Death can be an expensive affair and it is easy to underestimate the costs involved, especially as some unconsidered fees can quickly add up.

As well as the funeral expenses, those left behind can be liable to pay mortgage bond cancellation costs, appraisement costs, Master’s Office fees, legal fees, costs of realisation of assets, bank charges, transfer costs of fixed property or shares, maintenance of assets, advertising costs, probate fees, postage and sundry costs, short-term insurance, taxes on investments, and even duplicate motor vehicle registration certificates…

Estate costs generally fall into two categories – administration costs, which arise as a result of the death; and claims against the estate, which are the liabilities of the deceased.

Generally, the biggest administration costs tend to be the executor’s and conveyancing fees.

However, advance planning can help to cover estate costs or at least reduce them significantly. Here are 6 things you can do now to reduce your estate costs for your loved ones in the future. Don’t hesitate to arrange a meeting to discuss your options.

1. Leave a valid will

If you die without a valid will, your estate will be devolved according to The Intestate Succession Act, rather than in accordance with your wishes. Not only is it likely that some of your assets will not be distributed how you wish them to be, but this process can often be more complicated and come with higher legal fees, as well as the potential for costly disputes.

2. Negotiate the executor’s fee

The devolution of an estate requires an executor to sign off the liquidation and distribution of assets, and confirm that all costs are correct. Once you have appointed an executor, you should try to negotiate the executor’s fee when you are drafting your will. You could either then stipulate the fee in the will or request that the executor confirm the agreed fee in writing.

Depending on the composition of your estate, the executor will quote a fee in accordance with how much work is required, and you could potentially negotiate up to a 50% discount.

If your estate is relatively straightforward — for example, you only have one heir, no business or offshore assets, and sufficient cash to cover all costs, you may find that the executor will offer a big discount.

However, if you do not explicitly specify the executor’s remuneration in your will, it may likely be calculated according to a prescribed tariff of 3.5% of the gross value of all your assets. The executor will also be entitled to a 6% fee on all income earned after the date of your death, and if the executor has registered for VAT, then another 15% will be added to the grand total.

3. Avoid costs of security

According to an article published on Moneyweb last year, “costs of security can be avoided completely by exempting the nominated executor from lodging the bond of security in the will.”

4. Prepay your funeral

Planning and paying for your funeral before you die removes a rather big expense that your family or estate must cover after you’ve passed. By choosing the type of funeral you would like in advance, you not only fix the costs, but you also save your loved ones the difficult job of making decisions and having extra admin while they are in mourning. You can simply pre-pay the money into an insurance fund or trust account where it will sit until the time comes to pay for your funeral.

5. Jointly own property

A simple way of potentially reducing estate costs is to hold assets, such as a house, with another person. When you die, any joint asset should automatically pass over to the surviving owner, so will not be considered part of your estate and subject to probate fees. Do note that probate fees can be substantial, so it is important to factor them into your estate planning.

6. Buy life insurance

If there is insufficient cash to settle administration costs and claims against your estate, the executor will need to approach your heirs to see if they are willing to pay the shortfall to avoid the sale of any valuable assets.

If you don’t have enough funds to cover a bond, think carefully about whether you wish to leave the property to someone specific, as they would have to settle the costs and the property may end up being more of a burden than a benefit. If you wish to bequeath an item to a beneficiary, it is best to do so free from any liabilities, as all your debts must be paid before any money or property can be passed on.

To avoid leaving your heirs in a situation where they are forced to settle outstanding debts, it is important to take out life and/or bond insurance to ensure sufficient cash is available to cover any accumulated claims.

Life insurance proceeds are always paid tax-free, and you can name your estate as the beneficiary, in which case the money will be paid to your estate to cover estate costs. Although your estate will pay probate fees on the proceeds, it will ensure your estate has enough cash to pay debts, taxes and other obligations, so as to avoid the sale of assets that beneficiaries may wish to keep.

Alternatively, you could name a beneficiary for your insurance proceeds, and the money will be paid directly to them. If you do this, the money bypasses the estate process and will not form part of your estate, so will not be subject to probate fees and there won’t be any delay in receiving the money.

(Information gathered from moneyweb.co.za and getsmarteraboutmoney.ca)

Did you know that a trust is not simply: a trust?

There are many different classifications of trusts in South Africa, such as ownership trusts, bewind trusts and curatorship trusts.

