The Liquidity of Your Estate
The liquidity of your estate simply means how much cash is available to settle liabilities (what you owe) and to meet commitments to dependants.
Liquidity requirements include:
- An estate can take a year or even longer to be wrapped up. During this time you need to ensure your dependants have sufficient money.
- Ensuring that there does not have to be a fire sale of assets to raise money urgently to meet liabilities, reducing the value of the benefits your heirs could otherwise receive.
- The payment of outstanding debts such as a mortgage loan.
- The payment of estate duty and capital gains tax.
- The payment of funeral and other costs.
- The payment of fees to your executor and to the Master of the High Court.
Liquidity can be generated from:
- Group life cover provided by a retirement fund. This money will go directly to dependants.
- The provision of a pension from a pension fund. In most cases, a pension will be provided to the spouse as well as to the children. Most children are paid pension until the age of 21 or 25 if the child continues to study.
- Provident funds. This will be a lump-sum payment to a beneficiary.
- Retirement annuity, which will be paid out to the beneficiary.
- Life assurance policies (both risk and investment policies) can be paid out at your death directly to your dependants, to pay off debts directly or into your estate, depending on where cash is required. You must name the beneficiaries on your policy documents. The proceeds are however subject to estate duty.
- If you have ceded a life assurance policy to a bank to cover debt, you must ensure that you give instructions to the bank and the life assurer about what must happen if you die and part, but not all, of the policy is used to settle your debt. You can decide whether the residue must go to your estate or to another beneficiary.
- If you are retired or about to retire you must ensure that your annuity (pension) provides an income for dependants after your death. Your main options are:
- A joint and survivorship annuity, which will continue to pay a pension until the death of the surviving partner.
- A “capital preservation annuity”. Part of the income paid by the annuity will go to pay your monthly pension and part will go to fund the life assurance policy.
- A living (linked) annuity. At death your dependants have a choice whether to take the residue as a lump sum, to purchase any other type of annuity, or to continue to receive the annuity.
Taxation at Death
Tax comes in two main forms at death. These are:
- Estate Duty: This is a tax on your assets less your liabilities, with certain exemptions at death.
- Capital Gains Tax (CGT): This is a tax on any capital gain that you may make on an asset. Death is considered to be a CGT event. In other words, at your death all your assets are valued from the date of acquisition and again at the date of your death. Any gains are subject to tax, although there are certain exemptions. Liabilities are not taken into account for CGT purposes.
Not everything you own is subject to estate duty and CGT. There are exemptions and deductions:
- No estate duty or CGT is payable on any part of an estate left to a surviving partner. For tax purposes a partner is a spouse to whom you may be married by religious, civil or customary ceremony; or someone with whom you have a permanent relationship. This includes same gender relationships.
- The first R1.5 million of your net assets (what you own less what you owe) is exempt from estate duty.
- The first R50 000.00 of any capital gains in the year of your death are exempt from CGT as well as all other exemptions that normally pertain to CGT, such as the first R1.5 million of profit on your primary residence.
- An annuity (pension) which continues to be paid after your death. The annuity will be subject to income tax in the hands of the recipients.
- No CGT is payable on assurance policies. Named beneficiaries receive the benefits free of all tax in their hands, but the amounts are included for estate duty purposes.
- Deductions from estate duty include: funeral expenses, the cost of the administering and liquidating your estate, including the payment of fees to the executor and the Master of the High Court; any liabilities, such as debts, your home loan, any accrual claims of a surviving spouse or guarantees that you may have given to secure someone else’s debts that may be claimed against your estate.
Mortgage Protection Cover
This type of insurance provides cover in the event of death or disability of the Life Assured and is related to a Home Loan.
Contrary to common belief, you do have a choice as to whom you may source this cover from, both in terms of advisor, as well as Insurance provider.
You may also use an existing policy to cover this requirement, as long as you have adequate cover to take care of your needs as expressed in your personal financial plan.
It is customary to ensure that cover is taken on both partners lives in the event of joint ownership, or marriage. We offer a variety of products specifically designed to cater for this requirement, and arrange for competitive quotes from most local insurers.
A new generation of products and services are continuously being developed, for peace of mind in terms of client’s security, and also in terms of a dynamic approach to hassle free Assurance. This includes a variety of disability products designed to suit your pocket.
Premiums are determined by taking into account various information such as age, gender and state of health, and we ensure that you get value for your money.