2 Weekend Argus, September 3 2011 P E R S O N A L F I N A N C E “If you knew you were to die tonight, would you know what the estate duty implications would be in your estate?” Pat Blamire asks. “Do you know what capital gains tax your estate would pay? “Would there be enough cash or liquidity in your estate to pay the differ- ent costs that would arise? “Would your loved ones have enough money in cash to keep on going until your estate is wound up? “Would your family receive what you had 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 be moved – in the most efficient way possi- ble – to the people whom you wish to inherit your assets. It also involves ensur- ing that no unnecessary taxes or estate duty are payable, she says. In practice, what happens when you die is that all your assets are frozen. This includes your bank account. If you use your spouse’s bank account, this account will be frozen too, so each spouse should have his or her own bank account, Blamire says. Although you may have appointed an executor in your will, that person will not automatically become the executor, Blamire says. The Master of the High Court has to appoint the executor officially, and this can take anything from one week to three months, she says. Once appointed, the executor takes control of the administration of your estate, settles any liabilities in your estate and distributes the remainder of your assets in terms of your will. Without a proper estate plan, there is no guarantee that your loved ones will be able to pay off any liabilities in your estate or that they will be able to survive financially while your estate is being wound up. Pat Blamire (left), who has the Certified Financial Planning accreditation, spoke on how to avoid the common pitfalls of estate planning at the recent meetings of the acsis/Personal Finance Financial Planning Club. Blamire, a financial planner with Charted Wealth Solutions in Johannesburg, was a finalist in the 2010 Financial Planner of the Year competition. L a u r a d u P r e e z reports Estate planning begins with your will. The first question you must ask yourself is whether your loved ones will be able to find your original will after your death, Pat Blamire says. Searching for a will can delay the winding up of the estate. The next thing you should consider is whether your will is up to date and reflects your current wishes on how you would like your assets to be distributed on your death, Blamire says. Your will is a living document and should be reviewed whenever your circumstances change, she says. Your will should be comprehensive but simple to understand, Blamire says. Although your will does not have to be dated, dating it makes it easy to identify which is your most recent will, she says. Make sure that your will is valid: it must be signed by two independent witnesses who do not stand to inherit from the will, Blamire says. You should consider including special instructions in your will, such as stipulating whether you would like to be buried or cremated, she says. You must name an executor in your will, and if your will establishes a testamentary trust, you should name the trustees of the trust, she says. Blamire says she suggests that you name as the executor your spouse or someone close to you whom you can trust. Banks offer to draw up a will for you at no cost on the condition that they appoint themselves as the executor. In the long run, this free will may cost your heirs more, because the banks can charge an executor’s fee that is a percentage of the estate up to 3.5 percent plus VAT, as well as other fees, Blamire says. Appointing your spouse as the executor does not mean that he or she has to wind up your estate: your spouse can appoint an agent to do so and negotiate the fee for that service, she says. Blamire says she suggests individual wills – rather an joint will – for her married clients. The his and hers wills can be mirrors of each other. The problem with a joint will is that when the surviving spouse dies it can take a long time to locate the original will at the Master’s office. If the original joint will cannot be found, the surviving spouse will die intestate. The assets will be divided in terms of the Intestate Succession Act, and this may not be how you wanted your assets to be split, Blamire says. If you have overseas assets, you may require a separate will for your offshore estate, she says. You should discuss this with the person who draws up your will. Each person’s estate is entitled to an exemption or abatement from estate duty on assets up to R3.5 million. Estate duty of 20 percent is charged on assets that exceed this amount, with the exception of any assets you leave to your spouse, Pat Blamire says. Legislation was changed recently to allow the estate of the second-dying spouse to use any portion of the exemption that the estate of the first-dying spouse did not utilise, Blamire says. This means that if the first-dying spouse left all his or her assets to his or her spouse, and therefore did not use any portion of the R3.5-million exemption, the exemption will roll over to the surviving spouse, and his or her estate