Will presentation 20070812

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Will presentation 20070812

  1. 1. Welcome
  2. 2. “WILLS - A LEGACY OR A LIABILITY”
  3. 3. Why should a Will be drafted professionally? “ For serious planners, there can be only one answer to this question. A will is the single most important tool of any estate plan, economic, fiscal or dynastic. Left in the wrong pair of hands, it can destroy families and damage fortunes.” A will can be defined as a written document in which a testator/trix voluntarily sets out his/her instructions as to how their assets are to devolve following death.
  4. 4. When should your Will be reviewed? • At least every two years. • If you have children/grandchildren. • If you have offshore assets. • If you get re-married/divorced. • On the death of a spouse. • If there are amendments to the tax act. • If you have implemented any other form of estate planning such as a trust.
  5. 5. Freedom of testation • This is the freedom to execute a Will which is valid both in content and in compliance with all the prescribed formalities whereby a testator/trix can leave their assets to whomever they please. • In South Africa this freedom is almost unfettered. • Freedom extends to the disinheritance of anyone and includes his spouse and children.
  6. 6. Freedom of testation • There are exceptions to freedom of testation, namely – Testator has an obligation to maintain and educate his minor and needy children. – Surviving spouse has a claim for reasonable maintenance. – If married „out community of property with accrual‟ then the surviving spouse has a claim for ½ of the accrual.
  7. 7. Requirements of a valid Will • Must be signed in the presence of two witnesses (older than 14). • Must be dated. • Each page must be signed by the testator/trix. • Must be signed in the presence of two witnesses who do not benefit from the will and they, in turn, must sign in the presence of the testator/trix and each other.
  8. 8. Death duties in the estate • There are 3 major „death duties‟ in every estate, namely: • Executors fees: Normally levied at the official rate of 3,5% + VAT. These are levied on the gross value of assets which the executor must administer. • Capital gains tax. Calculated up to 10% depending on the nature of the asset. • Estate duty tax: Calculated at 20% of the dutiable estate > R3,5m
  9. 9. Why is a Will important? • With no valid Will you will die intestate. • Dying intestate will lead to unintended consequences with regards to – Assets not benefiting the intended people – Death duties – CGT – Appointment of Executor/s of choice
  10. 10. Example of dying intestate Mr Jones passes away without leaving a valid Will. He leaves behind his wife Mary, his son Paul who is 18 and his two minor children. His estate after all liabilities and administration costs is valued at R10 million. He was married out of community of property excluding accrual. The distribution of his estate including death duties will look as follows:
  11. 11. Example of dying intestate cont.. • R10 Million is divided by 4, with a spouse entitled to a Child‟s share or R125,000, which ever is the greater • Estate Duty would be as follows: Total estate value R10,000,000 Less S 4q R2,500,000 Less abatement R3 500 000 Total estate Duty R4m x 20% = R800k
  12. 12. Dying intestate cont.. Mr Jones Mary R2,3m Paul R2,3m Minor 1 R2,3m Minor 2 R2,3m Guardians Fund Guardians Fund Government run Total estate duty cost = R800k
  13. 13. Example of dying intestate cont.. • Minor‟s portion to Guardians fund. • A correctly drafted Will would have: - reduced estate duties. - reduced CGT. - and would have better catered for the maintenance of a surviving spouse and minor children.
  14. 14. Example of efficient planning Mr Jones passes away and leaves R3,5m to his children and the residue to his wife Mary. The Will makes provision that if children are under 18, their share will be held in Trust. His estate after all liabilities and administration costs is valued at R10 million. He was married out of community of property excluding accrual. The distribution of his estate including death duties will look as follows:
  15. 15. vs efficient planning cont.. Mr Jones Mary R6,5m Paul R1,17m Minor 1 R1,17m Minor 2 R1,17m Testamentary Trust Total estate duty cost = 0 Testamentary Trust
