2 Weekend Argus, September 3 2011 ERSONAL INANCE Key …charteredeb.co.za/wp-content/uploads/2015/07/Key-issues-you-shoul… · estate planning at the recent meetings of the acsis/Personal

2 Weekend Argus, September 3 2011 PERSONALFINANCE

“If you knew you were to die tonight,would you know what the estate dutyimplications would be in your estate?”Pat Blamire asks.

“Do you know what capital gains taxyour estate would pay?

“Would there be enough cash orliquidity in your estate to pay the differ-ent costs that would arise?

“Would your loved ones have enoughmoney in cash to keep on going untilyour estate is wound up?

“Would your family receive what youhad intended them to receive?”

Finding the answers to these ques-tions is what estate planning is about,Blamire says.

Estate planning involves the arrange-ment of your assets so that they may bemoved – in the most efficient way possi-ble – to the people whom you wish toinherit your assets. It also involves ensur-ing that no unnecessary taxes or estateduty are payable, she says.

In practice, what happens when youdie is that all your assets are frozen. Thisincludes your bank account. If you useyour spouse’s bank account, this accountwill be frozen too, so each spouse shouldhave his or her own bank account,Blamire says.

Although you may have appointed anexecutor in your will, that person will notautomatically become the executor,Blamire says.

The Master of the High Court has toappoint the executor officially, and thiscan take anything from one week to threemonths, she says.

Once appointed, the executor takescontrol of the administration of yourestate, settles any liabilities in yourestate and distributes the remainder ofyour assets in terms of your will.

Without a proper estate plan, there is no guaranteethat your loved ones will be able to pay off anyliabilities in your estate or that they will be able tosurvive financially while your estate is beingwound up. Pat Blamire (left), who has theCertified Financial Planning accreditation,spoke on how to avoid the common pitfalls ofestate planning at the recent meetings of theacsis/Personal Finance Financial Planning

Club. Blamire, a financial planner with Charted Wealth Solutionsin Johannesburg, was a finalist in the 2010 Financial Planner ofthe Year competition. Laura du Preez reports

Estate planning begins with your will. Thefirst question you must ask yourself iswhether your loved ones will be able to findyour original will after your death, PatBlamire says. Searching for a will can delaythe winding up of the estate.

The next thing you should consider iswhether your will is up to date and reflectsyour current wishes on how you would likeyour assets to be distributed on yourdeath, Blamire says.

Your will is a living document andshould be reviewed whenever yourcircumstances change, she says.

Your will should be comprehensive butsimple to understand, Blamire says.

Although your will does not have to bedated, dating it makes it easy to identifywhich is your most recent will, she says.

Make sure that your will is valid: it mustbe signed by two independent witnesseswho do not stand to inherit from the will,Blamire says.

You should consider including specialinstructions in your will, such as stipulatingwhether you would like to be buried orcremated, she says.

You must name an executor in your will,and if your will establishes a testamentarytrust, you should name the trustees of thetrust, she says. Blamire says she suggeststhat you name as the executor yourspouse or someone close to you whomyou can trust.

Banks offer to draw up a will for you at

no cost on the condition that they appointthemselves as the executor. In the longrun, this free will may cost your heirs more,because the banks can charge anexecutor’s fee that is a percentage of theestate up to 3.5 percent plus VAT, as wellas other fees, Blamire says.

Appointing your spouse as theexecutor does not mean that he or she hasto wind up your estate: your spouse canappoint an agent to do so and negotiatethe fee for that service, she says.

Blamire says she suggests individualwills – rather an joint will – for her marriedclients. The his and hers wills can bemirrors of each other.

The problem with a joint will is thatwhen the surviving spouse dies it can takea long time to locate the original will at theMaster’s office.

If the original joint will cannot be found,the surviving spouse will die intestate. Theassets will be divided in terms of theIntestate Succession Act, and this may notbe how you wanted your assets to be split,Blamire says.