will enjoy an exemption of R7 million on his or her death. Rolling over the exemption has its pros and cons, Blamire says. If the surviving spouse lives for 20 years, the executor of his or her estate will have to track down the liquidation and distribution account of the first-dying spouse and prove to the South African Revenue Service that the exemption was not used in his or her estate. If you do not have the liquidation and distribution account, it will be quite a headache for your executor to prove that the exemption was not used, Blamire says. If you have a fairly large estate and you have set up a trust during your lifetime (an inter vivos trust), rather leave the exempt amount to your trust, she says. Blamire says the exempt amount can be invested in the name of the trust, for the benefit of the surviving spouse, and grow within the trust and not in the hands of the surviving spouse. This can save you estate duty, as the following example shows: Roger has an estate of R7 million. Roger’s estate will not pay any estate duty if he leaves all his assets to his wife, Sue. If Sue dies 10 years later and her estate has grown to R9 million, her estate will pay duty on R2 million (R9 million less the combined abatement of R7 million). At 20 percent, the duty will be R400 000. But if Roger leaves R3.5 million to a trust of which Sue is a beneficiary and the remaining R3.5 million to Sue, when she dies her estate will be worth only R4.5 million (half of R9 million), and it will therefore pay estate duty on R1 million (R4.5 million less the abatement of R3.5 million). At 20 percent, the estate duty will be R200 000. WITHOUT A WILL, THERE ISN’T A WAY ANNUITY RATES TO 02/09/2011 These rates are based on a compulsory purchase price of R100 000 for people born 1/1/1951 payable monthly in arrears, guaranteed for 10 years. These rates are based on a voluntary purchase price of R100 000 for people born 1/1/1951 payable monthly in arrears, guaranteed for 10 years. These rates are valid on a daily basis. E&OE Source: Computerised Pension Bureau. Telephone 011 482 3625 Male Discovery . . . . . . . . R710.06 Liberty Life . . . . . . . R773.24 Metropolitan . . . . . . R784.48 Momentum. . . . . . . R782.84 Old Mutual . . . . . . . R770.85 Sanlam. . . . . . . . . . R781.20 Female Discovery . . . . . . . . R670.09 Liberty Life . . . . . . . R724.81 Metropolitan . . . . . . R718.52 Momentum. . . . . . . R736.78 Old Mutual . . . . . . . R711.95 Sanlam. . . . . . . . . . R730.88 Male Discovery . . . . . . . . R710.06 Liberty Life . . . . . . . R773.24 Metropolitan . . . . . . R784.48 Momentum. . . . . . . R772.24 Old Mutual . . . . . . . R770.85 Sanlam. . . . . . . . . . R781.20 Female Discovery . . . . . . . . R670.09 Liberty Life . . . . . . . R724.81 Metropolitan . . . . . . R718.52 Momentum. . . . . . . R728.03 Old Mutual . . . . . . . R711.95 Sanlam. . . . . . . . . . R730.88 INTEREST RATES TO 02/09/2011 MONTHS 1* 3 6 9 12 24 Absa Bank 5.00 5.05 5.16 5.17 4.97 4.58 Bidvest Bank 5.35 5.40 5.80 5.95 6.20 – Capitec Bank – – 6.20 6.25 6.25 7.05 F N B 4.05 5.05 5.30 5.30 5.35 5.75 Grindrod 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 5.00 Sasfin 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 notice deposits. Senior citizens may qualify for an extra 0.5 percent on some 12-month investments. All rates quoted are for interest paid monthly, apply to investments from R50 000 - R100 000 and are correct at the time of going to press. Source: Personal Trust (independent agents for deposit-taking institutions). Telephone 021 689 8975 RSA RETAIL BONDS: SEPTEMBER 2011 FIXED-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 capital adjusted for CPI twice a year. Source: National Treasury.Website: www.rsaretailbonds.gov.za Tel: 012 315 5888. Email: [email protected] ROLLING OVER THE ABATEMENT If your estate will not have enough liquidity to pay off your liabilities, you will most probably have to take out life cover that will pay out when you die and cover these liabilities, Pat Blamire says. If you have young children, you may require additional life cover, because, without your income, your surviving spouse will most probably struggle to raise your children, Blamire says. Carefully review the beneficiaries of your life policies, she says. While a policy to support your surviving spouse and children should probably name your spouse as the beneficiary, a policy you take out to provide liquidity in your estate should most probably name your estate as the beneficiary, Blamire says. Remember that life policies, with some exceptions – most notably ones that pay out to your spouse – are dutiable in your estate. This means you should take out more life cover than you will require to pay the liabilities in your estate, because the liabilities may include a higher amount of estate duty, Blamire says. Living annuity investments fall outside of the Pension Funds Act, so you can nominate the beneficiaries whom you would like to inherit your living annuity investments, Pat Blamire says. These investments can be drawn either as an income or a lump sum (after tax). Recent legislation stipulates that it is not