Better Asset Management creates a greater legacy for beneficiaries

By on November 24, 2014

Taxes and duties eat into wealth. You are taxed on the right to earn income – and then taxed on the right to keep it. With thoughtful management of what you have accumulated, you can ensure more of your estate safely reaches your beneficiaries, says GCI Wealth. While many people take out life insurance and sign wills to provide for their families in the event of their death; few have carried out comprehensive estate planning – and few know just how much of their legacy will be eaten away by Capital Gain And Estate Duty taxes. In fact, 20% – 30% of the total value of the estate may have to be paid in taxes, duties and fees, if estate planning is not done carefully. Alex Cook, CEO of the GCI Wealth Group, highlights that expert-led estate planning is important, in not only saving taxes for yourself, but also in maximising what you want for your dependents. The SA Revenue Service defines an estate as: “all property of a deceased resident: moveable as well as immovable, whether situated in or outside RSA – including deemed property such as life-insurance.” The trouble is that without proper planning insight, the total value of your estate could be higher and its management more complicated than you think. Cook notes that in terms of the Estate Duty Act of 1955 estates with a net value of above R3.5 million (or for a couple, R7 million), are eventually subject to a 20% estate duty. “On top of that, you – or a surviving spouse’s estate – may well be liable for eventual Capital Gains Tax and tax on interest. Provision also needs to be made for Executor’s Fees.” As an example,

a single estate worth R13.5 million may have to pay Capital Gains Tax of R1 million, Estate Duties of R2 million – and R450 000 in executor’s fees. In this case, the estate’s total value is reduced by nearly 30%. “Dying can be a wastefully expensive affair,” says Cook. However, there is light at the end of the estate-planning tunnel, he adds. To optimise the legacy that reaches your beneficiaries, proper estate planning must be carried out, but only with estate planning experts. “There are a number of ways to effectively maximise your after-tax income while you live and, when you pass on, improve the value of your bequests to loved ones. These include proper structuring of your will, conditional donations and, in some cases, setting up and properly managing trusts on an ongoing basis,” he says. A special option exists to use recognised retirement annuity investments, then not to claim the initial tax deduction benefit. After age 55, these funds can be transferred to a living annuity from which an income (ranging between 2.5% – 17.5%) can be taken. This income remains tax free to the extent of the initial investment made (and for which no deduction off income was claimed). For example with a R1 million investment, you may, over time, draw R1 million income tax-free. Even on your passing, the remaining tax credit is inherited by your beneficiaries. In an instant, the dutiable value of your estate may be completely reduced, by the amount so invested, Cook explains. “An added bonus, from an estate planning point of view, is that within a Retirement Annuity or Living Annuity, there is no Income Tax on interest or Dividend and Capital Gains Tax, so even greater investment growth in your fund is likely. Taking into account the substantial savings on Estate Duty and final expenses (executors’ fees, estate duty or capital gains tax) in this construct, this is a most valuable investment for greater income and legacy peace of mind – and beneficiaries may receive either cash or income from the annuity,” says Cook. With changing tax and investment environments, regular reviews of your estate structure is an essential contribution to your own wealth and future legacy plans.

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