Babies are horrible creatures. And ugly. Both my sons looked like they were fathered by a Star Wars character that looked somewhere between Yoda and Jabba the Hutt.
They are teenagers now and both are relatively handsome. But they are teenagers. Clever and miserable.
I often remind them of what Mark Twain famously said: “When I was a boy of 14, my father was so ignorant I could hardly stand to have the old man around. But when I got to be 21, I was astonished at how much the old man had learned in seven years.” Both of them make Twain out to be a delusional old fool.
And that is one of the many reasons why my children will not inherit 1 cent. In fact, if everything goes according to plan I will leave them with debt.
That is undoubtedly the best estate planning anyone can do, time your death (obviously that of your spouse too if necessary) and rate of spending in such a way that there will be nothing left when you depart for greener pastures.
For those with an unfortunate sense of timing or with the ridiculous notion of leaving their ghastly children something they will most certainly have a squabble about, effective estate planning is a necessity.
Estate duty is levied in terms of the Estate Duty Act No. 45 of 1955. It is a tax on transfer of wealth. In simple terms Estate Duty is levied at a flat rate of 20% on the net asset value of the deceased estate, after deducting a primary rebate of R3 500 000. Death also gives rise to potential Capital Gains Tax (CGT) as death is seen as a deemed disposal. Both Estate Duty and CGT at death can be effectively planned and yet so many people don’t bother to.
Clients often moronically point out that death taxes won’t bother them because they will be dead. While that might be factually correct I always point out that the beneficiaries of the estate most probably will not be dead. Estate planning starts with a well-constructed will and testament. This mainly needs to focus on 3 areas of importance:
- Minimising estate duty and CGT
- Cash flow
- Ensuring effective administration of the estate
If a trust was used as an estate duty planning vehicle then care needs to be taken that the administration of the trust will also continue to run smoothly.
Life policies are handy when it comes to planning the cash flow of the deceased estate. There needs to be enough cash available to pay for the living expenses of the surviving spouse, running expenses of the deceased estate, estate duty and CGT, executor’s fees and the cost of the elaborate party that will be thrown in your soon to be forgotten memory.
Sole proprietors/shareholders need to have sufficient succession planning in order to ensure the smooth running of their business after death – you cannot expect the executor of your estate or the surviving spouse to suddenly run your business.
Partners/Shareholders need to ensure that a buy-and-sell agreement is in place with the necessary life policies to back it up as the surviving shareholder is often hit with an unexplainable bout of memory loss and an inability to value the business. You will also not be earning a salary because you will be dead and failing any dividend policy the deceased estate will have no cash flow from the business.
Ambrose Bierce comically made the following statement regarding death: “Death is not the end. There remains the litigation over the estate.”
With the necessary planning in place you can hopefully at least avoid the litigation part.
Article by C2M Director, Carel Steenkamp CA (SA) RA. For more information email firstname.lastname@example.org.
Read other articles by Carel Steenkamp:
- Bitcoin and Tax
- Tax benefits of contributing towards a Retirement Annuity
- Foreign Employment Income Exemption & Financial Emigration