Trusts can either be created during a person’s lifetime, which is known as an inter vivos trust, or set up according to a person’s will after they die, which is known as a mortis causa trust.

Different trusts give beneficiaries different rights, depending on how much a trustee wishes to distribute of an income, assets or capital to beneficiaries. And trusts can be used for a variety of purposes, from asset protection to charity. There are also ‘special trusts’, which can be set up for the benefit of a person with a disability, or relatives who are under 18 years old.

Although trusts have been around for centuries, there are many misconceptions that surround them and they have become far less popular in the last couple of decades. The SA Revenue Service (SARS) is arguably partly to blame for the bad reputation that trusts now have, and their continual criticism has resulted in many owners deregistering their trusts and transferring out their assets.

Given that there is a quagmire of misinformation out there, it is important to educate yourself if you have a trust or are thinking of creating one. Here are 5 truths about trusts that may debunk some myths and help you on your way:

1. Trusts aren’t only for the wealthy

Although many people believe that trusts are only for the rich, the best time to set up a trust is actually when you are making preparations to build wealth, before you have accumulated a significant fortune. Registering a trust after you’ve generated wealth could end up being expensive — due to various costs, such as capital gains tax and transfer fees that you will need to pay when you move your assets into trust.

2. Trusts can help with tax planning

A unique feature of trusts is that they allow you to shift tax burdens from the trusts to beneficiaries through the ‘conduit principle’, which, according to the South African Institute of Chartered Accountants (SAICA), means that “if income accrues to a trust and the trustees award it to one or more beneficiaries in the same year, the income retains its nature in the hands of the beneficiary.” This basically results in less taxes needing to be paid.

Even though the sole point of a trust isn’t to save on taxes, you do stand to save on capital gains tax, estate duty, executor’s fees and income tax if you set up a trust and manage it properly. Consequently, SARS is not a fan of trusts, particularly because trusts enable the postponement — and potentially the avoidance — of estate duty in the event of death.

All trusts need to be registered with SARS and the trustee is usually the representative taxpayer of a trust. However, the income of a trust can be taxed in the hands of the donor, beneficiary, or the trust itself.

3. You can still control your assets in a trust

Contrary to popular belief, a trust can be structured in such a way that allows you to maintain a sense of control over your assets. You can legally be both a trustee and the founder, and you can even be a beneficiary, while maintaining the legitimacy of the trust.

4. You can do your own admin

When it comes to setting up a trust, be sure to choose your service provider wisely, as some charge exorbitant fees. If possible, it can be worth doing as much of the administration as possible yourself, so as to reduce costs and ensure that your financial plan is executed as per your intentions.

5. It’s important to read your trust deeds

If you do decide to include a trust in your estate planning, be sure to always take the time to read your trust deeds and to adapt your trusts to any changing circumstances. Many trustees have little knowledge of what is expected of them as managers of a trust. And no trustee can ever claim ignorance if they don’t strictly adhere to the management of a trust deed.

However, a trust will only be investigated by SARS if it is obviously being misused or mismanaged. If it is correctly structured and administered in accordance with common law, the trust deed, and the Trust Property Control Act, a trust is a perfectly legitimate investment vehicle for South African tax residents.

(Information gathered from SARS and IOL)

Most people have a firm understanding that if you save while you’re young, this will set you on your way to achieving your long-term goals. However, life is what happens when you’re making other plans and, even with the best intentions and a basic financial awareness, planning for your future can easily fall to the bottom of a long to-do list.

During your twenties, you may have focused on having fun, then had various pressures in your thirties, such as a home-loan, young family or new business, that pulled the reigns on your financial planning. All of a sudden, you can find yourself in your forties and realise you haven’t stashed enough under the metaphorical mattress to maintain your lifestyle into your golden years.

Many a 40-something unfortunately doesn’t have a well-defined savings strategy, and very few have taken the necessary steps to sufficiently prepare for the future. However, the thing about saving is that the longer you wait to save, the harder it is to grow a sizeable sum, as the benefits of compound interest are best reaped from early on.

Lots of people take the attitude of simply saving what they can, when they can; then counting their chips later on. However, the easiest way to save for future goals is by working backwards — calculate what you will need to support your lifestyle choices (be that a comfortable retirement, your children’s education, an around-the-world trip), then work out how much you need to save in order to achieve your goal(s).

Savings guidelines

As a rule of thumb, it is often recommended to have saved at least eight times your final salary before you retire. If you save that amount, you should be able to consistently enjoy approximately 85% of your final salary during retirement.

