It came as rather a rude awakening, at the wake of our much missed uncle-with-large-property-portfolio, when whisperings had it that he hadn’t made precise plans for the passing on of the portfolio. Nieces and nephews from all sides of the family came suddenly together in a shared consternation that none of them, perhaps, would be getting anything. Or worse still, one, perhaps, would be getting all.
In the last few years, it is true that the uncle-with-large-property-portfolio had indeed become increasingly vague, as often happens, and it seems likely that, if in his old-school mind he had seen the need to directly confront the looming possibility that he wouldn’t always be around to enjoy his portfolio, he was perhaps by then already too weak of mind to deal with the rather onerous logistics of getting it ready for someone else to enjoy.
While none of the nieces and nephews could do more than talk about it in indignant whispers until the executors had done their thing, there was a lot meditation, examination and deliberation about how to pass away the right way.
Just do it
First off, it was easy to see that succession planning is not an easy matter, and requiring rather in-depth research, it is really something people should get around to doing, or structuring, long before they become weak of mind. With no particular one-size-fits-all answer, the passing on of the portfolio needs to be planned with the particulars of each portfolio in mind and in the end will depend for success on the quality of its planner’s research and financial advice.
There was, secondly, a lot of talk of trusts and estates, and put simply, it seemed that our uncle’s property should have been put into a trust. That is, if it was worth more than R3.5-million (which everyone hoped it was). Why you may ask?
Because while an estate is entitled to an abatement of R3.5-million (in other words there is no estate duty on an estate worth R3.5-million or less) there is however, duty of 20% on amounts over R3.5-million. This means for example, that if an estate is worth R4-million, the duty would be 20% of R500 000, making it R100 000.
Trusts on the other hand, although subject to higher taxation per se, can save costs and taxes as there is no estate duty on trustees, and as they can exist in perpetuity and provide continuity through generations the fees for winding up an estate can be bypassed. With assets in a trust separate from one’s name, beneficiaries can be protected from each other, from themselves and from creditors. On top of this, although taxes on living trusts are high, if care is taken to follow the conduit principle, (where income is split between trustees in a manner that minimises taxation) money can flow to the beneficiaries without attracting tax within the trust.
While we rather relished the thought by then of even a little split income, there was clearly still loads to mull through before we got to the bottom of why our uncle had neglected his succession planning.