Issue 7 - 27 October 2008

Anton Du Preez
Director

Leave enough WEALTH for your Family!

Many of us are not actually sure if we have enough life assurance to take care of our family after our death. Do you know what will happen to your estate if you pass away without a valid will? Do you know that by not planning properly a large portion of your estate may go to estate duty and executor’s fees? Furthermore, if insufficient cash is left in the estate, the estate might not be able to pay creditors or settle cash legacies as provided in the will, which in turn might necessitate the Executor to sell estate assets to meet those cash needs.

Scenario 1:

Husband and wife married out of community of property with accrual, their debt on property is around R3 million. The property market value is around R6 million. Their life assurance payout after death is R9 million.

EXECUTOR Fees: The maximum Executors fee is 3.5% excl vat. This is calculated on the Gross value of your estate. In this case the is estate is valued at R15 million.

Case A) If a beneficiary has been nominated on the current life assurance, then the R9 million will be excluded from the Executors fee (maximum R210 000 or otherwise there negotiated)

Case B) If a beneficiary has NOT been nominated on the current life assurance then the total value of the estate of R15 million will be included in the Executors fee (maximum R525 000 or otherwise there negotiated)

Take note however that it is not advisable to bequeath all insurance outside the estate as the Executor would need cash in the estate to pay for costs and claims, such as outstanding tax or maintenance claims. Should there not be sufficient cash to cover the mentioned expenses then the Executor might be forced to sell estate assets in order to raise the necessary cash.

Estate Duty Tax is based on the nett of the assets and liabilities, less the exempt portion (R 3.5 million) multiplied by a 20% Estate Duty Tax.

This example of Estate Tax Duty is based using scenario 1 case B above
B)The result in this scenario where the estate value was R15 million, the R3 million liabilities less the other overall costs of around R21 260 less Executors Fees of R525 000 and less the section 4A deduction (in terms the Estate Duty Act) of R3.5 million would leave an approximate portion of R7.9 million taxable. The Estate Tax Duty then would be almost R 1.6 million rand!

Other average overall costs could be around R21 260-00
1: Master's fees: R600
2: Advertisement costs: R660-00
3: Average Funeral Costs: R10 000 – R15 000
4: Tombstone : R5000

To finalise an overall cost to this Estate would be R1 931 260-00 based on scenario 1 case A above:
1: Executor Fees: R525 000-00
2: Estate Duty Tax: R1.7 million
3: Other Average fees: R21 260-00

Life Assurance is an effective way of paying out a partner upon death or disability, covering debt or replacing income that a key person would have brought into a business. If structured correctly no estate duty could be paid. Section 4(q) allows a spouse to receive a bequest without this bequest being taken into account when estate duty is calculated, therefore no estate duty is payable on bequests between spouses.

Testamentary or will trusts are important tools that need to be considered when drafting one’s will. When a minor is a beneficiary and no such a trust is created then the inheritance that accrues to the minor stays in the Guardians fund administered by the Master of the High Court. Should you feel that you want to avoid this, then a Will trust can be created for the minor to be administered by Trustee’s appointed by you. The framework or then the rules and guidelines of the Trust are laid down by you the Testator.

An up to date and properly structured will prevents a person dying intestate. This allows the estate to be wound up as per your specific wishes and might minimise time and costs paid by the estate.

IS YOUR WILL UP TO DATE? DO YOU HAVE SUFFICIENT COVER TO PROTECT YOUR FAMILY IN THE EVENT OF YOUR DEATH? To find out more about estate planning contact Anton du Preez.

We look forward to hearing from you soon….

Anton du Preez | Director and Independent Registered Financial Coach
Cell: +27 (83) 445 2066
www.themedowgroup.co.za
The Meadow Group