Marriage and estate planning

A client’s marital status and marital property regime impact on almost every aspect of his or her estate and financial planning. Tiny Carroll, Fiduciary Specialist at Glacier by Sanlam, sets out what you need to know.

The objective of estate planning is to provide a client with a measure of certainty that his or her objectives for the accumulation, protection and eventual devolution of assets will be met. Within this very broadly stated objective, a client’s marital status and marital property regime impact on almost every aspect of his/her estate and financial planning. A client’s marital status in effect sets the boundaries within which planning can take place. Knowledge of a client’s status therefore places the financial adviser in the best possible position to provide sound estate and financial planning advice.

There are essentially three vital questions the adviser needs to address.

Who is a spouse?

The Income Tax and Estate Duty Acts define the term ‘spouse’. As part of the planning process, the life partners could enter into a ‘co-habitation agreement’ and/or include a document describing the permanent nature of their relationship in order to satisfy the requirements of the Income Tax and Estate Duty Acts. However, while a person in a permanent relationship may qualify as a spouse for the purposes of these Acts, he or she will not meet the requirements of a spouse for the purposes of intestate succession or the Maintenance of Surviving Spouse’s Act. Estate planning for permanent life partners must include a properly drafted will and a liquidity calculation to ensure that the maintenance needs of the survivor are properly catered for.

Which material property regime?

A client’s marital regime determines what is his and what his competencies are when it comes to dealing with estate assets. A client who is married in community of property is only competent to deal with his or her half-share of the joint estate. Likewise, spouses in an in-community-of-property marriage have joint powers of administration and may not validly nominate a third party as beneficiary on a policy without each other’s consent.

Should the client be married out of community of property but subject to the accrual principle, it’s necessary to understand who has the accrual claim and what the extent of the claim is. The spouse with the greater accrual will have to take the accrual claim into account before one can determine what can be left to the beneficiaries, other than the surviving spouse.

The spouse on the receiving end of the accrual claim also needs an understanding of its impact on the surviving spouse where the estate is bequeathed to beneficiaries other than the surviving spouse. The surviving spouse could be compelled to sell assets to settle the claim if not dealt with effectively as part of a strategic estate plan.

Advisers should always insist on viewing the client’s antenuptial contract in order to understand the marital regime.

Is the client a surviving spouse?

For the purposes of the R3,5 million estate duty abatement (now deduction), the broader definition of the word ‘spouse’ is used. Therefore, a partner in a permanent relationship could potentially have an additional R3,5 million abatement (namely R7 million less the amount that the deceased spouse has already used). This could potentially result in a R700 000 estate duty saving.

The ideal would be for the couple to draw up a co-habitation agreement. This takes away any uncertainties and will satisfy the commissioner of the court that the couple is living in a relationship that they regard as permanent.

Lastly, as with any estate planning exercise, the adviser should address the following key questions with his clients:

  • Do you have a strategic estate plan in place?
  • Do you have a signed and up-to-date will in place?
  • Will your trust stand up to scrutiny?
  • Are your buy-and-sell arrangements going to protect you?
  • Are your policy beneficiary nominations up to date?
  • Is there sufficient liquidity in your estate?
  • How will your retirement fund benefits be dealt with?
  • Will your family know what to do?
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