ESTATE PLANNING – A WAY TO REDUCE THE COST OF DEATH

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Let’s be honest, estate planning and the drafting or revision of one’s last will and testament is a daunting task which forces us to think about our own mortality – a thought which we would rather avoid.

However, the death of a loved one is a traumatic and emotionally turbulent burden for any family to bear and is often compounded by the high cost of death. Albeit that our mortality is beyond our control – the cost implication of our death on our loved ones is not - it is something which, through proper estate planning, can be effectively managed.

Costs at death can be widely grouped into two categories – administration costs, which are usually incurred after death and claims against the estate, which usually consist of those liabilities for which the deceased was liable as at date of death.

Administration costs include executor’s fees, costs of security, conveyancing fees (transfer and bond cancellation costs), advertising costs, master’s fees, appraisement costs, bank charges, accountant’s fees and the cost of realising or liquidating assets.

Executor’s fees are, in absence of the will stating otherwise, currently 3.5% of the gross estate value. If the executor is VAT registered, VAT at 14% will also be charged. Executors are furthermore entitled to 6% on income earned in the estate after death.

Claims against the estate vary depending on the deceased’s specific circumstances but will generally include financial liabilities such as credit cards, overdraft facilities, mortgage bonds, personal loans, vehicle and asset finance and store cards. Other claims may include maintenance and accrual claims, funeral expenses, medical costs and rates and taxes payable in advance with the transfer of property.

Credit life insurance, funeral policies and life insurance may all serve as possibly simple and affordable relief to a cash deficit in an estate.
 
The entirely amended section 25 and new section 9HA of the Income Tax Act No. 58 of 1962 which impact directly on the taxation of deceased persons and deceased estates makes tax liability more present and real than ever before. The addition of section 7C to the Income Tax Act has also resulted in many having to revise their wills and the use of trusts as an estate planning tool and of course, the risk of estate duty liability remains ever present.

All of the above administration costs and claims need to be paid in cash. A solvent estate is not necessarily a liquid estate. When there is a cash shortfall which the heirs are not able to supplement, the executor may be forced to sell estate assets – of which many are often high value assets being realised to supplement a much smaller cash deficit. The realisation of these assets may often also give rise to a capital gains tax implication which in effect will increase the estate’s tax liability and cash deficit. Needless to say, the cost of realising these assets, for example auctioneer or estate agent fees are not to be forgotten.

The good news is that through efficient estate planning, one is able to circumvent some and substantially reduce many of these costs and ensure sufficient provision for those which are inevitable.

Unfortunately many people underestimate the cost of dying and fail to observe proper estate planning practices. It’s never too early or too late to begin estate planning. By reviewing your will and estate plan on a regular basis you could not only save time and money but also, spare your loved ones the burden of unnecessarily high estate costs and the emotional trauma associated therewith.
 
Should you require any assistance or further information, kindly contact one of our Estate Planning specialists at office@rgprok.co.za or 044 601 9900.

Written by Kelly Fourie-Barnard.

 

SLIP and FALL - LIABILITY CASE OR NOT?

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I walk into the supermarket to do some shopping. Someone has dropped a bottle in one of the aisles. The cleaners have already started cleaning the floor with a mop. I walk across the slippery surface, my foot slips and I fall. Do I have a claim against the supermarket owners and if so what kind of claim? The answer to this question is not always obvious.

It is generally accepted that customers in a public place such as a supermarket should be able to enjoy undisturbed shopping and that there should be no obstacles that could cause them injury. Liability is however not always a foregone conclusion and some challenges may arise when attempting to prove liability in a court of law.

Although the general rule is that the supermarket owner must ensure that situations which could cause injury to the customer do not come about, it is only human that such situations will nonetheless arisefrom time to time. It is the duty of the owner of the supermarket to ensure that the customer is properly warned against the impending danger. The owner could and probably should, for example, take measures to demarcate or cordon off the dangerous area until the area is safe. At the same time, the client should be mindful of where he/she walks and cannot complain about being injured whilst in a dangerous place if he/she was aware of such danger. .

Furthermore, a causal nexus must exist between the damage or injury suffered and the negligence of the supermarket owner. For example, if I fall and break my ankle, I cannot then also make a claim for the hip replacement that I had to undergo a year ago.

General damages that include pain, suffering, discomfort and emotional shock may be claimed. This type of damages is abstract in nature and is determined by looking at previous court cases where persons suffered similar types of injuries. Medical expenses and loss of income are further possible damages that may be proved. In addition thereto, a person may also claim for future medical expenses and future loss of income. The last mentioned types of damages are normally proven by presenting expert reports and evidence.

If a customer breaks his glasses or damages a cell phone in the process, he / she may also claim the repair or replacement value of such item.

For more information, contact Barend Kruger at 044 601 9900 or e-mail to office@rgprok.co.za.

LIQUIDATION OR BUSINESS RESCUE?

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In difficult economic and political circumstances, as currently experienced by SA, members of close corporations or directors of companies often find that the business of the CC or the company is no longer operating profitably. This is when the question about liquidation or business rescue is posed and consideration should be given to which is the best option for the company or CC.

If the company or CC can not reasonably pay all its debts as and when it becomes payable in the next six months or if there is a reasonable likelihood that the company or CC will become insolvent in the next six months, the obligation rests on the company or CC to decide whether it is a candidate for business rescue or otherwise liquidation.

In a business rescue, room is afforded to a company or CC to work out a rescue plan in consultation with all stakeholders in terms of which transactions and/or contracts are restructured or canceled to improve the company or CC's cash flow or debt position in order to continue its normal trading activities. In consultation with the creditors, a plan is drawn up and the Business Rescue practitioner is obliged to implement the plan.

If the plan fails, the Business Rescue Practitioner will put the company or CC into liquidation.

If it is clear that the company or CC cannot at all fulfill its obligations and is insolvent, business rescue will not be the appropriate course of action and the company or CC should be liquidated. Parties often take shortcuts and think that liquidation can be prevented by placing the company or CC in business rescue, instead of liquidation. If the company or CC does not have a good chance of rescue from the start and there is no feasible business rescue plan, the directors or members will only waste money and time by considering business rescue. It will simply not work.

The big difference between business rescue and liquidation is that in the case of  business rescue, a plan is developed to restructure the company's finances and contracts so that it can survive financially and continue as a healthy business. If a company's liabilities exceed its assets, it is insolvent. In such an instance it would not be a candidate for business rescue and should be placed in liquidation.

Business rescue and liquidation can be initiated by a special resoltion or by a court application as the case may be.

For any further information or advice regarding the above, please contact Danie Acker at Rauch Gertenbach Attorneys, tel 044-6019900 or by e-mail at office@rgprok.co.za .