Tag: Pat Blamire

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The importance of a legacy folder

When I meet with my clients and update their financial plans, part of this review also covers their Wills and their legacy folder, or “in case of death” file. This folder should contain all the essential documents required to wind up their estate.

When we talk about this, I must admit that although I try to ensure that I do it with keen attention to detail, it is an academic discussion. For me, what brought this into extreme clarity was when I was recently diagnosed with Covid. A client of mine had recently died from Covid, and I was helping his family try and make sense of certain basic things, like accessing his cellphone and his bank account. This sent me into a slight panic and led me to wonder whether my family would be able to access my information should my health deteriorate quickly.

I have always been passionate about having an updated legacy folder and update this on an annual basis. However, when I started looking at this file with very clear, focused eyes, I began to see that several small steps were missing. My cellphone works on face recognition, but also has a password, would my family know what the password was? In talking to colleagues in the office, one said that his cellphone works on his thumbprint. How would this work if he was unable to do this?

Questions started going through my mind, like whether I had made clear enough notes about accessing my bank account. Would my family know that if I access this through my laptop, it sends a verification request to my cellphone? My experience with my late client’s family was figuring out what debit orders go through his bank account; if I died, would my family know what amounts went through automatically and what I paid manually? I have a list of these amounts, but I doubt they will find them on my computer.

Thank goodness I came through Covid virtually unscathed, but I think the learnings have been valuable. Can I suggest that you discuss this with somebody you trust? Ask your RetiremeantTM Specialist for guidance as to what documents should be kept in your legacy folder. It is not only formal documents, but detailed notes as well. Notes regarding other things that maybe somebody else trying to pick up the pieces may not be aware of, such as:

  • Do you have a safety deposit box? If so, where, and where is the key?
  • If you have crypto assets, what would somebody else need to know to access them?
  • Are there any special documents that somebody may be holding for you? For instance, your original Will, which may be in Chartered Legacy & Trust’s safe.
  • Do you have a Living Will? People may need to access this if you are on life support.
  • Are you, by any chance, holding certain assets for another person? Assets such as a painting, furniture, valuables?
  • What you are paying your domestic staff every month. What have you promised them in retirement?
  • A list of your various access codes and passwords to different electronic platforms or apps that you may have on your phone.
  • If you do your own tax return, your access code and password so that somebody can see when your last tax return was submitted.
  • Base costs of your home, and details of any alterations you may have done over the years.
  • Where can one find the title deed of your home or other properties you may have?
  • Base costs of other assets that you may own.
  • If you are still employed, check your beneficiary nomination form on your retirement fund.
  • Do you have any special arrangements with your employer that possibly other people may not be aware of?

Taking the time to ensure that somebody else will be able to pick up your affairs without too much effort is a gift that you leave your loved ones. They will be going through enough emotional turmoil, and you would have helped relieve a small part of this. If you need help compiling your legacy folder, please chat with your RetiremeantTM Specialist, who can guide you through this process.

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The 2021 Budget Speech – No Radical Tax Changes

Amid widespread apprehension about the poor health of South African government finances in the wake of COVID-19, the Minister of Finance, Tito Mboweni, presented a Budget that set out a considered recovery plan for the year ahead.
He saluted the brave and fearless sacrifices of our frontline workers who continue to save thousands. He said that we often speak about how we must leave this earth better than we found it for future generations. Minister Mboweni said that he hoped his speech would leave us hopeful and outline how we will leave this economy in better shape for those who come after us.

Here follows a summary of the main points of the Speech:

Personal income tax

Adjustments to the personal income tax brackets and the primary, secondary and tertiary rebates were above inflation.

Tax threshold

This refers to the amount of income that you can earn before you need to pay tax. The thresholds have been increased by 5%, and are as follows:

  • If you are under age 65, your yearly tax threshold is R87,300 (previously R83,100)
  • If you are between 65 and 75, the threshold is R135,150 (previously R128,650)
  • If you are 75 or older, the threshold is R151,100 (previously 143,850)

Interest exemption

This remains unchanged. If you are under age 65, the annual interest exemption is R23,800, and if you are 65 and older, the exemption is R34,500.

