Last week we discussed the importance of having your will up to date and how this needs to be updated as and when life changes.
I said that this week I would explain which investments and products fall outside of one’s estate — something that can be a big help with planning correctly.
Investments that do not fall into the estate (and thus are exempt from estate duty) are generally those structured to pass directly to beneficiaries upon death, bypassing the lengthy, costly estate administration (probate) process.
Key investments that typically fall outside a deceased estate include:
*Retirement Funds (Pension, Provident, Preservation, and RA)
Proceeds from these funds do not form part of the deceased estate and do not attract estate duty, provided there are nominated beneficiaries or dependents. Under South African law, the trustees of the fund have the final say regarding distribution to dependents.
*Living Annuities
If a living annuity has a nominated beneficiary, the proceeds are paid directly to them, bypassing the estate and avoiding estate duty. If no beneficiary is named, the proceeds fall into the estate and may be subject to executor fees.
*Proceeds Accruing to a Surviving Spouse
Under Section 4(q) of the Estate Duty Act, any assets (including life insurance proceeds) that accrue to a surviving spouse or life partner are deductible from the gross estate, meaning they do not attract estate duty.
*Policies Registered Under an Antenuptial Contract
Life insurance policies that are registered against an antenuptial or postnuptial contract, where the spouse or children are beneficiaries, are excluded from the dutiable estate.
*Buy-and-Sell Assurance
When business co-owners take out cover on each other’s lives to buy out a deceased partner’s shares, this is generally exempt from estate duty.
*Key-Person Policies
If a company owns, pays for, and is the beneficiary of a policy on a key individual, the proceeds go directly to the company, bypassing the individual’s estate.
*Assets in an Irrevocable Trust
Assets placed in an irrevocable trust are no longer owned by the individual, and therefore do not form part of their estate on death.
*Jointly Owned Property (Joint Tenants)
If property is held as “joint tenants” with a right of survivorship, the share automatically passes to the survivor and does not form part of the estate for administration purposes.
Important Notes:
- Non-probate does not mean tax-free. Even if an asset bypasses probate, it may still be subject to inheritance tax depending on the jurisdiction.
- Beneficiary Designation: For many of these, for them to fall outside the estate, it is crucial to have clearly named beneficiaries, rather than “my estate”.
Hope this helps when understanding the best beneficiary nominations for your current portfolio.
>creditparsans<Blueprint Finance Brokers in East London owner Scott Roebert has been a financial planner for 25 years, specialising in bespoke investments and retirement planning. You can find him on Facebook
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