Discover why accurate beneficiary nominations are vital for your estate planning. Learn how they can simplify asset transfer, reduce costs, and ensure your wishes are honoured.
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An essential component of estate and succession planning is ensuring that your beneficiary nominations are accurate and reflect your wishes. A well-considered nomination not only avoids confusion but can also reduce estate costs and expedite the transfer of assets to your loved ones. Here’s what to know:
Life policies
Life policies are effective estate planning tools, especially when it comes to creating liquidity in one’s estate and providing for dependants. However, the efficacy depends heavily on correct beneficiary nomination. For instance, if the purpose of a life policy is to create liquidity in the estate, it would be advisable to nominate your estate as the beneficiary. This will ensure that the proceeds of the policy are paid directly into your deceased estate, thereby making funds available for settling debt. That said, keep in mind that the proceeds of life policies are considered deemed property in one’s estate and will be subject to estate duty, subject to a number of notable exceptions.
In terms of Section 4(q) of the Estate Duty Act, any property bequeathed to the surviving spouse, including proceeds of a domestic life policy where the spouse is the nominated beneficiary, is deductible from the gross estate and not subject to estate duty. Similarly, proceeds from policies registered in terms of an antenuptial or postnuptial contract where the spouse and/or children are beneficiaries are excluded from the dutiable estate.
Tax-free investments
The ability to nominate beneficiaries on your tax-free investment depends largely on the investment platform used. If your tax-free investment is held on an investment platform operating with a life license, you will be able to nominate beneficiaries to the investment. On the other hand, if your tax-free investment is held on a LISP platform, investors will typically not be able to nominate beneficiaries, and the proceeds of such investments should be addressed in your Will.
Endowments
Endowments are useful estate planning tools for those with marginal tax rates of 30% or more, in that the endowment structure remains active after the policyholder’s death if multiple lives assured are nominated. An endowment policy terminates on the death of the last life assured, at which point the proceeds will be paid directly to the nominated beneficiaries. While this can help to avoid executor’s fees, note that the proceeds will still be considered deemed property in the estate for estate duty purposes.
Retirement funds
Retirement funds, including pension, provident, preservation, and retirement annuity funds, offer significant tax and estate planning advantages, although it is important to note that Section 37C of the Pension Funds Act limits how these funds are distributed upon death. In terms of legislation, retirement fund trustees are required to determine how to distribute the benefits equitably among financial dependants, regardless of beneficiary nominations. Dependants may include spouses, children, elderly parents, or anyone financially dependent, in whole or in part, on the deceased at the time of their death. Once the allocation has been made by the trustees, the deceased’s financial dependants may choose to withdraw a lump sum, purchase a life or living annuity, or a combination of both.
* Odendaal is an associate financial planner at Crue Invest.
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