possible for one beneficiary to draw an income and for another to take a lump sum: all the beneficiaries must make the same choice. Blamire says she believes this was not the intention of those who drafted the legislation, and it is being redrafted. Living annuity assets do not attract estate duty in your estate, Blamire says. BUY LIFE COVER TO PAY OFF LIABILITIES LIVING ANNUITIES: YOU CAN CHOOSE THE BENEFICIARIES SPOUSES SHOULD KEEP THEIR ASSETS SEPARATE Married couples should split their assets between them to ensure that the surviving spouse will not be left without any cash after the other spouse has died, Pat Blamire says. If the spouse in whose name all the assets are registered dies first, the surviving spouse may have no cash assets on which to survive while the estate 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 president and chairperson for the past three years, Shantha Padayachee. The vote comes on the eve of the IRF’s annual convention. The vote of no confidence was passed because Padayachee did not notify the board that she had changed her mind about standing for re-election. The vote took place on August 15, but the board only informed Padayachee of it 10 days later. The no-confidence vote was confirmed by Ramotshudi Ramputa, the IRF’s deputy president. “The matter is still being dealt with internally, and we will issue a statement once the internal processes have been finalised. “[Padayachee] has been offered an opportunity to respond to the board, and we do not want to pre-empt the outcome of that. The board is not at liberty to issue any statement at this stage,” Ramputa says. Despite the vote of no confidence, Padayachee plans to deliver her annual president’s report at the IRF’s convention in Durban on Monday. Interviewed this week at an investment conference in Cape Town, where Padayachee was chairing a panel discussion in her capacity as IRF chairperson, Padayachee confirmed that she had received written notice of the vote of no confidence, but rejected it as “ultra vires”. “The IRF constitution provides for an election process by members and who should be notified. I followed all these procedures. “The board is not questioning the legality of my nomination as a board member. It has taken the action because I did not inform the board of my decision to stand for re-election. “I opted to stand for election because I am interested in providing substantive input to this industry as I have done as president for the past three years. I initially thought I would not opt for re- election because of the considerable work involved in this position. It is non-remunerative and requires a large amount of my time and expertise on an ongoing basis. “The IRF is subject to its own constitution and the laws of South Africa but has chosen to ignore all procedural and substantive rules of due process. I would presume we still live in a constitutional democracy,” Padayachee says. EXCHANGE RATES TO 02/09/2011 COUNTRY BUYING RATES SELLING Telegraphic Traveller’s Bank transfer cheques notes United States 6.8200 6.8083 6.8034 7.1700 Great Britain 11.0171 10.9966 10.9879 11.6243 Euro 9.7171 9.6976 9.6893 10.2409 Australian 7.2886 7.2569 7.2202 7.6982 Botswana 0.9723 0.9617 0.9572 1.1383 Canada 6.9589 6.9444 6.9396 7.3638 China 1.0654 – – 1.1280 Denmark 1.3002 – 1.2965 1.3799 Hong Kong 0.8756 – 0.8727 0.9223 India 0.1475 – – 0.1574 Israel 1.8972 – – 2.0214 Japan 0.0882 0.0881 0.0879 0.0940 Kenya 0.0709 0.0697 0.0691 0.0794 Malawi 0.0415 – – 0.0442 Mauritius 0.2469 – 0.2434 0.2667 New Zealand 5.7537 5.7339 5.7110 6.1576 Norway 1.2461 – 1.2412 1.3470 Seychelles – – – 0.6022 Singapore 5.6148 5.6054 5.5928 6.0241 Sweden 1.0613 – 1.0580 1.1232 Switzerland 8.5251 8.5179 8.5106 9.1241 Thailand 0.2166 0.2156 0.2144 0.2521 These rates are subject to market fluctuations and are applicable for amounts up to R160 000. These rates are for indication purposes only, and neither Nedbank nor Personal Finance accepts any responsibility for any decisions based thereon. Source: Nedbank. Quoted at 7.24am Trusts have many benefits, but you should probably not establish a trust if your only reason for doing so is to save estate duty, Pat Blamire says. The Minister of Finance suggested in his Budget in February last year that estate duty may be done away with at some time in the future, she says. In addition to the estate duty benefits of a trust, the advantages of a trust are: ◆ Assets can be protected against creditors and for the benefit of people who are unable to look after them themselves. Assets can also be protected for generations to come. ◆ A trust can protect the interests of beneficiaries such as minor children, a disabled child or a spouse with a degenerative disease, such as Alzheimer’s. However, you need to be aware of the disadvantages of trusts. The main one is that if you set up a trust correctly you will no longer have control over your assets, Blamire says. The trustees collectively must decide how to manage the assets in the trust. If the original founder of the trust runs the trust as though the assets in it are his or her personal assets, the trust could be attacked, for example, by a