Restructure your assets sensibly to preserve the money for heirs

Question

I’m a widow with a terminal diagnosis. I want my two children, both in their fifties, to inherit with minimum cost and delay. I have R24m in assets with R5 million
in bank accounts, R7 million in unit trusts, R5 million in RSA Retail Savings and a R7m home. What should I do?

Answer

The kindest legacy you can leave is clarity. A tidy estate prevents the small frictions that
can become big family problems during a very emotional time.

Will, wishes and important info

Update your will and name a professional executor you trust. Give them explicit authority to sell assets and sign transfer documents without further consents. consents. If you want the house sold, say so plainly. If you want equal shares, say how that equality should be achieved. Avoid the temptation of having a family member act as executor – this often results in family disagreements.

Complete a “loved ones file” that lists every account, policy and investment. Write a brief letter of wishes. It is not binding, but families handle decisions better when they understand your intent.

Sort out your medical paperwork. An advance directive and the right consents can spare your children difficult choices. Ask your attorney to flag any capacity concerns now, because a normal power of attorney lapses if capacity is lost.

Attach beneficiaries where possible

If an asset has a beneficiary attached to it, the transfer is quick. Look at those assets where there is no beneficiary and see if you can move them into one where there is a beneficiary. The following investments don’t allow beneficiaries: bank deposits, unit trusts and retail bonds.

Transferring these assets to your heirs will take a while. Where it makes sense, move them into structures where you can attach beneficiaries. These include: endowment policies, sinking funds and disallowed retirement annuities.

I would recommend that you look at each asset through two lenses: speed and tax. Ask: “Can this pay outside the estate?” and “What tax would I trigger to make that happen?”

For example, look at your unit trust portfolio. Left alone, it will trigger capital gains tax (CGT) and executor fees. If you move the money into an endowment or sinking fund, you can eliminate executor fees and have the benefit paid to the beneficiary within weeks. However, it will crystallise CGT today. Given that the CGT would have to be paid when you pass away, this should not be a showstopper.

Estate duty

Assuming there was a rollover of the estate duty abatement when your husband died, the first R7-million of your estate will not trigger estate duty. That leaves R17m of your
assets that are liable for estate duty of 20%. This works out to R3.4m. Add in the
executor fees and you have a leakage of over R4m.

One way of reducing this is to move some of your assets, like the bonds, unit trusts and some of the cash, into a disallowed retirement contribution structure. This will take these assets out of your estate if your beneficiaries elect to receive the proceeds as an annuity income. Given that your children are approaching retirement age, this could be a very attractive option for them. They get to boost their retirement savings while saving estate duty and executor fees.

If we keep R1-million in the call account and move the rest into a disallowed retirement structure, you will have the following leakage:

There will be no estate duty, as the value of the estate of R1-million in the call account and R5-million from the property will be below the R7-million abatement. This solution can preserve a lot of wealth for your children. I would, however, recommend that you consult a certified financial planner, as there are a number of moving parts and I do
not know enough of your or your family’s situation to give you a categorical answer. DM

Kenny Meiring is an independent financial adviser. Contact him on 082 856 0348 or at financialwellnesscoach.co.za. Send your questions to kenny.meiring@sfpwealth.co.za