By setting yourself early milestones, you should be able to stay on track to achieving this goal. For example, it’s a good idea to aim to have saved one whole year’s salary by the time you’re 35 years old, three times your annual salary by the age of 45, and five times your salary by 55. So, if you’re 35 years old and making ZAR240,000 a year, then you should have saved ZAR240,000 by this age too.

Savings tips

1. Save as much money as you can from as young an age as possible. If you’re in your forties and have been saving at least 10% of your salary for the past two decades, then you should be in a good position and may just need to make a few adjustments to reach your financial targets. However, if you’ve neglected your future entirely up until this point, then you’ll need to run the extra mile to make it to the finish line.
2. Trust the professionals and relax in the knowledge that your investments are in good hands — with experts who have experience in financial management, along with the time and resources to manage your portfolio. By having an independent savings plan, in addition to anything that your employer offers, you will also diversify and spread your risk.
3. Maximise your savings by making the most of any tax advantages for which you are entitled. Don’t hesitate to arrange a meeting to discuss your options.
4. Asset allocation and diversification are always important, but they may need to be adapted as you get older. At 40 you still have a while before you retire, so you arguably don’t need to play it too safe just yet. In an article published on Business Insider, Ellen Rinaldi, former Executive Director of Investment Planning and Research at Vanguard, recommends simply “scaling back stocks to 80% of your portfolio and putting the balance in conservative holdings like bonds.”
5. Be accountable to your goals. It may mean that you have to make some difficult decisions with regards to other expenses, but you do need to prioritise your future while you still have the time, choices and means. It is exponentially easier to save bit by bit to prepare for goals, rather than divert huge sums of cash at the last minute. This is especially the case if you have two big financial considerations, such as retirement and your children’s higher education. However, retirement should arguably be the top priority, as you don’t want to be a burden on your kids, and there are sadly no scholarships for reaching 65.

Financial risk ratios, also known as solvency ratios, are used to determine the long-term financial health of a business by analysing whether a company carries too much debt. And these ratios can come in very handy when looking to invest or review financial situations.

The solvency ratio is a key metric that can be used to measure whether a company has sufficient cash flow to meet its long-term commitments. The ratio offers a comprehensive measure of solvency, as it factors in depreciation to measure cash flow capacity in relation to all liabilities, such as accounts payable, capital lease and pension plan obligations.

In short, a solvent company’s assets are greater than its liabilities, so it owns more than it owes. Whereas, a company with a low solvency ratio will have less chance of being able to meet its obligations. A liquidity ratio, on the other hand, measures a company’s ability to meet its short-term liabilities, such as paying all creditors and any debt that is due in the following 12 months.

Another important calculation is debt ratio, also known as gearing, which is a solvency ratio that measures a company’s total liabilities, as a percentage of its total assets. Basically, the debt ratio shows how many assets a company would need to sell in order to be able to pay off all of its liabilities. This ratio measures the financial leverage of a company, so a company that has more liabilities than assets would be considered to be highly leveraged and, thus, more risky for lenders.

The debt ratio determines the proportion of a company’s assets that are financed through debt. For example, a debt ratio of more than 0.5 means that more than half of the company’s assets are financed through debt. Whereas, a debt ratio of less than 0.5 means that most of the company’s assets are financed through capital. By calculating this ratio, investors and creditors can analyse an overall debt burden, as well as a company’s ability to pay off debt.

Reading ratios

There are several ratios that can be used to measure strength and sustainability. When reading ratios, it is important to bear in mind the following:

1. Look at the big financial picture
   Use several sets of ratios to get a complete understanding of a company’s financial health. For example, when analysing the potential of a company to pay back its external debt, its liquidity should be measured, as well as its solvency. Making any assessment based on just one set of ratios can provide a misleading view of a company’s finances. 
2. Ratios vary from industry to industry, and scheme to scheme
   Ensure that you make fair comparisons, and don’t compare apples to oranges. It’s only meaningful to compare financial ratios if companies are part of the same industry. 

   A solvency framework should also promote growth in an industry while ensuring healthy competition amongst different schemes. For example, while it is important for financial stability to be maintained by medical schemes in South Africa, it is also important to bear in mind that there isn’t necessarily a one-size-fits-all solution, so individual circumstances need to be considered. 