If you have overseas assets, you mayrequire a separate will for your offshoreestate, she says. You should discuss thiswith the person who draws up your will.

Each person’s estate is entitled to anexemption or abatement from estate dutyon assets up to R3.5 million. Estate duty of20 percent is charged on assets thatexceed this amount, with the exception ofany assets you leave to your spouse, PatBlamire says.

Legislation was changed recently toallow the estate of the second-dyingspouse to use any portion of theexemption that the estate of the first-dyingspouse did not utilise, Blamire says. Thismeans that if the first-dying spouse left allhis or her assets to his or her spouse, andtherefore did not use any portion of theR3.5-million exemption, the exemption willroll over to the surviving spouse, and his orher estate will enjoy an exemption ofR7 million on his or her death.

Rolling over the exemption has its prosand cons, Blamire says. If the survivingspouse lives for 20 years, the executor ofhis or her estate will have to track down theliquidation and distribution account of thefirst-dying spouse and prove to the SouthAfrican Revenue Service that theexemption was not used in his or herestate. If you do not have the liquidationand distribution account, it will be quite a

headache for your executor to prove thatthe exemption was not used, Blamire says.

If you have a fairly large estate and youhave set up a trust during your lifetime (aninter vivos trust), rather leave the exemptamount to your trust, she says.

Blamire says the exempt amount canbe invested in the name of the trust, for thebenefit of the surviving spouse, and growwithin the trust and not in the hands of thesurviving spouse. This can save you estateduty, as the following example shows:

Roger has an estate of R7 million.Roger’s estate will not pay any estate dutyif he leaves all his assets to his wife, Sue.

If Sue dies 10 years later and her estatehas grown to R9 million, her estate will payduty on R2 million (R9 million less thecombined abatement of R7 million). At20 percent, the duty will be R400 000.

But if Roger leaves R3.5 million to atrust of which Sue is a beneficiary and theremaining R3.5 million to Sue, when shedies her estate will be worth onlyR4.5 million (half of R9 million), and it willtherefore pay estate duty on R1 million(R4.5 million less the abatement ofR3.5 million). At 20 percent, the estate dutywill be R200 000.

WITHOUT AWILL, THEREISN’T A WAY

ANNUITY RATES TO 02/09/2011These rates are based on a compulsory purchase price ofR100 000 for people born 1/1/1951 payable monthly in arrears,guaranteed for 10 years.

These rates are based on a voluntary purchase price ofR100 000 for people born 1/1/1951 payable monthly in arrears,guaranteed for 10 years.

These rates are valid on a daily basis. E&OESource: Computerised Pension Bureau. Telephone 011 482 3625

MaleDiscovery . . . . . . . . R710.06Liberty Life . . . . . . . R773.24Metropolitan . . . . . . R784.48Momentum. . . . . . . R782.84Old Mutual . . . . . . . R770.85Sanlam. . . . . . . . . . R781.20

FemaleDiscovery . . . . . . . . R670.09Liberty Life . . . . . . . R724.81Metropolitan . . . . . . R718.52Momentum. . . . . . . R736.78Old Mutual . . . . . . . R711.95Sanlam. . . . . . . . . . R730.88

MaleDiscovery . . . . . . . . R710.06Liberty Life . . . . . . . R773.24Metropolitan . . . . . . R784.48Momentum. . . . . . . R772.24Old Mutual . . . . . . . R770.85Sanlam. . . . . . . . . . R781.20

FemaleDiscovery . . . . . . . . R670.09Liberty Life . . . . . . . R724.81Metropolitan . . . . . . R718.52Momentum. . . . . . . R728.03Old Mutual . . . . . . . R711.95Sanlam. . . . . . . . . . R730.88

