Many South African investors spend a lot of time building a property portfolio, but don’t consider what happens to their property assets when they are gone. If you have worked tirelessly to create a profitable property portfolio, not planning for what happens when you pass away can cause serious complications for loved ones left behind. There can be delays, big costs, and stress involved for your family. Trust and estate planning are critical. They are especially important if you own a portfolio of property assets worth a tidy sum.
Let’s look at how IGrow Trusts can set up a trust or company for your property assets while you’re still alive, and tie up your estate when you’re gone.
What happens to your estate when you pass away?
When you are gone, your estate is frozen, and an executor handles your affairs. While this is necessary for legal reasons, it can cause delays and financial burdens for your loved ones.
An executor’s fees are typically 3.5% (excluding VAT, which brings the total to approximately 4.03% of your estate’s value). On top of this, Capital Gains Tax (CGT) is introduced when a death occurs, because your assets need to be disposed of or at least transfer ownership. (Source) To note, estate duty is levied at 20% on an estate valued over R3.5 million (Source)
“The duration required to wind up a deceased estate in South Africa can vary widely, primarily depending on factors like the complexity of the estate, the size of the estate, and the involvement of various beneficiaries. Typically, the process can take anywhere from six months to two years or more.” (Source)
What property complications could your family face after your death?
Property is not like other investments as it doesn’t pause when you are gone. The financial obligations attached to your property continue. This can cause distress for heirs if not set up and managed properly.
Tenants’ rent can be paid into your (now frozen) account or a holding account managed by the exector. In the meantime, bond repayments must still be paid. Otherwise, the bank could take action against your estate or even cancel the bond outright. Levies, municipal rates, rental management fees, and maintenance costs continue as well.
Without a set plan in place, your family may have to manage these obligations at a difficult time. Who will handle tenant communication? Who will see to your property’s repairs? This is why relying only on a will alone is not a good enough when dealing with multiple property assets.
Planning tools that protect your portfolio
Proper trust and estate planning means that your property investments are safeguarded and managed efficiently after you pass away.
There are several important things to have in place:
- A valid and well-laid-out will. This explains how your assets are distributed to your heirs, but doesn’t help avoid estate costs or delays.
- Trust and company structure set up: Setting up your property assets with IGrow Trusts and purchasing properties through a company with shares held in a trust. Loved ones can be either trustees or beneficiaries of the trust. This means that there is no estate duty exposure, as your property does not form a part of your estate. The trust’s assets and income cannot be frozen upon your death. Everything keeps on operating as normal. IGrow Trusts, as independent trustees, help ensure a smooth transition to your heirs as they take over.
- Liquidity planning: Making sure your estate has sufficient cash to cover your property taxes and fees prevents your heirs having to make forced property sales.
- Bond protection insurance: will settle outstanding debt, like home loan repayments. This protects your property portfolio from being sold off. View our handy blog that explains the difference between bond protection and life insurance.
A key consideration when you are structuring your property investments is the difference between trusts and companies and how they can work together. IGrow will help you set up your property investments from the start for maximum protection from taxes, creditors, and for your estate planning.
The price of not planning ahead
Let’s take a look at a simple example:
If your property portfolio is valued at R3 million, when you pass away, your estate could face:
- Estate duty
- Capital Gains Tax and transfer duty for the disposal of properties. Even if not sold, they still transfer ownership and incur taxes.
- Executor’s fees of up to 4.03%
Altogether, these costs can amount to hundreds of thousands of rands taken from your estate. If you don’t have the right trust and estate planning in place, your loved ones may not inherit your investments as you intend. They may find themselves having to sell properties they would rather keep to settle the bills.
Why using IGrow Trusts makes a difference
IGrow Trusts plays a vital role in estate planning. Setting up your portfolio within our recommended company and trust structure, ensures that your properties are managed efficiently when you’re gone. Rental income will remain uninterrupted, as will property ownership. This protects your beneficiaries from unnecessary delays and costs when they wind up your estate.
Our trust specialists will help you choose the best structure for tax efficiency and long-term wealth continuation. With an effective strategy in place, your property assets will keep working for your family when you’re no longer around.
Conclusion
You have worked hard, over time, to build up your property portfolio. Don’t jeopardise its future by not planning ahead. The right trust and estate planning protects your property assets. This also protects your loved ones, the income streams they inherit, and your legacy.
Book a consultation with an IGrow property investment strategist today. Our team will assess your estate planning set-up and make sure your property portfolio is safe for future generations.
