What To Consider When Creating A Will

South African law gives testators[1] a near absolute freedom of testation. This means that testators can freely choose to benefit, or not benefit, anyone they please through the bequests made in the Will.[2] It is important then, to think carefully about what is included in your Will while completing the GalileoWills process.

Two main aspects to consider are the bequests (along with different tiers of beneficiaries) and estate duty.

The bequests

A Will should direct how the whole estate of the testator is to be distributed. This means that the testator must choose to whom and how the whole estate shall be distributed in his Will. Freedom of testation allows the testator to choose anyone to benefit under the Will, however, not everyone who is chosen shall have the same outcome for estate duty purposes (see below). Further, when planning who is to benefit under the Will, keep in mind the principle in South African law which requires a beneficiary to be alive in order to inherit. It is good practice to appoint multiple tiers of beneficiaries as the first-tier beneficiary may predecease you.

We recommend that minor children are not chosen as first-tier beneficiaries while completing the GalileoWills process. The reason is that minor children are not able to receive an inheritance until they reach the age of majority (currently 18 years of age). This means that an inheritance awarded to them must be held in either a testamentary trust created in a Will or in the publicly administered Guardian’s Fund. The Will created for you by GalileoWills includes a basic testamentary trust in order to prevent any inheritance from being held by the Guardian’s Fund. If you want to nominate a minor child as the first-tier beneficiary, please contact Galileo Advisory Services, as a testamentary trust with extended provisions is required.

Leaving the whole estate to one person

If the testator is married,[3] leaving his/her entire estate to the surviving spouse has certain practical and financial benefits. The estate duty benefits are outlined under the relevant heading. The practical consideration is that the first-dying spouse can financially provide for the surviving spouse. Further, if there are minor children, the surviving spouse would be responsible to provide them. Leaving the whole estate to the surviving spouse also mitigates the risk of an accrual claim against the surviving spouse by the deceased estate, if the matrimonial regime is married out of community of property with the accrual system included.

Another practical consideration is that by leaving the whole estate to one person, there is a lower chance of assets having to be realised (sold) in order to distribute the estate in percentages to multiple people. In addition, after all expenses (including an accrual claim) are paid from the decease estate, the amount awarded to the person chosen will be greater than if the estate was split in percentages or if there are a number of specific bequests.

Leaving the whole estate to multiple people in percentages

Leaving the whole estate to multiple people in percentages, allows for the exact content of what makes up that percentage to be agreed upon between the beneficiaries, while keeping the amount each beneficiary receives the same.

This option is useful where the testatrix wants to leave her estate directly to multiple children or to siblings. This option is also useful for providing for parents or siblings who are financially dependent, while still leaving the majority of the estate to another person. It should be kept in mind that the amount which each person will receive is determined after expenses are paid from the estate.

Leaving specific assets to specific people

If a testator chooses to leave specific assets to specific people (called legatees), then the remainder of the estate is referred to as the residue. This means that the testator will also have to decide who will receive the residue of the estate after the specific assets are awarded to the legatees. If that specific bequest fails, then that asset will fall part of the residue.

The advantages of choosing to leave a specific asset to a legatee is threefold: first, a specific asset can be allocated to one person without having to leave the whole estate to that person; second, the deduction of R 3.5 million for estate duty purposes can be leveraged (as discussed below); third, the costs associated with administration of the deceased estate is deducted from the residue, thereby protecting that asset from being realised if there is insufficient liquidity in the deceased estate.

Different tiers of beneficiaries

Due to the principle that a beneficiary must be alive in order to inherit, due consideration should be given to who will benefit under the Will if the first person chosen should die before the testatrix. GalileoWills assists with this by making provision for three tiers of beneficiaries. For example, the first-tier beneficiary will inherit first, if that person dies before or simultaneously with the testatrix then the second-tier beneficiary will inherit.

Estate Duty Considerations

Estate duty is payable by all deceased estates except in certain circumstances. Estate duty is calculated on the dutiable amount in the deceased estate. The dutiable amount is determined by deducting the allowable deductions, section 4A primary rebate and the portable rebate as set out in the Estate Duty Act 45 of 1955 (“the Act”) from the gross value of the estate. This means that the amount of estate duty payable by the estate can be reduced by leveraging the allowable deductions and the section 4A rebate.

For the purposes of creating a Will, two deductions should be considered. The exemption contained in section 4(q) of the Act provides that no estate duty shall be levied on the amount inherited by the surviving spouse from the first dying spouse. Therefore, if the first dying spouse bequeaths his entire estate to the surviving spouse, no estate duty will be payable.

Section 4A of the Act applies to all estates and makes provision for a primary rebate which is a deductible amount of R 3.5 Million when determining the dutiable amount in the estate. For example, if the testator bequeaths an asset to his sister, which is valued at or below R 3.5 Million, then no estate duty will be levied on the value of that asset. The R 3.5 Million (or whatever amount remains) primary rebate can also be ported to the surviving spouse if the first-dying spouse does not use it. This has the effect of increasing the surviving spouse’s primary rebate by the ported amount. For example, if the surviving spouse inherits the whole estate from the first-dying spouse, and the first-dying spouse does not use the section 4A primary rebate, then the surviving spouse’s total primary rebate will be R 7 Million for estate duty purposes.

Therefore, when you are working though the options presented to you by GalileoWills, is it helpful to keep in mind the two aspects above. However, if you are still uncertain about how to distribute your estate, you can opt for our Advanced Package, in order to arrange a consultation with our legal practitioners.

 

[1] The reference to one gender shall include all other genders.

[2] There is a general prohibition on unlawful or unconstitutional stipulations

[3] Marriage includes a civil Union and marriages in terms of customary law and religious rites.