Estate Planning

Protecting and preserving assets in a tax efficient manner.

General

Simply put, estate planning is the process of arranging and managing your assets during your lifetime and after your death. Effective estate planning can minimise estate duty, taxes and other costs associated with death as far as possible and make extending your legacy to multiple generations easier. Estate planning is also aimed at protecting the beneficiaries of your estate, particularly where there are special needs involved.

Estate planning is usually embarked upon together with tax planning to structure an individual’s affairs such as when an individual draws up a will or registers a trust.

Subfields

  • Wills
  • Living wills
  • Trusts
  • Powers of attorney
  • Antenuptial contracts
  • Post-nuptial contracts
  • Cohabitation agreements

Legislation

  • Administration of Estates Act, Act No. 66 of 1956
  • Intestate Succession Act, Act No. 81 of 1987
  • Wills Act, Act No. 7 of 1953
  • Estate Duty Act, Act NO. 45 of 1955
  • Maintenance of Surviving Spouses Act, Act No. 27 of 1990
  • Recognition of Customary Marriages Act, Act No. 120 of 1998
  • Deeds Registries Act, Act No. 47 of 1937
  • Matrimonial Property Act, Act No. 88 of 1984

Case Law

Section 2B of the Wills Act provides that if a testator testator dies within three months of becoming divorced, and that person executed a will before such divorce, the will shall be implemented as if the testator’s previous spouse had died before the date of divorce, unless it is clear from the will that the testator intended to benefit their ex-spouse despite the divorce.

Section 2B thus creates a “window period” of three months after the divorce within which the testator can revoke, and/or amend his or her Last Will and Testament in which the testator’s ex-spouse was an heir or legatee in order to exclude the ex-spouse from inheriting. However, if the testator fails to amend or revoke his or her will within the three month period, then the testator’s estate will be administered in terms of the will and the ex-spouse will inherit, despite the divorce.

Section 2 B protects individuals who are likely too emotional as a result of a divorce to attend to amend or revoke their wills. Due to the increase in divorces, such protection is necessary for parties who have already dissolved their marriage and agreed to a distribution of their assets. In such cases, it would be unfair to exploit the absence of mind of an individual who was recently divorced by upholding a testamentary bequest by virtue of a relationship that has irretrievably broken down.

The matter of J W v Williams-Ashman NO and Others 2020 (4) SA 567 (WCC) concerned section 2B of the Wills Act and its Constitutional validity.

The deceased concluded a will in terms of which her husband would inherit a portion of her estate in the event of her death, a couple days prior to their wedding. The marriage resulted in a divorce some five years later and the deceased committed suicide within three months of the divorce. In applying Section 2B of the Act, the now ex-husband of the deceased was disinherited in favour of his ex-wife’s parents, her intestate heirs.

To reinstate himself as heir, the applicant sought an order declaring section 2B unconstitutional because it sanctions an arbitrary deprivation of property contrary to section 25 of the Constitution and restricts his right of access to Court as provided for in section 34 of the Constitution by preventing the Court from hearing extraneous evidence regarding the testator’s intent and forcing it to operate under the “false fiction that he had predeceased his ex-wife.

The Court held that:

  1. according to governing precedent, the protection of property contained in section 25 of the Constitution is not absolute but subject to “societal considerations”;
  2. that deprivation would be arbitrary if there was no “sufficient reason” for it or it was procedurally unfair;
  3. if the purpose of the deprivation was “legitimate and compelling”, there could well be sufficient reason for it;
  4. since the deprivation in section 2B substantially affects both a the testator and beneficiaries’ property rights, proportionality is required;
  5. the purpose of section 2B, which is to prevent an ex-spouse from unfairly benefiting under a will made before a divorce or annulment, is a legitimate and compelling one that seeks to give effect to important societal considerations;
  6. although the extent of the resulting deprivation could be far-reaching, the actual ambit of section 2B is limited since it only applies where a testator has died within three months of divorce and the testator did not express an intention in his or her will to benefit his or her former spouse notwithstanding the divorce and did not execute another will post- divorce;
  7. since section 2B did not contain an ouster clause or a time-bar clause, it did not constitute a breach of section 34 of the Constitution in the customary sense;
  8. there was no basis for the applicant’s argument that s 2B contained a fiction that was contrary to public policy: it simply stated an indisputable conclusion that would take effect if the stipulated factual requirements were met, without importing artificiality or fiction;
  9. nothing in section 2B prevented a Court from exercising its general powers of oversight, but it was bound to give effect to the testator’s wishes as expressed in the will; and
  10. the legislature’s decision not to make provision for proof outside the will of a testator’s intention to benefit their former spouse was not disproportionate or procedurally unfair, or amount to a limitation of the applicant’s right of access to court.

Moreover, the limited application of section 2 B (three months) does not completely disinherit an ex-spouse, as it no longer applies where the testator dies post the “window period”.

The court held that section 2B conforms to constitutional imperatives and is valid insofar as it is proportional to the means for which it was enacted for and its application is not arbitrary.

A recently divorced person has a period of three months from date of divorce within which to revoke or amend his/her will in which an ex-spouse is a beneficiary. Where a will is not revoked or amended within the three month period and the testator dies after the three month period, the deceased’s estate will devolve in accordance with the will and the ex-spouse may inherit from the deceased.

