Sherry-Ann Mcgregor, Contributor
MCGREGOR
IT IS often said that there are two certainties in life: "death and taxes". Most people will also agree that it is usually hard to deal with one or the other. Just imagine how much more difficult it is to deal with both after the death of a loved one.
The subject of today's article is estate planning. While aspects of the previous articles on wills could be subsumed under this topic, the principle goes much further. It deals with the development of strategies for ensuring that the assets you leave behind go to the persons for whom they are intended, and that those persons are not unduly burdened by the expenses associated with having those gifts transferred to them.
Below are some helpful hints:
Prepare a will. If you have no will, the law will determine who your beneficiaries are, and this may not coincide with your wishes.
Update your will, when necessary, to ensure that the beneficiary for whom a gift is intended is still capable of receiving it. For example, you may wish to name a new beneficiary if the one named in the will pre-deceases you.
Establish an account or some specific investment to cover transfer taxes and other expenses associated with the administration of your estate. There are many cases in which beneficiaries are unable to enjoy gifts which are intended for them, because there is no money to pay transfer tax. Sometimes gifts have to be sold in order to meet expenses.
Purchase life insurance policies, and name your beneficiaries. A gift of this nature will not even have to be mentioned in your will for your loved ones to benefit after you have passed, and the procedure for securing payment is usually hassle-free.
The funds derived from these policies may also come in handy to help to cover other expenses of the estate.
When purchasing real property or shares, consider having the designated beneficiary hold that property or shares with you as a joint owner (joint tenant, in the case of real property). In this way, the property or shares will be automatically transferred to your loved one, and only the fact of the death would have to be noted on the title or share certificate.
Open joint bank accounts. When opening an account, ensure that there is at least one other named account holder. In this way, you are able to choose the person whom you would like to benefit from the funds standing to the credit of that account at the time of your passing. He or she will automatically become entitled to these funds, if that was your intention.
You will be able to substitute a new person by giving further instructions to the bank, either to divide the funds or name a new joint account holder.
Transfer assets to your loved ones while you are alive (that is, make inter vivos transfers). This reduces the delay associated with having to obtain a grant of probate or letters of administration before the asset can be transferred to a beneficiary.
WORD OF CAUTION
I would issue one word of caution that you choose the person to whom you make an inter vivos transfer very wisely, so that you are not prematurely ejected from your property by the new owner.
In previous years, the last point was made first, and it was usually accompanied by advice that transfer tax on death was twice as high as transfer tax payable on an inter vivos transaction. This is no longer the case, because the Transfer Tax Act was amended effective June 1, 2005 to reduce transfer tax on death to 7.5 per cent, which is equal to the transfer tax payable on inter vivos transfers. However, effecting an inter vivos transfer may result in a lower sum being paid for taxes, as transfer tax is charged on the value of an asset as at the date of the deceased's death, and the value may have increased by then.
So, the incident of taxes is a fact of life (and death), but it pays to engage in effective estate planning in order to minimise its effect.
Note: inter vivos means between living persons
Sherry-Ann McGregor is partner and mediator with the firm Nunes, Scholefield, DeLeon & Co. Send feedback and questions to lawsofeve@yahoo.com.