3. Evaluate trends
   By analysing ratio trends over a period of time, you will be able to see if a company’s situation is getting better or worse. By doing this, you will gain a deeper understanding of whether any negative ratios are a result of a one-off event or indicate a serious issue with the company’s fundamentals.

South Africa

Likewise, when analysing the potential of a country to service and pay back its external debt, its solvency and its liquidity are two big issues to be considered. However, as ratios can be affected by varying factors, and a country arguably can’t be treated in exactly the same way as a big company, there is some controversy as to how both of these should be measured.

That said, the bottom line is that South Africa has a long way to go to improve its status, and the country’s economic outlook remains shaky. Business and consumer sentiment have plummeted, and over ZAR50-billion in revenue deficit has left a gaping hole that urgently needs to be filled. After South Africa was downgraded to junk status, the Finance Ministry has stated that “the 2018 budget will outline decisive and specific policy measures to strengthen the fiscal framework.” However, according to an article published on Biz News, “no matter who is president, Minister of Finance or SARS Commissioner, the national numbers will be the same at the national budget speech on 21 February 2018. A complete disaster! South Africa’s debt-to-GDP ratio will remain above 4%.”

Political instability has certainly taken its toll on the economy, and citizens wait with baited breath to see if the tide will turn under Cyril Ramaphosa. Chief Executive of Nedbank, Mike Brown, was quoted in an article published on CNBC to have said that “the February budget statement is South Africa’s last chance to demonstrate the structural reforms and fiscal consolidation that are required to improve economic growth prospects and prevent Moody’s from also downgrading the local currency debt to below investment grade.”

With the 2018 budget speech around the corner, South Africans are preparing themselves for various tax increases, and emotions are generally running high with regards to some of the potential changes. Tax implementations that have been recently explored include an increase in personal income tax rate and the fuel levy, but the government may well cast the tax net even wider in order to raise additional revenue to mitigate the mind-boggling shortfalls of 2017.

For example, the treasury has already signalled that a sugar tax, referred to as a Health Promotion Levy, will be established from April. The proposed tax will increase the cost of soft drinks by up to 11%, which will not only generate revenue, but aims to bring medium- to long-term health benefits to South Africa. However, it could also come with investment cuts and further retrenchments, and it has been argued that its implementation won’t raise enough money to make a substantial difference.

If you are ever unsure about any investment analyses or tax changes, or how anything affects your personal financial situation, then don’t hesitate to arrange a meeting.

South Africans can expect more changes on the horizon in this upcoming tax year, as the Ministry of Finance attempts to mitigate the financial failings of 2017. After being downgraded to junk status last year, the country is well and truly hanging its head in financial shame, and it is clear that there is a lot of work to do to improve (or simply stabilise) the situation.

According to an article published on BusinessTech, the “government is looking to implement a total of ZAR30-billion in tax hikes and more than R50-billion of spending cuts in 2018” to help cover its revenue shortfall. Trusts, companies, domestic residents and expatriates are all potential targets in the February 2018 budget review (21 Feb), and taxpayers wait with baited breath for their fate to be announced.

After the Medium Term Budget Policy Statement (MTBPS), which was delivered in October 2017, a number of analysts noted their concern that South Africa has already reached its limit in terms of how much it can extract from taxpayers. In an article published on Biz News, the author argues that “the South African tax base cannot support the current debt trajectory… There are simply not enough wealthy South Africans to make even a small dent in the mountain of debt. Even the new super tax bracket of 45% on taxable income above ZAR1.5-million, imposed from 1st March 2017, is only scheduled to collect an additional ZAR4-billion from just 103,000 taxpayers.”

Although it may be the case that everyone is already overstretched, it’s important to still be prepared for substantial further tax increases, and to plan accordingly in order to protect your financial situation. Don’t be complacent, as it is likely that these increases will not just affect the wealthy, but almost all South African taxpayers may well see an increase in personal tax.

Given that additional strain may soon be placed on the country’s tax base, while debt levels rise and controversial taxes, such as the carbon tax, are explored, here are 7 tips and tricks that will help you to budget for the upcoming tax year.

