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Ok. Got itTracy Muller, Head of Fiduciary at Nedbank Private Wealth, explains the estate planning considerations and tools you need to protect and secure your dependants’ financial future.
Estate and tax planning is all about structuring your wealth optimally for both during and after your lifetime. A key aspect of this is providing financial protection to your beneficiaries and children and any other vulnerable members of your family, planning for the education of your dependants, and facilitating intergenerational wealth transfer.
There are a range of tools available that enable generational wealth planning.
These tools can help ensure that your wealth is safely transferred to your intended dependants and that those dependants are equipped to receive and protect their inheritance.
Watch our video.
Tracy Muller, Head of Fiduciary at Nedbank Private Wealth talks us through the estate planning considerations and tools to protect you dependants' future.
It is one thing to provide for your loved ones while you can control and keep an eye on matters – but what will happen when you are no longer here? It is critical to make sufficient provision for your loved ones and dependants for after your death, for your and their peace of mind. The most important document we all need to have in this regard is a will that reflects our current wishes, as this will become our voice when we no longer have one. The table below summarises the key aspects of a will that you need to be aware of.
Why a will is important | What to consider when drafting your will | When to update your will |
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Get the help of an expert who can help you draft an appropriate, viable and valid will that considers all the relevant aspects, such as:
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You should review and update your will from time to time, but especially when there’s a change in your personal or financial circumstances, eg:
Changes in legislation may also affect your will. |
A trust can help ensure the safe transfer of wealth to your dependants and that they derive the most value from the assets you have worked hard to acquire. It can:
Using a trust as a vehicle for estate planning can be a complex exercise, which is why it is important to get professional, personal advice. As with your will, your trust and its provisions should be revisited every time there are significant changes in your life.
There are several trust options available – two of the most common are:
Your specific needs and circumstances, like your marital status and family set-up, your income, and your assets will determine which option is best for you.
In addition, special trusts can be effective tools in the case of minor children or beneficiaries with special needs. There are two types of special trusts:
Special trusts |
a) An inter vivos/testamentary trust created for people with special needs | b) A testamentary trust for minor children |
Purpose Benefits |
Purpose Benefits |
Life insurance policies can be used to make financial provision for dependants and create liquidity in your estate. However, it is essential that the policy is correctly structured so that it serves its intended purpose.
When considering a beneficiary nomination, you should pay attention to:
What to consider when nominating a minor beneficiary
It is common for parents to nominate their children (often minors) as beneficiaries on life insurance policies. However, before you nominate your minor child, it is important to carefully consider the implications:
Because of these challenges, it might be worthwhile to consider alternative options on your life insurance policy:
Option 1: Combining your life insurance policy with a testamentary trust | Option 2: Combining your life insurance policy with an inter vivos trust |
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The death benefit from your retirement fund (ie pension fund, provident fund, pension and provident preservation fund, or retirement annuity fund) is expressly excluded from your estate – the benefit will be dealt with according to the Pension Fund Act, which governs these types of funds. You therefore cannot bequeath this benefit to a specific person in your will and the executor of your estate does not deal with the payment of these benefits. While you can nominate beneficiaries for the death benefit, this nomination is not binding on the trustees. According to section 37C of the Act, the trustees have a duty to allocate and pay the benefit in a manner that they deem fair and equitable to dependants. This requires them to:
It is therefore not advisable to rely solely on a death benefit to provide for those who are financially dependent on you, and why it is important to ensure you have sufficient life insurance.
Options available to beneficiaries and the related tax consequences.
A major beneficiary who receives a share of the death benefit can choose to receive their benefit either as a cash lump sum or as an annuity (or as a combination of the two).
Living annuities make excellent estate planning tools and one of the benefits of a living annuity is that it can facilitate the smooth transfer of invested capital to your dependants. Unlike other retirement funds, most living annuities allow you to nominate beneficiaries (including trusts), which mostly provide the nominated beneficiaries with immediate access to the investment proceeds on your death. It is also not a requirement that the nominated beneficiaries must be financially dependent on you. Importantly, funds invested in a living annuity does not form part of your estate and therefore does not attract estate duty. In receiving the proceeds, your beneficiaries have three options:
There is no one-size-fits-all solution when it comes to sound estate planning. Our expert advisors can help you put the appropriate legal structures and estate planning tools in place to cater for your specific needs and circumstances.