INTEREST RATES TO 02/09/2011MONTHS

1* 3 6 9 12 24 Absa Bank 5.00 5.05 5.16 5.17 4.97 4.58Bidvest Bank 5.35 5.40 5.80 5.95 6.20 – Capitec Bank – – 6.20 6.25 6.25 7.05F N B 4.05 5.05 5.30 5.30 5.35 5.75Grindrod Bank 5.30 5.40 5.55 5.60 5.60 – Investec Bank 4.90 4.97 5.08 5.07 5.50 – Mercantile Bank 5.10 5.30 5.50 5.60 5.70 – Nedbank 4.90 5.05 5.15 5.15 5.05 5.00Sasfin Bank 5.35 5.50 5.70 5.80 6.00 – Standard Bank – 4.95 5.00 5.00 5.20 5.50

*One-month rate applies to fixed deposits only and not to noticedeposits. Senior citizens may qualify for an extra 0.5 percent on some12-month investments. All rates quoted are for interest paid monthly,apply to investments from R50 000 - R100 000 and are correct at thetime of going to press.

Source: Personal Trust (independent agents for deposit-takinginstitutions). Telephone 021 689 8975

RSA RETAIL BONDS: SEPTEMBER 2011FIXED-RATE BOND*Two years . . . . . . . . . . . 7.25%Three years . . . . . . . . . . 7.50%Five years . . . . . . . . . . . 8.00%* Rates are set every month.

INFLATION-LINKED BOND*Three years . . . . . . . . . .1.75%Five years . . . . . . . . . . .2.00%Ten years . . . . . . . . . . . .2.50%* Rates are in addition to capitaladjusted for CPI twice a year.

Source: National Treasury.Website: www.rsaretailbonds.gov.zaTel: 012 315 5888. Email: queries@rsaretailbonds.gov.za

ROLLING OVER THE ABATEMENT

If your estate will not have enoughliquidity to pay off your liabilities, you willmost probably have to take out lifecover that will pay out when you die andcover these liabilities, Pat Blamire says.

If you have young children, you mayrequire additional life cover, because,without your income, your survivingspouse will most probably struggle toraise your children, Blamire says.

Carefully review the beneficiaries ofyour life policies, she says. While apolicy to support your surviving spouseand children should probably name yourspouse as the beneficiary, a policy youtake out to provide liquidity in yourestate should most probably name yourestate as the beneficiary, Blamire says.

Remember that life policies, withsome exceptions – most notably onesthat pay out to your spouse – aredutiable in your estate. This means youshould take out more life cover than youwill require to pay the liabilities in yourestate, because the liabilities mayinclude a higher amount of estate duty,Blamire says.

Living annuity investments fall outside ofthe Pension Funds Act, so you cannominate the beneficiaries whom youwould like to inherit your living annuityinvestments, Pat Blamire says. Theseinvestments can be drawn either as anincome or a lump sum (after tax).

Recent legislation stipulates that it isnot possible for one beneficiary to drawan income and for another to take alump sum: all the beneficiaries mustmake the same choice. Blamire saysshe believes this was not the intention ofthose who drafted the legislation, and itis being redrafted.

Living annuity assets do not attractestate duty in your estate, Blamire says.

BUY LIFE COVERTO PAY OFFLIABILITIES

LIVING ANNUITIES:YOU CAN CHOOSETHE BENEFICIARIES

SPOUSES SHOULDKEEP THEIRASSETS SEPARATEMarried couples should split their assetsbetween them to ensure that thesurviving spouse will not be left withoutany cash after the other spouse hasdied, Pat Blamire says.

If the spouse in whose name all theassets are registered dies first, thesurviving spouse may have no cashassets on which to survive while theestate is wound up, she says.

BRUCE CAMERON

The board of the Institute of Retirement Funds (IRF)has passed a vote of no confidence in its presidentand chairperson for the past three years, ShanthaPadayachee. The vote comes on the eve of the IRF’sannual convention.

The vote of no confidence was passed becausePadayachee did not notify the board that she hadchanged her mind about standing for re-election.The vote took place on August 15, but the board onlyinformed Padayachee of it 10 days later.

The no-confidence vote was confirmed byRamotshudi Ramputa, the IRF’s deputy president.

“The matter is still being dealt with internally,and we will issue a statement once the internalprocesses have been finalised.

