Key issues in estate planning – part two

2018-10-18 06:02

By Juggie Govender of East Coast Financial Services (Pty) Ltd – FSP 44760


Trusts have many benefits, but you should probably not establish a trust if your only reason for doing so is to save estate duty.


- Assets can be protected against creditors and for the benefit of people who are unable to look after them themselves. Assets can also be protected for generations to come.

- A trust can protect the interests of beneficiaries such as minor children, a disabled child, or a spouse with a degenerative disease such as Alzheimer’s.


- The main one is that if you set up a trust correctly you will no longer have control over your assets. The trustees collectively must decide how to manage the assets in the trust. If the original founder of the trust runs the trust as though the assets in it are his or her personal assets, the trust could be attacked, for example, by a former spouse, etc. To avoid risk, invest productively and obtain expert advice. Trustees can be sued for not carrying out their duties.

- The other disadvantage of a trust is that the administration can be time-consuming and costly. Proper records must be kept, tax returns submitted and, in some cases, trusts must be audited.


Savings in your occupational retirement fund, retirement annuity fund, and preservation fund, as well as any group life assurance, become payable on your death, but you cannot always expect the savings to be paid out as you have stipulated on a beneficiary nomination form. The beneficiary nomination form is only an indication to the trustees of the fund of how you would like your retirement savings to be distributed.

The trustees will determine how to distribute the savings according to section 37C of the Pension Funds Act. In terms of this section, the trustees have to trace your dependants, and then any persons who are financially dependent on you, say, an aged parent, and distribute your retirement savings equitably among them. Only if your dependants have sufficient funds would the trustees consider anyone else you have nominated as a beneficiary. Your assets in a tax-incentivised retirement-savings fund do not attract estate duty in your estate.


Living annuity investments fall outside of the Pension Funds Act, so you can nominate the beneficiaries whom you would like to inherit your living annuity investments. These investments can be drawn either as an income or a lump sum (after tax). Recent legislation stipulates that it is not possible for one beneficiary to draw an income and for another to take a lump sum: all the beneficiaries must make the same choice. Living annuity assets do not attract estate duty in your estate.


If your estate will not have enough liquidity to pay off your liabilities, you will most probably have to take out life cover that will pay out when you die and cover these liabilities. If you have young children, you may require additional life cover, because, without your income, your surviving spouse will most probably struggle to raise your children.

Carefully review the beneficiaries of your life policies. While a policy to support your surviving spouse and children should probably name your spouse as the beneficiary, a policy you take out to provide liquidity in your estate should most probably name your estate as the beneficiary. Remember that life policies, with some exceptions — most notably ones that pay out to your spouse — are dutiable in your estate. This means you should take out more life cover than you will require to pay the liabilities in your estate, because the liabilities may include a higher amount of estate duty.

This article is an excerpt from Personal Finance by Laura Du Pleez.

Contact me, Juggie Govender, at 083 399 3905, my office on 032-944 3051 or e-mail me at for an appointment or further information and any other financial advice.

Disclaimer: The information is only intended to be of a general nature and should not be relied upon by any part without obtaining full details from a licenced financial service provider.

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