Frequently asked questions

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What happens if I don’t have a will?

If you die without leaving a valid will, your estate will devolve according to the Intestate Succession Act. This means that your estate will be divided amongst your intestate heirs (e.g. your surviving spouse, children, parents or siblings according to a set formula).

What are the advantages of a will?

Your estate will not devolve intestate. A will gives you control over what happens to your estate after you die:

  • You can select your beneficiaries, taking into account the nature and size of your estate and your You need not limit your selection to family: you are free to acknowledge people and causes of your choosing. You can also specifically exclude someone.
  • You can decide which assets and what percentage or value of your assets to leave to various beneficiaries. You may want to bequeath specific items and amounts to different beneficiaries. If, on the other hand, you die intestate, your beneficiaries will be entitled only to a fixed and equal proportion of your estate.
  • You can nominate an alternative beneficiary if for some reason the first nominated beneficiary cannot inherit. For example, if the nominated beneficiary dies before you.
  • You can choose to place conditions on a beneficiary before they qualify to enjoy the benefit, and how they may or may not use the benefits of their inheritance. A common restriction is to exclude the spouse of a beneficiary from any matrimonial claim on the inheritance.
  • You can decide what will happen if a beneficiary should become incapable of dealing with the inheritance and how the ultimate beneficiaries can be protected. You can use mechanisms such as limited interest and a testamentary trust to protect minor children or incapacitated beneficiaries.
  • You can ensure that the scheme of your will is in line with your other estate planning tools. Common examples are ante-nuptial contracts and inter vivos trusts, and benefits flowing from sources traditionally outside the estate like retirement annuities, pension funds and life policies, or other assets, such as offshore interest.
  • You are able to choose who will be the executor of your estate, determine the powers the executor will have, and if you want the executor to provide security.
  • You can employ estate duty savings and other protection mechanisms, which would be lost if you have no will.
  • You can nominate a guardian to care for your children in the unfortunate event that you should die while they are still minors.

 

What is a living will?

A living will is a legal document that sets out your wishes for your healthcare when you cannot share them yourself. It guides your family and healthcare providers when you are not in a condition to make decisions or express your wishes.

A living will:

  • Gives instructions for not being kept alive through life-support or other artificial medical interventions when there is no hope of recovery and death is inevitable – for example, if someone is in a coma, unconscious and terminally ill. This helps reduce the financial burden of advanced life support where there is no prospect of recovery.

Can include our wishes for organ donation.

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Are living wills recognised in South African law?

Although anyone over the age of 18 who is of sound mind can have a living will drawn up, these documents are not yet recognised in South African statutory law. However, our law does recognise each person’s right to accept or decline treatment. South Africa’s Constitution states that everyone has the right to bodily and psychological integrity, which includes control over one’s own body.

Doctors and family members do not have to comply with the wishes stated in a living will if there is the slightest chance of recovery. Doctors are therefore advised to get advice from the South African Medical Association (SAMA) if necessary when a patient of theirs has a living will.

What are the advantages of a trust?

Potential advantages

  • The value of your estate can be pegged for estate duty purposes, by means of a trust.
  • Growth on trust assets takes place in the trust, not in your personal estate.
  • A trust can be used where an asset such as a farm, which is not divisible, needs to be held for the advantage of more than one beneficiary.
  • It can be used to preserve assets after death to pass on to next generations, for any purpose, such as education or to meet contractual arrangements.
  • Assets of beneficiaries incapable of managing their own financial affairs, being minors, inexperienced or handicapped, can be protected.
  • During a divorce, a trust can be used to provide for continued maintenance of the children.
  • If assets are already in a trust, it allows for a smooth and quick transition thereof, to next generations.
  • If in a deceased estate, it may take months to transfer or to gain access to assets or funds.
  • In case of an estate, relevant documents are open to the public while in trust it is a private matter.
  • Protect surviving spouses who are not in a position to manage their own financial affairs.
  • Protect surviving spouses and/or beneficiary(ies) against bad influences/investments.
  • Can be used to benefit special interests such as charities or educational bursaries, even after death, for an indefinite amount of time.
  • A professional trustee can be expected to be impartial towards beneficiaries, especially after your death.
  • Having assets in a trust prevents potential future intestate transfer to generations, with resulting inconveniences such as forced sales of assets.
  • Cost savings on executor’s fees and transfer costs.
  • A trust might present saving in income and capital gains tax, depending on circumstances.
  • Trusts offer flexibility.
  • Some involvement might still be possible by a living donor.
What are the disadvantages of a trust?

Possible disadvantages

  • Loss of direct control of assets.
  • When a trustee dies or becomes insolvent, it can have catastrophic consequences as there is no-one to act on behalf of the trust.
  • The choice of follow-up trustees becomes very important.
  • The choice of a trust company ensures continuity.
  • Increased tax accountability through changes in tax laws or if not structured properly.
  • A trust has to be registered as an entity, which can be accessed by such relevant authorities.
  • There are administration costs involved in the form of trustee fees.
  • There may be costs involved when transferring assets into trust.
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