Saving your assets

High taxes and an economic recession mean that estate planning is essential for preserving wealth.

Peter O’Halloran - Tax advice

Taxes are high in South Africa. As a consequence, we see businesses struggling to make ends meet, with cash flow problems and lack of capital being the order of the day. When a country is over-taxed, the business community suffers.

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Jobs are lost. Business cannot accumulate enough capital, because capital is created from after-tax funds, and such funds are made scarce through excessive tax. Thus businesses have to borrow. This makes them vulnerable and weak. Business owners sign sureties and personal guarantees for loans.

In this way, the protection that could have been afforded by the company shell is lost, because, in default, the bank will come after the owner. All of this means that estate planning for business owners is more important than ever.

Mutually compatible
Meyerowitz, the highly regarded South African tax law specialist, defined ‘estate planning’ as “the arrangement and management and securement and disposition of a person’s estate so that he, his family and other beneficiaries may enjoy and continue to enjoy the maximum from his estate and his assets during his lifetime and 2014after his death, no matter when death may occur”.

Tax planning and estate planning are mutually compatible and a truly professional estate plan would typically include tax planning – with the object of maximising, legally, the estate and the assets.

Trusts and contrasts
An estate planner works with structures such as companies and trusts. He or she also works with certain ‘instruments’, such as loan accounts, and with legal agreements, including ante- and post-nuptial contracts, life and short-term insurance contracts and shareholder agreements.

These are employed (and deployed) to create a legal framework that suits the client best. The estate planner will also look at the will and, in so doing, might mention limited real rights such as usufruct or habitatio, which could be used to good effect to realise the client’s wishes and, perhaps, minimise the estate duty that would otherwise be payable upon the value of his or her assets.

A tactful, patient expert
Clearly, then, estate planning is a specialist field. The estate planning professional must not only know about tax laws and rules of succession, but also have a broad knowledge of subjects such as trust and insurance law, and investment principles. The best estate planning professionals are also tactful. Estate planning involves working with families and individuals.

Strong-willed clients might be adverse to change and it takes someone with patience to stay the course for the good of such a client. Every estate plan is different and has to be amended as family activities – and the law – change. What’s certain, though, is that a family with a carefully thought-out estate plan will be better off in the long run than a family without one.

Peter O’Halloran is an advocate in private practice. Phone him on 00267 390 2779.