1. Project your budget for the next fiscal year through “zero-based budgeting”. This is a technique by which all expenses must be justified. Start from a zero base, and analyse all your needs and costs based on whether they serve you, rather than simply continuing to budget for something because you have always done so out of habit. 
2. Crunch the numbers by looking at all incoming and outgoing costs carefully, no matter how big or small. By keeping track of your spending, it will hopefully become apparent whether you can cut back on certain costs. For example, this could be as easy as finding a cheaper mobile phone plan or eating out less at restaurants. 
3. Regularly assess your progress by making a ‘money date’ with yourself to review your financial portfolio, and ensure you are sticking to your budget. If you are having difficulties or wish to make any changes, don’t hesitate to arrange a meeting to work out how to get on track. And if you achieve any notable goals, then think of small rewards that will serve as motivation to keep going. 
4. Budget for growth by prioritising the things that will increase your financial wealth and well-being in the long-term, as well as keep your bills paid in the short-term. Don’t neglect your savings, as investing in your future now (even if it’s only a small amount each month) can significantly help to achieve your goals. 
5. Arrange a meeting with your accountant to ensure you understand your tax liabilities for the upcoming tax year. Once you have determined these, you can budget accordingly and review whether you are entitled to any personal deductions. 
6. Automate your savings by contributing to a financial plan by direct debit. It’s also a good idea to take advantage of the technology at your fingertips by downloading any apps that could help you to budget or find deals easily. 
7. Shop smartly by signing up to loyalty schemes at your favourite stores, then rack up the rewards or plan your purchases around special offers. Buying in bulk and saving coupons can also be useful.

Given the country’s current deficit, along with the recent announcement that the government intends to implement fee-free higher education, which is estimated to cost an additional ZAR40-billion, it is safe to assume that tax increases this year are going to be substantial. Start making preparations now to allow for these changes, and budget for your future.

In recent years, Valentine’s Day has gained the reputation of being a Hallmark holiday that promotes Lindt rather than love. So, before you rush off to the shops to buy a big bunch of flowers or box of chocolates, you may wish to take a moment to reflect on the meaning behind the day and how you can best show your affection. Romance without the rands…

The origins of Valentine’s Day remain somewhat mysterious. Its initial roots are argued to go way back to a fertility festival held on 15 February that was dedicated to a Roman god — the traditions of which were believed to guarantee fertility and ease the pain of childbirth. However, the rise of Christianity resulted in pagan rites being outlawed, and the festival was replaced with another annual highlight that revolved around the story of Saint Valentine.

Valentine was a Roman priest who secretly married young people during a time when it was forbidden, as unmarried soldiers were thought to be better fighters because they didn’t have the fear of leaving a wife behind. He was eventually imprisoned and sentenced to a three-part execution consisting of a beating, stoning and decapitation for his crime of defying the then-Emperor’s edict. However, by remaining resolute in his belief about the sanctity of marriage (in spite of the risks and his eventual punishment), he is regarded by many as a martyr to his Christian cause; and 14th February — the date of his execution — is now celebrated as a day of love. He also allegedly healed the judge’s blind daughter, and he ended a letter he wrote to her with the words “from your Valentine”, which has become a focal part of the modern love missive.

Nowadays, the amorous event is celebrated in a variety of ways across the world. In South Africa, for example, some women pin the name of their sweetheart to their sleeve, and this is how men can discover that they have a secret admirer.

The cost of love

For the average South African, spoiling that special someone on Valentine’s Day can become quite a costly affair, but you can still be romantic without splashing too much cash unnecessarily. The key is to plan in advance and budget accordingly. Also consider more experiential or bespoke gifting options that are personal to your relationship.

Savings tips

Write a list of things that your loved one loves, along with how much each thing costs —  be this a night out at the cinema, or a gift of jewellery. Once you have an idea of prices, set a feasible budget and make a plan of action that sticks to this.

You can sweep someone off their feet while keeping yours on the ground. And blowing all your savings on one day isn’t actually very romantic if it means you wind up begging for loans or eating plain pap for the rest of the year. It’s better to be realistic about what you can afford, and prioritise meaningful presents or experiences over sheer decadence. Alternatively, you may wish to consider skipping some luxuries now so that you can save enough to make your other half happy on the big day itself.

You can also spread the love without breaking the bank by making a gift rather than buying one. For example, rather than getting into debt by taking your date for a seven-course tasting menu at a fine dining restaurant, try creating a romantic atmosphere in your home and cooking a delicious dinner that you both can enjoy by candlelight.

Furthermore, if you want to do something particularly special, have a look for any deals that can make an enjoyable day more cost effective. You can still have fun at a low price, and a bit of effort and consideration can be worth far more to someone than simply picking up a large bill.