The increased number of deaths as a result of COVID-19 resulted in estates taking a lot longer to be wound up. This can cause frustration and financial hardship which can be reduced with a bit of planning.
There are a couple of things that you can do to improve matters.
Attach beneficiaries to investments
Where it makes sense, move some of your investments into structures where you can attach a beneficiary. If there is a beneficiary, then the proceeds will be paid out directly to your spouse and children. This will bypass the whole estate liquidation and distribution process. However it will still be deemed an asset and attract estate duty. Because it is not dealt with by the executor, you will save executor fees.
What about children living overseas?
Many of us have children who live overseas. It is a relatively easy process for them to inherit as long as they have the following:
- Bar coded ID
- Tax number
- South African bank account
However not having any one of these will not be a showstopper, although having them will make the inheritance process a lot simpler and smoother. Should your children not be able to find their original documents, it would be a good idea for them to ask for copies. These things take time, so it is best that they initiate the process while there are no financial implications to any delay.
Start moving your assets offshore
It makes sense to have a percentage of your assets physically offshore in order to reduce the country risk of having all your investments in one country and to diversify your returns.
- Country risk
If you were living in another country, would you put your assets in South Africa that accounts for less than 1% of the world’s GDP? We are no longer in the position where we are unable to invest offshore, so it needs to be a conscious decision to keep all your assets here, or to move a portion of them offshore. You reduce the risk that comes with having all your assets in one country.
- Returns
When converted into Rands, Global Equity investments have outperformed all the major investment classes over 5, 10 and 15 years as at 31 March 2022.
| 5 Years | 10 years | 15 years | |
| Global equity | 13,6% | 17,3% | 11,6% |
| Local equity | 8,1% | 10.6% | 9,7% |
| Local cash | 6.1% | 6.1% | 6.9% |
| Inflation over this period | 4.2% | 5% | 5.6% |
Having decent global equities as part of your portfolio adds a measure of diversity to your investment.
When you move your assets offshore, remember to put them into an appropriate structure. You do not want to create additional problems with probate and situs tax. Make sure that the structure allows you to attach a beneficiary of ownership to the investment as this will allow for a seamless takeover of your assets by your children. I heard a story about someone whose offshore investment was transferred to his children within three weeks of his death while the rest of his estate took two years to be finalised.
How much can you move offshore?
You can easily move R1 million of your assets into an offshore investment. This takes a couple of days to finalise. You may move an additional R10 million offshore if your income tax affairs are in order.
Once the money is in an offshore investment, you do not need to bring it back to South Africa.
Having money offshore can also be useful if you go and live with your children for extended periods. You can use some of the money to fund your trip and living expenses while overseas. You’re also immunised from any extreme currency movements as your investment is in dollars, pounds, or euros.
A bit of planning now can save a lot of headaches in future. Start getting the right structures and documents into place.
Created by Kenny Meiring, CFP® | MBA
Succession Financial Planning
Find a Financial Professional @ https://fpimymoney123.co.za/find-a-financial-planner/
