For purposes of this article, the testatrix or deceased shall be referred to as the “estate planner”.
Whilst estate planning entails more than just drafting a valid “will” most individuals usually limit this concept to just drafting a will which becomes a vital tool upon the death of the estate planner.
The aim of this article is to explain the role of estate planning and how to go about managing your estate to benefit the estate planner and his/her beneficiaries during and after his/her life.
Estate planning entails managing your estate by means of estate planning tools such as a will, trust, donations, tax structuring, choosing a suitable marriage regime, offshore/local trusts. These tools do not only offer individuals a succession plan but companies/institutions as well whilst dealing with tax in the most cost-effective manner. For purposes of this article, I shall focus on wills and trusts.
The most common tool in estate planning is a will. A valid will is executed by an estate planner above the age of sixteen (16) years, who is of sound mind. It must be witnessed by 2 witnesses above the age of 14 years. The estate planner must thus state his/her last wishes with regards to how he/she wants his/her estate to be dealt with upon his/her death. The requirement of a valid will are provided for by the Wills Act of 1953. It is vital to note that, if a will is declared to be invalid, the estate will thus be administered according to laws regulating Instate Succession. A will that is validly executed by the estate planner may only be amended by the estate planner in the presence of two competent witnesses.
The estate planner may further create a testamentary trust. That is, a clause in a will creating a trust that will come into effect after the death of the estate planner. This is usually done to safeguard the interest of any minor heir/child.
Having a valid will ensure that the estate planner’s property will be disposed of as per their last wishes. The law through the Master of the High Court and the Courts ensures that there shall be no deviation from the last words of the estate planner, unless there are compelling reasons and it is in the interest of justice for such deviation. An application would have to be made to the High Court by the objecting or intervening party for the court to consider deviating from the last wishes of the estate planner.
It is vital that when executing a will, the estate planner should nominate and appoint an executor and/or trustees in case of a testamentary trust. Appointing an executor circumvents any delays that may be encountered upon the death of the estate planner. In the event where no executor is appointed, the beneficiaries/heirs will be required to nominate an executor, the Master of the High Court might require security before issuing letter of executorship to the nominated executor. Furthermore, the estate planner gets to decide what powers the executor may have regarding the administration of her estate.
If the estate planner dies without a valid will, they risk their estate being administered by way of Intestate Succession. This type of administration will be done in accordance with the provisions of the Intestate Succession Act.
The type of marriage plays a vital role when it comes to estate planning. For instance, an estate planner must be cautious when bequeathing property which forms part of the joint estate. Furthermore, an estate planner that was involved in more than one marriage/relationship and has obligations to various children will need a professional team that will consider all the implications. One of the best ways to safeguard this is to create a trust, either a living/inter vivos or testamentary trust.
Living trust vs testamentary trust
A trust is a legal entity which is created to hold assets for the benefit of certain persons or entities. Trust property may be movable, immovable, including contingent interests in property, which are to be administered or disposed of by a trustee in terms of the deed of trust.
Living/ inter vivos trust
This trust is created when the estate planner is still alive. It is established by a trust deed which sets out who the founder, trustees and beneficiaries are. It defines powers and duties of trustees and how and when the trust is to be wound up. The founder may also be co-beneficiary and /or trustee. The founder usually donates assets to the trust. There are several inter vivos trusts that may be created e.g. ownership trust, bewind trust or curatorship trust.
A testamentary trust is created by a trust clause in a will, in which the testator bequeaths assets to the trust and stipulates the terms and conditions which will apply to the trust. A testamentary trust only comes into existence upon death of the testator. If for any reason the will is declared invalid, the trust may not come into effect.
Testamentary trusts are geared towards protecting the interests of minors and other dependants who cannot look after their own affairs. Assets that form part of an estate may be moved to the testamentary trust and sometimes include limited rights such as usufruct (temporary right to use/benefit from trust assets). The appointed trustees administer the trust in terms of the will until the trust terminates, usually after a predetermined period or at a determined event, such as a minor turning eighteen or the death of an income beneficiary.
It is vital to note that a trust can attract tax up to 40%, however if used prudently it can be cost effective. When creating a trust, the professional has to consider more just the rights and interest to be protected by such an instrument but must also consider the tax implications that comes with creating a trust.
By Sada Sy Jesse Raulinga
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