Jan 31

New Year’s Resolution to do Proper Estate Planning

This month, Appleton Managing Director, Lauren Hean, discusses the need for proper and thorough estate planning as a new year’s resolution!

Firstly, may we take this opportunity to wish all clients a very happy and successful 2023. January is the month that we make (and often break) our new year’s resolution, but this year we would ask you to make one resolution and stick to it and that is plan your estate. By this we mean please ensure that not only is your Will up to date (including specifying your latest wishes), but also set up an appointment with your wealth specialist or financial advisor to ensure that your estate is optimally structured for tax purposes as well as ensuring it has sufficient liquidity.

On this latter point, it is alarming to note that research indicates that less than 30% of all deceased estates have sufficient liquidity to pay for all the attendant costs involved in the administration process. Stated differently, some 70% of all estates will require the forced sale of assets or a contribution by beneficiaries to pay for the costs involved in winding up the estate. For some, leaving an illiquid estate is “somebody else’s problem”. But when you consider that the “somebody else” is usually your surviving spouse or children, no responsible or caring person would want to saddle their partner or heirs with this administrative and financial burden.

So, let’s examine briefly some of the costs incurred in the administration of an estate. Firstly, executors fees are statutorily prescribed as a maximum of 3,5% (plus VAT) of the gross value of the estate. Thus, an estate of R3 million will be charged an executor’s fee of R105, 000 (plus VAT). While Appleton applies a competitive fee scale to its clients, the question still arises as to whether you have R120,000 cash in your bank account or near cash just to pay for the administration of your estate? Then there’s conveyancing fees which are charged for the transfer of any property in your estate along with bond cancellation costs if your property is still bonded. Invariably some tax is payable to SARS and of course, estates with a net value of over R3,5 million can attract estate duty of 20% depending on allowable deductions. The Master of the High Court also claims his statutory fee, to a maximum of R7,000.00, which places a further call on the cash availability in the estate.

Finally, what is seldom considered is that fact that bills continue to pile up for the surviving spouse which can accumulate rapidly particularly in the early days after death. In this regard, one of the most traumatic things we see is the surviving spouse being left without any income and yet having to continue paying bills for private security, telephone and DSTV to avoid being cut-off for non-payment.

From the above, it is clear that estate planning is a critically important exercise and is a new year’s resolution that should be made and kept. The good news is that there is an Estate Preservation Plan that can solve all of these cash and income crises that is designed specifically for estate planning purposes and your wealth specialist or financial advisor can talk you through its benefits during your consultation with them.

So, until we speak again next month, we wish you all a healthy and prosperous 2023!