bequests. This creates additional pressure, which often leads to unintended assets being sold off.

46% of estates experience a cash shortfall and at least 30% require assets to be sold before the estate is settled. Without maintaining your estate plan, there will always be the chance that assets you wish to leave your family will have to be sold to create liquidity. Winding up your estate can take anywhere between six months and two years. Without adequate planning, you might unintentionally drag out what is already a difficult period for those included in your will.

Typical expenses that create these issues are:

· Estate duty – 20% for dutiable amounts over R3 500 000 and 25% for values over R30 000 000;

· Executor’s fees – These are for assets handled within the estate to a maximum of 3.5% (excl. VAT);

· Capital gains tax – It is deemed that assets are realised the day before your death. This can attract up to 18% on any gains;

· Income tax – Any outstanding income tax;

· Property transfer duty – Can be up to 13% of the property value;

· Smaller items would be Master’s fees, valuation costs, costs for provision of any security to the Master, estate bank account charges, cancellation costs of any bonds.

There are numerous financial planning tools to reduce or defer the above and most of our clients make use of them. For instance, investments and policies, which have provision for the nomination of a beneficiary (other than the estate) will avoid executor’s fees. Retirement funds and living annuities are not part of the deceased’s Estate and do not attract estate duty or executors fees. And finally, correctly structured long-term business assurance (keyman insurance and buy/sell policies) will not attract either estate duty or executor fees.

Where an estate analysis identifies a liquidity issue, then a life assurance policy is a useful option, assuming the premiums are affordable. A common example would be where an estate is bequeathed to one’s spouse. There are no estate duty or other taxes when assets pass between spouses, but there will be executor’s fees. In that instance, one defers the estate duty owed to only be paid on the last survivor’s passing. There are life insurance policies which cover both spouses but only pay on the last survivor’s death. These premiums are considerably cheaper than individual policies and they have the benefit of the premiums ceasing on the first death. Couples who are bequeathing their assets to each other and who have life cover for the purpose of estate duty, should undoubtedly structure it as such to save considerably on premiums.

The abovementioned issues do not cover the adequacy of the estate to provide for dependents, but provide a simplified summary of the tax and fee issues which can arise within an estate.  These costs are often underestimated, causing unnecessary problems. Most families do not require a complicated or expensive estate plan. A simple analysis will expose any substantial shortfalls, and identify whether a specialist is needed for more complicated estate structuring.

Written by Greg Knowlden, Sterling Private Wealth


For more information on how we can assist you with your wealth management and estate planning needs, please visit us at www.merchantwest.co.za/wealth-management or email your query directly to MorganY@merchantwest.co.za

Uncategorized

Share on facebook
Share on twitter
Share on linkedin

More Blogs

Get in touch
with us

Want answers to a pressing question about our specialist financial services? Fill in the form and we’ll get back to you shortly

Prefer talking?

View a list of all our office numbers and addresses

Join our mailing list for all the latest updates

Copyright © Merchant West. All rights reserved. Web design by Perfect Circle and Brand Strategy by Simon Says

Disclaimer

Merchant West (Pty) Ltd
Merchant West (Pty) Ltd Registration Number: 2000/012050/07 is an Authorised Financial Services and Credit Provider. (FSP: 7042) (NCRCP4298)

Disclaimer
Merchant West (Pty) Ltd and its directors, officers and employees shall not be responsible and disclaims all liability for any loss, damage (whether direct, indirect, special or consequential) and/or expense of any nature whatsoever, which may be suffered as a result of or which may be attributable, directly or indirectly, to the use of, or reliance upon any information, links or service provided through this website or any other form of publication.

Finance is available to businesses within the Republic of South Africa. Terms and conditions apply.