Question

I retired three years ago, with half my income coming from my company pension fund and the other half from interest from investments. I am paying tax at a rate of 41%. Is there anything that I can do to reduce this amount?

Answer

The process of inheriting can be cumbersome and time-consuming at the best of times. With the high number of deaths due to Covid-19 and the challenges of working from home, it is understandable that even simple estates take a while to be finalised. Having heirs living offshore adds a further complication. 

As with most financial issues, a bit of financial planning now can prevent a lot of  pain in the future.  

Do a financial audit 

List all your assets and document any relevant information relating to them. You can then use this information to see what would happen if your estate had to be wound up today. This is often sobering as there are a number of unexpected costs that creep out of the woodwork. 

Review your will and beneficiaries 

Check that your will is still relevant and meets your wishes. This is often neglected but is an important part of your annual financial review. Life is filled with changes and slight amendments to your will can prevent unhappiness in years to come. 

I also caution against having a family member as the executor of the estate. I have seen so many family fights occur over trivial issues. 

It is understandable, in the event of a death, that everyone’s emotional reserves are low. Executor fees are a cheap price to pay for family harmony. 

Also check that you have updated the beneficiaries on your policies. I have come across cases where an ex-spouse is the beneficiary, which could result in an awkward situation. 

Children living overseas 

There are varying stages of children living overseas. It usually starts with a gap year and then extends longer, which may end up with them being ordinarily resident in another country (remember there is no such thing as financially emigrating any more). 

If your children have not officially emigrated, then check that they still have the following:

• SA identity document;
• SARS tax number; and
• SA bank account.

If they have these, it will save them a heap of bother when it comes to inheriting. Their inheritance can be paid into their SA bank account. They can then repatriate the funds offshore with ease. 

If they do not have one of these items, the repatriation of funds will be more complicated and time-consuming. It will really be worthwhile keeping a cheap SA bank account when you live overseas. 

If your children are living overseas permanently, then you should consider moving some of your assets offshore, if it is at all possible. In an earlier article I mentioned that the experts recommend having between 40% and 60% of your assets offshore. 

When you have your assets offshore, make sure that you have them in structures that allow for easy inheritance. You do not want to have probate and situs-tax issues. 

An option that I like to use for my clients is a structured investment plan, with which you make your children the beneficiaries of ownership once you and your spouse are deceased. This will make the transfer of wealth so much easier, cheaper and efficient. 

By having the investment in a structure, your overseas-based children can inherit in a matter of weeks rather than months or years. There are several advantages here, in addition to the speed and efficiency: 

There are no executor fees payable. 

They inherit an investment based in a tax friendly jurisdiction, like Bermuda or the Isle of Man. 

They need never send the funds to South Africa. They can leave them in the tax-friendly jurisdiction or repatriate them to the country where they live. 

Organise your records 

When it comes to finalising an estate, it can be extremely time-consuming to get all the necessary information. It makes sense to have a file in which you list all your investments and store copies of key documents such as your IDs, birth and marriage certificates. Being organised can make the winding up of an estate so much easier. 

I have created a convenient Life File, where you can fill in this information. If you would like a free copy of the template, please drop me an email. 

A bit of forward planning can save your loved ones a lot of pain in the future.