How will the tax threshold and interest exemption changes affect you?

If you are between the ages of 65 and 75, you can earn a yearly income of R135,150 plus R34,500 interest before you have to pay tax. If you are 75 or older, you can earn an annual income of R151,100 plus R34,500 interest before you have to pay tax.

Tax-free savings account contribution unchanged

The amount that you can contribute towards a tax-free savings account remains unchanged at R36,000.

Dividends Withholding Tax

Dividends Withholding Tax remains unchanged at 20%.

Retirement fund contributions

The tax treatment for contributions to all retirement is limited to 27.5% of the greater of the amount of remuneration for PAYE purposes or taxable income. The deduction is further limited to the lower of R350,000 or 27.5% of taxable income before the inclusion of a taxable capital gain. Any contributions exceeding the limitations are carried forward to the following year of assessment.

Currently Pension and Retirement Annuity Funds require a compulsory annuity purchase upon retirement with two-thirds of such fund benefits. From 1 March 2021 annuitization of Provident Funds will also apply. The threshold below which a full fund benefit is allowed to be commuted is R247,500.

Foreign employment income

The exemption for foreign employment income of tax residents remains unchanged at R1,25 million.

Capital Gains Tax (CGT)

The capital gains exemption thresholds remain the same:

  • The annual exclusion stays at R40,000
  • The exclusion amount of death stays at R300,000
  • The primary residence exclusion stays at R2 million

The effective rate of CGT ranges between 7.2% to 18% for individuals, 22.4% for companies and 36% for Trusts.

Adjustments to medical aid tax credits

Medical tax credits have been adjusted for inflation as follows:

  • R332 per month for the main member and the first dependant on a medical scheme;
  • and R224 per month for each additional dependant

Estate Duty

Estate Duty tax remains unchanged. The estate duty abatement (exempt threshold) remains at R3,5 million per person, and the surviving spouse may benefit automatically from any unused deduction in the first dying spouse’s estate. In other words, the abatement remains a combined maximum R7 million for the second dying spouse.

Estate duty for dutiable estates up to R30 million remains at 20%, and is 25% for dutiable estates over R30 million.

You do not pay Estate Duty on the value of your Retirement Funds or on the value of the assets you leave to your surviving spouse.

Loans to Trusts

Existing and future loans to Trusts attract 4.5% interest per year. This is taxable in the lender’s hands. The 4.5% interest will be deemed a donation, and will attract donations tax of 20% each year.

Donations Tax

Donations tax is levied at a flat rate of 20% on the cumulative value of property donated since 1 March 2018 not exceeding R30 million, and 25% for amounts exceeding R30 million. The first R100,000 of property donated in each year by a natural person is exempt from donations tax.

Transfer Duty

There are no changes to transfer duty. A property costing less than R1 million will attract no duty. A 3% rate applies between R1 million and R1,375 million; 6% between R1,375 million and R1,925 million; 8% between R1,925 million and R2,475 million; 11% between R2,475 million and R11 million; and 13% thereafter.

Foreign exchange

The offshore investment allowance remains at R10 million per adult person per calendar year. In addition the R1 million single discretionary allowance remains.

Tobacco, alcohol and fuel

You will pay an additional 8% for your favourite tipple and smoke. Tax on fuel will increase by 27c per litre from 7th April 2021.

Value-added Tax (VAT)

This remains unchanged at 15% and is levied on the supply of goods and services by registered vendors.

Conclusion

Ever optimistic, our Finance Minister ended with the following sentiment:

“Finally, to the millions of South Africans who faced, and continue to face, enormous difficulties and challenges, we ask you to take courage, persevere and walk with us. Above all, let us heed the counsel of Archbishop Tutu: “See that there is light despite all the darkness. A prosperous future is possible for our beautiful country. Gloria est consequenda – Glory must be sought after!”

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Who should you nominate as the executor of your will?

