Evade potholes on your journey
SPORTLIGHT: One cannot sit back and relax if you think, and only think, that your will and estate plan has been done and is in order.
One cannot sit back and relax if you think, and only think, that your will and estate plan has been done and is in order. Your regular revision of at least once every three years or so of your family provision and business succession plans should be done.
This is especially the case when you are utilizing business formats i.e. private companies, private partnerships and closed corporations.
Various pitfalls may exist or occur and like a pothole to a Ferrari, it may cause huge damage to your inheritance and/or legacy.
• To avoid a lawyer or auditor to interfere at additional costs at your death, make sure that obligations to SARS and the companies office or other relevant state departments are being dealt with and be regularly updated, as huge expenses and unforeseen delays could hamper for instance the transfer of shares in your business.
• Are the buy-and-sell-agreement between you and your shareholders in place? And if so, is it updated to a level of assurance cover which corresponds with the true value of your business? If this is not in place your co-shareholders or partners may have to fund shortfalls from their very own resources.
• As businessman or woman you may have personal guarantees signed to secure a loan with your bank and should this not be covered by suitable life assurance, the bank will claim repayment from your deceased estate.
The executor may find himself in a situation to sell your or your business’ assets should there not be sufficient cash to settle the outstanding loan.
• Having referred to the cash situation in your estate it suffice to say that a lot of problems may be solved when provision has been made for liquidity in your estate as to avoid forced sales of assets and also to avoid further expenses frustrating your heirs and business partners.
• In the event that you have an inter-vivos trust, you should make sure that no clause(s) in the Trust Deed allow you to have any form of control over the trust assets as the revenue authorities may claim that the trust assets fall into your estate for estate duty purposes.
It is therefore important to ensure that where assets are determined by the clauses of a Trust Deed, the said deed complies with these type of issues and that the deed is correctly drawn up.
• Other expenses which may cause a liquidity problem in your estate is capital gains tax (CGT) and estate duty. CGT may be triggered when your executor sells your shares to your partners or when he disposes of it to your named heirs.
Although such a sale brings cash to the estate it may also trigger CGT when it is allocated to a specific person by way of a bequest.
Such persons receive from a deceased estate free of taxes and other heirs will be burdened.
Once again enough provision should be made to ensure the estate is liquid enough to settle the need to pay taxes and expenses.
These are only a few situations in a nutshell which may cause your estate plan of succession arrangements in your business to hit “potholes” which may turn your estate’s administration process upside-down just like a Ferrari speeding without pit-stops to check for deficiencies.
Make sure you sometimes take time to examine your financial plans especially when you are in business having different interests at stake.
Regards ’till next time.
Koos de Wet
* Koos de Wet is a Financial Planner at PSG Wealth and a member of the Fiduciary Institute of South-Africa.
Readers can contact him at 015 491 2020 / 082 881 4672 or psgk@mweb.co.za
