Wills Week: How to use financial products to enhance estate planning
5 Sep, 2023

Felicia Hlophe, legal adviser at Allan Gray


From the 11th to the 15th of September 2023, South Africa will observe National Wills Week – an optimal time to ensure your financial affairs are in order through well considered estate planning.


“If used well, financial products can provide relief from estate duty and executor fees, ensuring better outcomes for beneficiaries,” says Felicia Hlophe, legal adviser at Allan Gray.


Hlophe says for this to be effective, key estate planning principles should be considered. Below she discusses these, all of which need to be taken into account when drafting a valid will.



Principle 1: Think carefully about financial products, estate duty and executor fees.


“Not all assets are estate dutiable,” she says, explaining that the death benefits in a retirement fund are not considered property in a deceased estate.


In addition, unless the retirement fund death benefit is paid to the estate, which is not very common, the executor does not administer these assets, as they are distributed to the deceased’s financial dependants and/or nominees, in line with legislation.


“Retirement products, such as retirement annuity funds and pension, provident and preservation funds, can therefore be used to reduce estate duty and executor fees. However, any excess contributions that were made by the deceased to a retirement annuity fund, that were not deducted at the time of death for income tax, will be subject to estate duty.”


She adds that other financial products also provide some relief from estate duty, with the following products excluded for the purposes of calculating estate duty:


  • The proceeds of living annuity policies
  • Buy and sell policies that would be paid to a business partner for the purpose of funding the purchase of shares from the deceased
  • Key man policies
  • Policies ceded to a spouse or child in terms of an antenuptial contract


“There are also discretionary investment vehicles, known as “policy wrappers”, where no executor fees would be payable if there are nominated beneficiaries on these investments.” These are discussed in more detail below.



Principle 2: Account for the liquidity needs of beneficiaries


The process of winding up an estate can be lengthy and can put beneficiaries in a difficult financial situation if they do not have the means to cover their living expenses. But, says Hlophe, there are various ways to ensure that cash will be available to beneficiaries while an estate is being wound up.


“Taking out life insurance cover is a good way to provide loved ones with access to money and ensure that there is sufficient liquidity in an estate to pay for the estate duty liability and executor fees, and settle any outstanding mortgage bonds and other debts,” she says.


Hlophe explains that a living annuity can be used to provide an income for beneficiaries. When the policyholder dies, the proceeds can be paid to the beneficiaries as a lumpsum, or as an annuity, if they choose to continue with the policy in their own names.


“Although estate duty is not payable on the value of the living annuity, the beneficiaries may be liable for income tax on the annuity income if they elect to continue the policy in their own names.”


“Policy wrappers”, such as endowments or tax-free investments that allow for beneficiary nominations, can also assist with ensuring that the proceeds are not tied up in the estate, pending the completion of the winding-up process. The proceeds are immediately available for payment to beneficiaries. Some policy wrappers allow for a beneficiary for ownership to be nominated. In other words, this beneficiary would take ownership of the policy on death of the policyholder, but there may be some costs associated with this.


“Creating an estate plan can involve a high degree of complexity, and it is recommended that professional advice be sought before making any long-term decisions,” concludes Hlophe.






@Felicia Hlophe
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