“[Padayachee] has been offered an opportunity torespond to the board, and we do not want to pre-emptthe outcome of that. The board is not at liberty toissue any statement at this stage,” Ramputa says.

Despite the vote of no confidence, Padayacheeplans to deliver her annual president’s report at theIRF’s convention in Durban on Monday.

Interviewed this week at an investmentconference in Cape Town, where Padayachee waschairing a panel discussion in her capacity as IRFchairperson, Padayachee confirmed that she hadreceived written notice of the vote of no confidence,but rejected it as “ultra vires”.

“The IRF constitution provides for an electionprocess by members and who should be notified. Ifollowed all these procedures.

“The board is not questioning the legality of mynomination as a board member. It has taken theaction because I did not inform the board of mydecision to stand for re-election.

“I opted to stand for election because I aminterested in providing substantive input to thisindustry as I have done as president for the pastthree years. I initially thought I would not opt for re-election because of the considerable work involvedin this position. It is non-remunerative and requiresa large amount of my time and expertise on anongoing basis.

“The IRF is subject to its own constitution and thelaws of South Africa but has chosen to ignore allprocedural and substantive rules of due process. Iwould presume we still live in a constitutionaldemocracy,” Padayachee says.

EXCHANGE RATES TO 02/09/2011COUNTRY BUYING RATES SELLING

Telegraphic Traveller’s Banktransfer cheques notes

United States 6.8200 6.8083 6.8034 7.1700Great Britain 11.0171 10.9966 10.9879 11.6243 Euro 9.7171 9.6976 9.6893 10.2409Australian 7.2886 7.2569 7.2202 7.6982Botswana 0.9723 0.9617 0.9572 1.1383Canada 6.9589 6.9444 6.9396 7.3638China 1.0654 – – 1.1280Denmark 1.3002 – 1.2965 1.3799Hong Kong 0.8756 – 0.8727 0.9223India 0.1475 – – 0.1574Israel 1.8972 – – 2.0214 Japan 0.0882 0.0881 0.0879 0.0940Kenya 0.0709 0.0697 0.0691 0.0794Malawi 0.0415 – – 0.0442Mauritius 0.2469 – 0.2434 0.2667New Zealand 5.7537 5.7339 5.7110 6.1576Norway 1.2461 – 1.2412 1.3470Seychelles – – – 0.6022Singapore 5.6148 5.6054 5.5928 6.0241Sweden 1.0613 – 1.0580 1.1232Switzerland 8.5251 8.5179 8.5106 9.1241Thailand 0.2166 0.2156 0.2144 0.2521

These rates are subject to market fluctuations and are applicable foramounts up to R160 000.These rates are for indication purposes only,and neither Nedbank nor Personal Finance accepts any responsibility forany decisions based thereon. Source: Nedbank. Quoted at 7.24am

Trusts have many benefits, but you shouldprobably not establish a trust if your onlyreason for doing so is to save estate duty,Pat Blamire says.

The Minister of Finance suggested inhis Budget in February last year that estateduty may be done away with at some timein the future, she says.

In addition to the estate duty benefits ofa trust, the advantages of a trust are:

◆Assets can be protected againstcreditors and for the benefit of people whoare unable to look after them themselves.Assets can also be protected forgenerations to come.

◆A trust can protect the interests ofbeneficiaries such as minor children, adisabled child or a spouse with adegenerative disease, such as Alzheimer’s.

However, you need to be aware of thedisadvantages of trusts. The main one isthat if you set up a trust correctly you willno longer have control over your assets,Blamire says. The trustees collectivelymust decide how to manage the assets inthe trust. If the original founder of the trustruns the trust as though the assets in it arehis or her personal assets, the trust couldbe attacked, for example, by a formerspouse, as a sham or an alter ego trust andit may have no legal effect, Blamire says.

