Investment Insights
Legacy planning should be holistic in nature, considering your entire estate (both domestic and offshore) as well as intergenerational wealth transfer and your philanthropic legacy. It is widely reported that a transfer of wealth with an estimated value of more than $30 trillion will occur over the next few decades.
While these projections are primarily based on United States estimates, similar wealth transfer patterns are likely in South Africa, even if the magnitudes differ. Wealth will essentially flow from generation to generation, and if it is structured properly, it will have a significant impact on many lives for multiple generations. For most people who have accumulated wealth over their lifetime, the goal is to leave a financial legacy to their children or loved ones, which makes succession planning a critical component of an estate plan, as it determines what goes into your Last Will and Testament.
A Last Will and Testament
The structure of your Last Will and Testament, as the primary record of your succession and legacy plan, should not be done in isolation from the rest of your strategy. The process requires that several factors affecting the structure of your Will be considered, including your maintenance obligations and matrimonial property regime, as well as your philanthropic objectives. Through the creation of a valid Will, you can appoint a trusted executor to administer your estate, create a testamentary trust to hold assets for minor beneficiaries or special needs children, make special bequests, and nominate heirs to your estate.
Furthermore, it is critical that the structure of your Will considers permissible methods of reducing estate duty and ensuring adequate liquidity to cover estate costs. When properly set up, trusts are valuable estate planning vehicles because they can house, protect, and ensure the succession of assets to the next generation. If you work with a reputable financial planner, they should be able to guide and advise you on your global assets, depending on their type and location.
Your philanthropy
In numerous ways, the pandemic brought out the best in humanity; individuals and organisations demonstrated levels of care and empathy unparalleled in recent history. South Africans continue to do good to make a positive difference in society, and to leave a legacy.
While giving is necessary for society, a more structured and planned approach to giving is critical in developing a holistic legacy plan that will result in long-term sustainability.
The pandemic has also served as a tough wake-up call, compelling us to rethink numerous aspects of our legacy planning. It has undoubtedly altered our perceptions of what constitutes a true legacy and what wealth transfer entails. It is no longer enough to simply transfer material wealth from your family's first or second generation and beyond; we must now think more broadly and strategically about how your wealth transfer benefits a broader society and the environment to sustain your second generation and beyond.
When it comes to philanthropic or charitable giving, a charitable bequest can be made in your Will by directing an amount to a charitable organisation of your choice or to a charitable trust. The preceding, however, must be a qualified Public Benefit Organisation ("PBO"). A PBO is an organisation that has been approved by the South African Revenue Services' Tax Exemption Unit (SARS). Its primary goal must be to perform altruistic public benefit activities. Section 18A of the Income Tax Act allows for a deduction of up to 10% of taxable income for donations to a registered Public Benefit Organisation.
Thus, as part of a legacy plan, you may transfer some of your wealth during your lifetime to a charity or organisation of your choice. You can do so tax efficiently if the organisation is a PBO and will issue you with a Section 18A certificate. A deduction is allowed for estate duty purposes on the value of property bequeathed to a tax-exempt public benefit organization under the Income Tax Act. This means that if you leave your entire estate to a qualifying PBO, you will avoid paying estate duty.
Philanthropy is a powerful social change agent. However, tackling current issues as a family is a great way to maintain intergenerational cohesion. It strengthens family leadership and governance by defining a family's long-term identity and, as a result, creating meaningful family legacies. A strategic Estate Plan allows you to consider the dynamics of your family and business, as well as the legacy you want to leave. Your legacy entails more than just leaving the largest financial legacy; it also entails passing on your family values to each individual.
