When dealing with the transfer of deceased estates there are often a variety of hurdles and taxes that need to be taken into account and avoided.
The major hurdle facing the surviving spouse or other heirs to an estate is that as soon as the person dies, his or her accounts could be frozen making it impossible to access their funds.
This is according to Bill Rawson, Chairman of the Rawson Property Group, who says property owners, especially those who own multiple properties, need to consider the best ways to minimise tax and avoid difficulties when passing on their assets after their death.
He says the major hurdle facing the surviving spouse or other heirs to an estate is that as soon as the person dies, his or her accounts could be frozen making it impossible to access their funds. He says there have been many cases, which could have been avoided, where people have had to endure serious hardship - these people, being unable to access the deceased’s bank account, have had to resort to borrowing money to pay for their daily expenses.
The problem, Rawson says, is exacerbated by insurance policies being paid into the estate. This is usually the case when the beneficiary shares a bank account with the deceased.
“When executors have been appointed, the law requires that all outstanding debts owed by the deceased have to be settled first and this can lead to one or more of the properties having to be sold in a hurry. After these sales, Capital Gains Tax may then have to be paid on any profit made, as well as dividend tax paid to distribute the proceeds.”
Rawson says the cost of settling an estate can be as high as 30 or 40 percent of the total, excluding the debt repayments. He says equally serious, it can take two or more years to reach full settlement, during which benefactors may have no access to the funds in the estate.
The best way to circumvent these difficulties and to save a great deal of the family’s assets is for the bequeathed to establish a trust before their death and to transfer the majority of their assets into this trust, says Rawson.
“One of the advantages of a trust is that it is not frozen on the death of a spouse, as it is entirely independent of the estate and is therefore not subject to any estate duties. The surviving spouse, who is usually a trustee, can then draw money as and when they need it.”
Rawson says an additional benefit of transferring assets to a trust is that certain insurance policies may be paid into the trust which can help cover the trust’s costs and, as the trust is not responsible for the deceased debts, there will be no need to sell off properties or to pay Capital Gains Tax.
He says there are, however, a few objections to using a trust, the most common of these is that it will cost money, payable immediately, to establish a trust and the taxes incurred in transferring property into a trust are higher than those involved in passing it onto an individual.
One must be aware that trusts are taxed at 40 percent on their incomes, he says, expert advice from legal and accounting professionals is therefore recommended.”
“My experience shows that establishing a trust is the best way to achieve a smooth handover of property and assets, especially if you expect them to be passed on to subsequent generations.”
When seeking a professional’s advice and assistance on planning your estate, Rawson says, it is often better to deal with an accountant or a lawyer who has specialised in these matters and who has kept up-to-date with all the relevant legislation rather than an expert estate planner, whose main goal may be to sell expensive insurance policies.
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