Phia van der Spuy. File Photo, IOL.
In South Africa, freedom of testation exists where an individual has the right to determine the heirs to their property upon their death, as they wish.
This is done through a will. If one dies without a will (including a invalid will), one dies “intestate”.
Although, generally speaking, one can decide who inherits and who does not, dying intestate will result in the deceased’s assets automatically being split between blood relatives in a particular order.
The assets will be divided in terms of the Intestate Succession Act, and this may not be how you wanted your assets to be split.
Most people delay addressing their wills because it is an emotional document to prepare.
However, proper estate planning includes the drafting of a will, which complements your estate plan.
Your will should always be up to date and reflect your current wishes in terms of how you would like your assets to be distributed upon your death.
The Trust Founder
In many instances, it may make sense to utilise existing trust(s) as part of your legacy plan. Your assets can be bequeathed to an existing trust – if the trust instrument allows for it.
The trustees of that trust have to be specifically empowered in the trust instrument to accept such a bequest.
Review the trustee power clause to ensure that the trustees can, in fact, accept further donations or bequests.
In addition, the level of discretion afforded to the trustees in the trust instrument is the determining factor in terms of whether a person can bequeath their assets to a discretionary inter vivos trust.
One would, therefore, need to study the terms of the trust instrument before bequeathing one’s assets to a discretionary trust, and effect amendments if necessary.
For example, it is suggested that the beneficiaries (or even the trust instrument, which may affect the rights of beneficiaries or obligations of trustees) should not be allowed to be amended post the testator’s or testatrix’s death.
An obvious asset to bequeath to a trust is a loan owed by the trust to the testator or testatrix. Such loans typically originate from the sale of assets to a trust by the founder.
The founder should be mindful to include a testamentary reservation in the trust deed that allows them to deal with trust property in their will for their estate’s benefit.
In such cases, the trust assets will be included in the estate of the deceased as deemed property, so it is important you are mindful of inserting problematic provisions when you have a trust deed and will drafted.
The Trustee
In certain instances it may make sense for trustees to appoint their follow-up trustees in their wills.
That would be the case if the trustee is also the estate planner who created the trust or a descendant of the founder.
It is therefore recommended to make an allowance in the trust instrument to appoint follow-up trustees in family trustees’ wills and that one, for example, considers appointing one’s children to ensure continuity.
One can also appoint their follow-up trustees in the trust instrument. However, bear in mind each time one changes their mind as to who one’s follow-up trustees should be, the trust instrument will have to be amended and submitted to the Master of the High Court, unlike a will that can be changed any time.
The Beneficiary
Estate planners and trustees should be mindful that once distributions are made to beneficiaries, such amounts or assets vest in those beneficiaries.
Often distributions are made to capitalise on its tax advantages without paying such amounts to the respective beneficiaries, without realising it becomes an asset in the hands of the beneficiary.
Upon their deaths, it would fall into their estates. It is, therefore, wise to draw up wills for trust beneficiaries to whom the trustees make distributions without actually making payment.
Without a will, the beneficiary will die intestate, resulting in the money potentially landing in the hands of unintended persons.
Be mindful that a person can only have a will once they reach the age of 16, so all unpaid distributions made to minor children below the age of 16 will be dealt with in terms of the intestate succession rules.
The trustees will have no say in terms of who should receive such amounts claimed by the executor, upon the death of the minor.
Your will is a living document and should always be up to date and reflect your current wishes in terms of how you would like your assets to be distributed upon your death, and could also deal with the additional considerations discussed above.
*Phia van der Spuy is a Chartered Accountant with a masters’ degree in tax and a registered Fiduciary Practitioner of South Africa®; a chartered tax adviser, a trust and estate practitioner (TEP) and the founder of Trusteeze®, the provider of a digital trust solution
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