The duties of the trustees are extremelyonerous, she says. A higher responsibilityis placed on them than on a director of apublic company. Trustees are expected to

act carefully, skilfully, diligently andindependently, in the interests of thebeneficiaries and in accordance with thetrust deed. Trustees have a duty to avoidrisk, invest productively and obtain expertadvice, she says.

Trustees can be sued for not carryingout their duties, Blamire says.

The other disadvantage of a trust is thatthe administration can be time-consumingand costly, she says. Proper records mustbe kept, tax returns submitted and in somecases trusts must be audited.

You have to be careful whennominating the beneficiaries of an intervivos trust, Blamire says. You should havesome flexibility to change the beneficiaries,because, even though you may think youhave had all the children you are going tohave, things can change. For example,what would happen if your sibling waskilled and you adopted his or her children?

Income tax within a trust is 40 percent,so any income earned within a trust shouldbe distributed to the beneficiaries in theyear in which it was earned so that it canbe taxed in the hands of the beneficiariesinstead. For example, if the trust earnsR90 000 in interest for the year and thereare three beneficiaries, they can each bepaid R30 000. Each beneficiary can usethe interest exemption of R22 800(taxpayers under 65 years of age for the2010/11 tax year), so they will each pay taxon only R7 200.

If you want to leave any assets to yourminor children, you should rather leave theassets to them in a trust so that thetrustees can look after the assets until thechildren can do so themselves, Pat Blamiresays. Children under the age of 18 cannotinherit cash from you directly, she says.

If you have not set up an inter vivos, orliving, trust during your life, you can in yourwill stipulate that you want a testamentarytrust to be established on your death,Blamire says.

Make sure that your will dealscomprehensively with the establishment ofthe testamentary trust, she says.

Normally, a trust deed is about 10pages long, but your will serves as the trustdeed in the case of a testamentary trust,Blamire says.

Your will should spell out who thetrustees will be, who the beneficiaries willbe, the responsibility of the trustees andany other conditions, she says.

If you do not set up a trust for yourminor children, your executor will beobliged to hand their cash inheritance tothe Guardian’s Fund.

Money managed by the Guardian’sFund is invested very conservatively,Blamire says.

Investing too conservatively can makea big difference, especially over the longterm. Blamire says that R1 million investedat, for example, a return of four percent ayear will grow to only R1.8 million after 15years, whereas if it is invested at a return ofeight percent a year, it will grow toR3.3 million.

WEIGH UP THE PROS AND CONSBEFORE YOU ESTABLISH A TRUST

MINORS CAN’T INHERIT DIRECTLY

RETIREMENT SAVINGS: TRUSTEESWILL DECIDE WHO IS PAID OUTSavings in your occupational retirementfund, retirement annuity fund andpreservation fund, as well as any group lifeassurance, become payable on yourdeath, but you cannot always expect thesavings to be paid out as you havestipulated on abeneficiarynomination form, PatBlamire says.

The beneficiarynomination form is only anindication to the trustees of thefund how you would like yourretirement savings to bedistributed, she says.

The trustees will determine how todistribute the savings according tosection 37C of the Pension FundsAct. In terms of this section, thetrustees have to trace your dependants,and then any persons who are financiallydependent on you, say, an aged parent,and distribute your retirement savingsequitably among them, Blamire says. Onlyif your dependants have sufficient funds,

would the trustees consider anyone elseyou have nominated as a beneficiary.

You should bear in mind that a familymember such as your daughter who livesrent-free with her boyfriend in a cottage inyour garden may be able to prove

dependency, Blamire says.Your retirement fund savings

can be paid out to yourdependants either as an income or

as a lump sum (after the income taxhas been deducted).

If you have any specificwishes that you would likethe trustees to take into

account, record these onyour beneficiary nominationform, Blamire says. For

instance, if your daughterproves to be irresponsible with

money, ask the trustees to allocate her amonthly income rather than pay her a lumpsum, she says.

Your assets in a tax-incentivisedretirement-savings fund do not attractestate duty in your estate, she adds.

IRF board passesno-confidence votein its president

Key issues you should considerwhen planning your estate