  16. 16. Example of efficient planning • Estate Duty would be calculated as follows: Total estate value R10,000,000 Less S 4q R6,500,000 Less abatement R3 500 000 Total estate Duty R0
  17. 17. Types of planning in a Will • Simple will using the spousal relief: – Residue of estate is bequeathed to the surviving spouse. – Estate duty tax and capital gains tax are deferred until the death of the surviving spouse. – Only surviving spouse would benefit from the R3,5 million abatement.
  18. 18. Impact of basic planning Mr & Mrs Smith each have an estate of R3,5m. If they leave everything to the survivor and the survivor passes away shortly afterwards, only the survivors estate would be subject to the R3,5m abatement i.e. estate duties payable would be 20% of R3,5m = R700 000.
  19. 19. Types of planning in a Will • Advanced planning: – The primary abatement of R3,5 million is bequeathed to an inter vivos trust or a testamentary trust and residue to spouse. – This will save death duties in the surviving spouses estate. – Total saving amounts to • 20% x R3,5 million = R700,000 (plus savings on growth of investment) • 3,99% x R3,5 million = R139,650
  20. 20. Example of abatement planning Mr Smith Testamentary Trust R3,5m Less (S 4A) R3,5m = 0 Mrs Smith R3,5m Beneficiaries: Mrs Smith & Children Death Duties: R3,5m (R3,5m) 0 R3,5m
  21. 21. Types of planning in a Will • Use of the primary abatement can also be used in a foreign Will. • Benefits: – Make use of the tax free abatement. – Creates a tax shelter for these assets offshore. – Provides a vehicle to protect assets.
  22. 22. Example of Offshore planning - Mr Smith Offshore Testamentary Trust Advantages: 1) Utilises abatement 2) Creates tax shelter 3) Provides assets protection Mrs Smith R3,5m Beneficiaries: Mrs Smith & Children Death Duties: R3,5m (R3,5m) 0 R3,5m
  23. 23. Separate Wills for foreign assets • A valid South African Will is recognised in most foreign countries, but certain countries probate system do not accept our freedom of testation, for example Greece. • A South African executor is prohibited from winding up assets outside S.A. • Potential lengthy procedures if foreign assets must be dealt with in terms of a S.A. Will.
  24. 24. Separate Wills for foreign assets • Benefits of a foreign Will are: – Separate administration of the estate carried out in parallel to the administration of the SA assets. – An executor familiar with the procedures required in those territories can save time and therefore costs. – An opportunity for early advice on any potential taxation and succession dangers.
  25. 25. Separate Wills for foreign assets • It is vitally important that where more than one Will is in existence that both documents dovetail together and do not have the effect of revoking one another!
  26. 26. Usufructs in Will planning • What are their drawbacks? – The base cost for CGT becomes the very low Bare Dominium value. – They are extremely restrictive. – They may lead to incorrect investment decisions.
  27. 27. Example of usufruct Mr Y leaves his estate of R10m to his children, subject to a lifelong usufruct in favour of his wife Mrs Y (65 years old). Usufruct Value: R10m x 12% x 6,8109(PVF) = R8 173 080 Bare Dominium value = R1 826 920
  28. 28. Example of usufruct Mr Y R10m estate Children Value: R1,827m Mrs Y (65) Value: R8,173m Base Cost = R1,827m for CGT Asset invested in cash, Children have to agree to any investment decisions Bare Dominium Usufruct
  29. 29. Example of usufruct cont... • Base cost for children is R1 826 920 an increase in CGT of at least R817 000. • Mrs Y only wants the funds invested in cash as she is only entitled to income and can‟t benefit from capital growth. • Mrs Y‟s children would have to agree to any changes that she may want to make with the portfolio.
  30. 30. Alexander Forbes/Sentinel • Relationship is in its 8th year. • Officially set up a joint venture this year. • Alexander Forbes Fiduciary Services is now operating under a Trust license. • Sentinel to provide advice and administration platform.
  31. 31. Alexander Forbes/Sentinel services: • Estate Planning. • Will drafting. • Tax Compliance. • Onshore & Offshore Trust set up. • Onshore & Offshore Trust administration.

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