former spouse, as a sham or an alter ego trust and it may have no legal effect, Blamire says. The duties of the trustees are extremely onerous, she says. A higher responsibility is placed on them than on a director of a public company. Trustees are expected to act carefully, skilfully, diligently and independently, in the interests of the beneficiaries and in accordance with the trust deed. Trustees have a duty to avoid risk, invest productively and obtain expert advice, she says. Trustees can be sued for not carrying out their duties, Blamire says. The other disadvantage of a trust is that the administration can be time-consuming and costly, she says. Proper records must be kept, tax returns submitted and in some cases trusts must be audited. You have to be careful when nominating the beneficiaries of an inter vivos trust, Blamire says. You should have some flexibility to change the beneficiaries, because, even though you may think you have had all the children you are going to have, things can change. For example, what would happen if your sibling was killed and you adopted his or her children? Income tax within a trust is 40 percent, so any income earned within a trust should be distributed to the beneficiaries in the year in which it was earned so that it can be taxed in the hands of the beneficiaries instead. For example, if the trust earns R90 000 in interest for the year and there are three beneficiaries, they can each be paid R30 000. Each beneficiary can use the interest exemption of R22 800 (taxpayers under 65 years of age for the 2010/11 tax year), so they will each pay tax on only R7 200. If you want to leave any assets to your minor children, you should rather leave the assets to them in a trust so that the trustees can look after the assets until the children can do so themselves, Pat Blamire says. Children under the age of 18 cannot inherit cash from you directly, she says. If you have not set up an inter vivos, or living, trust during your life, you can in your will stipulate that you want a testamentary trust to be established on your death, Blamire says. Make sure that your will deals comprehensively with the establishment of the testamentary trust, she says. Normally, a trust deed is about 10 pages long, but your will serves as the trust deed in the case of a testamentary trust, Blamire says. Your will should spell out who the trustees will be, who the beneficiaries will be, the responsibility of the trustees and any other conditions, she says. If you do not set up a trust for your minor children, your executor will be obliged to hand their cash inheritance to the Guardian’s Fund. Money managed by the Guardian’s Fund is invested very conservatively, Blamire says. Investing too conservatively can make a big difference, especially over the long term. Blamire says that R1 million invested at, for example, a return of four percent a year will grow to only R1.8 million after 15 years, whereas if it is invested at a return of eight percent a year, it will grow to R3.3 million. WEIGH UP THE PROS AND CONS BEFORE YOU ESTABLISH A TRUST MINORS CAN’T INHERIT DIRECTLY RETIREMENT SAVINGS: TRUSTEES WILL DECIDE WHO IS PAID OUT Savings in your occupational retirement fund, retirement annuity fund and preservation fund, as well as any group life assurance, become payable on your death, but you cannot always expect the savings to be paid out as you have stipulated on a beneficiary nomination form, Pat Blamire says. The beneficiary nomination form is only an indication to the trustees of the fund how you would like your retirement savings to be distributed, she says. The trustees will determine how to distribute the savings according to section 37C of the Pension Funds Act. In terms of this section, the trustees have to trace your dependants, and then any persons who are financially dependent on you, say, an aged parent, and distribute your retirement savings equitably among them, Blamire says. Only if your dependants have sufficient funds, would the trustees consider anyone else you have nominated as a beneficiary. You should bear in mind that a family member such as your daughter who lives rent-free with her boyfriend in a cottage in your garden may be able to prove dependency, Blamire says. Your retirement fund savings can be paid out to your dependants either as an income or as a lump sum (after the income tax has been deducted). If you have any specific wishes that you would like the trustees to take into account, record these on your beneficiary nomination form, Blamire says. For instance, if your daughter proves to be irresponsible with money, ask the trustees to allocate her a monthly income rather than pay her a lump sum, she says. Your assets in a tax-incentivised retirement-savings fund do not attract estate duty in your estate, she adds. IRF board passes no-confidence vote in its president Key issues you should consider when planning your estate
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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: [email protected]
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
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