Who should I nominate as the Executor of my Will, is a question my clients often ask me. In the past, I believed that appointing a surviving spouse or family member to act as your Executor, was in your best interests. The thinking behind this was that by appointing a family member or spouse, you could negotiate and reduce the fee that the Executor charges. Over time though, I have become more and more aware of the emotional strain that this puts on the surviving spouse or family member.

The responsibility of an Executor is an onerous one. It is the Executor’s responsibility to carry out the directives in your Will, and take responsibility for making all the necessary disbursements from your estate and filing the correct documentation with the relevant authorities. The Executor remains responsible for this forever.

In some instances, where the surviving spouse has been nominated as the Executor, we find that the children get involved. They may have a friend who is a lawyer or accountant who offers to perform this function at a nominal fee. The problem here is that the lawyer or accountant may not wind up estates as a profession, so despite the nominal fee, the estate isn’t wound up properly. Decisions that were made in estate planning meetings with both spouses are often disregarded, and it takes years to wind up the estate.

One instance of this is a client of mine, whose husband died 15 years ago, and there are still shares in his name that have not been finalised and paid across to her. The Executor has since died, and the estate has been left in a heap. My client has since remarried, and her second husband is concerned that, should something happen to her, this will now become his responsibility when he was not involved in the first place.

Another instance is where an elderly couple in the Eastern Cape had nominated each other as their Executors, with the intention of the surviving spouse appointing an Agent to wind up the first spouse’s estate. The surviving spouse at that stage was 84, and not in good health herself. Even though she did appoint Chartered Legacy & Trust to assist us with winding up her late husband’s estate, she had to personally go to SARS to fulfil certain of her responsibilities as the Executor of the estate. She was pushed from pillar to post at SARS, which left her distraught, and in a very emotional state.

From experience, both through our clients’ stories and our own, we have come to respect the fee earned by Executors, and urge clients not to burden anyone but a professional Executor with this appointment. If there is a specific instance where a person would like a member of the family or friend to be involved in winding up the estate, they should instead consider appointing them as co-Executor along with a professional Executor.

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Estate planning, done properly

Recently, I attended the funeral of my client, Noeleen, who passed away unexpectedly.

I knew that we had recently updated her Will, and that the original document was securely stored in our Chartered safe – what a sense of relief for me after the initial shock at hearing the sad news! I also recalled that her husband, Gerald, had money in his own name, and immediate access to it.

I am aware that, at a time of loss and change like this, clients may depend quite heavily on us, their Financial Planners, to support them through this traumatic time.

With Chartered’s philosophy of retiring successfully, we, of course, plan for all the wonderful things that our clients’ money can do for them. In our Retiremeant™ Planning, we tend to focus on helping our clients live their most fulfilled lives – we plan for when things go well.

Noeleen’s passing reminded me that we also need to plan for when things don’t go well.

Frequently, an expected event is the sudden passing of a spouse. Because this can be an emotional time, it’s best to have an early discussion with client couples about what would happen if one of the spouses were to die: what assets would be sold, would they continue to live in their current home, and what changes need to be made in their Estate Planning.

The Estate Planning process, which on the surface can appear to be quite simple, is sometimes not as simple, as it turns out. When I sit with my clients and work out in Rands and Cents what their Wills mean, oftentimes amendments are essential.

In one instance, a client had inherited money from her parents, and she wanted this money to pass on to her children on her death, and not her husband. She only held two assets in her name – the investment housing this inheritance, and their family home. When I pointed out that if she left the entire inheritance to her children, her husband would have to come up with the money to pay the costs in her estate, and possibly risk losing his home. We changed her Will to rather leave the family home to Alan, and the investment, after paying all the estate costs, to the children.

Recently, I have been working with another client with a large estate who has minor children. He only came to me asking for investment advice, and did not think there was any necessity to consider Wills or Trust Deeds. Once I started delving more into these details it so happened that there were major concerns regarding his estate planning. No Guardian or Custodian had been appointed in his Will, there were errors on the Trust Deed, and those errors could have caused major problems had he died unexpectedly.

Asking clients to consider what things would look like after their demise is not an easy conversation to have. People do not like to think of their own mortality. Proper planning and honest conversations, though, help avoid unnecessary trauma when things do not go well.

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