Many South Africans believe that having a will is the same as having an estate plan. While a valid will is an essential component, estate planning is far more comprehensive. It covers all your assets and liabilities, ensures there is sufficient liquidity to settle debts, taxes and costs when you pass away, and provides for your dependants in the way you intend.
A valid will is the foundation. Without one, your estate will be distributed according to the Intestate Succession Act, which may not reflect your wishes at all. A will must be signed by the testator (the person making the will) in the presence of two competent witnesses who are not beneficiaries. It should be reviewed every few years, or whenever your circumstances change significantly, such as after marriage, divorce, the birth of a child, or the acquisition of major assets.
Your marital regime has a direct impact on estate planning. In a marriage in community of property, both spouses share a joint estate, and the surviving spouse is entitled to half of the combined estate. In a marriage out of community of property with or without accrual, the estates are separate, and the accrual system may entitle the surviving spouse to a share of the growth in the other spouse's estate during the marriage.
The costs of winding up an estate are often underestimated. Executor fees are set at a maximum of 3.5% of the gross value of the estate (plus VAT), and there may be additional fees for conveyancing, legal work, and compliance. Capital gains tax applies to the deemed disposal of assets on death, with a maximum effective rate of 18% for individuals. Estate duty is levied at 20% on the first R30 million of the dutiable estate and 25% on amounts exceeding R30 million, after a R3.5 million abatement.
Liquidity is a critical consideration. If most of your wealth is tied up in property, business interests or other illiquid assets, your estate may not have enough cash to settle debts, taxes and executor fees without being forced to sell assets at unfavourable prices. Life insurance is commonly used to create instant liquidity in an estate, ensuring that your family is not left in a difficult financial position.
Trusts can play an important role in estate planning, particularly for protecting assets, providing for minor children, and managing the distribution of wealth across generations. However, trusts come with their own tax implications and administrative costs, so they should be established only after careful consideration with a qualified adviser.
Estate planning is not something to put off. The sooner you have a plan in place, the more options you have and the better protected your family will be.
Ready to review your estate plan? Book a consultation with our team to ensure your legacy is properly protected.