Estate Planning Essentials
Property investments are a cornerstone of financial security and legacy-building. However, a comprehensive estate plan is necessary to avoid financial strain and conflict for your heirs. Here is what you need to know about wills, trusts and usufructs in order to protect your investments and ensure a smooth transition for future generations.
Where there’s a Will, there’s a way.
A will is the foundation of any estate plan, as it dictates how your assets will be distributed upon your passing. Without one, South Africa's intestate succession laws will determine how your estate is divided, which may not align with your wishes.
Cilna Steyn, Managing Director at SSLR Incorporated, stresses that a will must comply with the Wills Act, 1953 to be legally valid. “Your will needs to follow specific legal formalities to be enforceable," she explains. "It must be in writing, signed by the testator and witnessed by two competent witnesses.”
A well-drafted will should clearly identify beneficiaries, specify how assets are to be divided, and appoint a reliable executor to oversee the estate. Cilna advises consulting with a reputable attorney to ensure your will is watertight: "Expert advice is crucial to ensure that your will reflects your intentions and minimises the risk of disputes.”
Regular updates to your will are equally important. Life events such as marriage, divorce or the acquisition of new property may require adjustments to ensure the document remains aligned with your goals and circumstances.
In trust
Trusts are a preferred estate planning tool for many property investors, offering significant advantages over individual ownership. Shaun du Bois, franchisee of Just Property Choice in Pietermaritzburg, highlights their efficiency: “With a trust in place, ownership of the properties will not need to change upon the death of an investor. The heirs can be made trustees of the property-holding trust, which saves both time and money.”
Trusts protect property investments from creditors, simplify the inheritance process and may reduce taxes. By holding properties within a trust, investors avoid the costs and delays associated with transferring ownership after death. (Though the capital gains tax will be far higher if the beneficiaries decide to sell the property.)
Trusts are also highly customisable, allowing investors to structure them in ways that meet specific needs, such as providing for minor children or managing multi-generational wealth.
However, setting up and managing a trust requires careful planning and expert guidance. “It’s important to structure the trust correctly to optimise tax efficiency and ensure it aligns with your overall estate planning goals,” says Shaun.
Usufructs: Balancing immediate needs and long-term ownership
A usufruct grants someone – typically a surviving spouse – the right to use and benefit from a property while legal ownership remains with the heirs. For example, a parent might leave a property to their children but allow their spouse to live in it for the rest of their life. This arrangement ensures housing security for the spouse while preserving the property for future generations.
While usufructs can be a practical solution, Shaun warns of potential challenges: “While the usufructuary handles daily, interior maintenance, the heirs often face significant costs for repairs and ensuring the property remains habitable. These financial burdens can create strain, especially if there are insufficient resources available.”
"In addition, heirs may find it frustrating that they cannot sell or develop the property until the usufruct ends, which often occurs only upon the usufructuary's death,” Cilna adds.
Alternatives like trusts often provide greater flexibility and fewer complications. Trusts can allocate property rights while preserving harmony among beneficiaries, avoiding the financial and legal challenges associated with usufructs.
Ownership structure
The choice of ownership structure plays a critical role in estate planning. Individual ownership, while common, often results in complications during the estate administration process. “If a property is in the name of an individual, that individual’s estate needs to be wound up before selling or transferring the property,” says Shaun. “This can take a year or two, adding unnecessary delays.”
In contrast, trusts (and companies/PTYs) provide more streamlined solutions. Properties held in a trust remain within the entity, avoiding the need for transfer and the associated costs. Companies offer similar benefits, with the added advantage of being effective for managing large property portfolios or investment strategies.
Preventing disputes among heirs
Family disputes over inherited property can be emotionally and financially draining. Clear communication and proper planning are key to avoiding these conflicts. Cilna advises open discussions with heirs during the planning process: “Talking openly about your intentions can help manage expectations and reduce the likelihood of disputes.”
Including mediation or arbitration clauses in your estate plan can also provide a structured way to resolve conflicts. “A reliable executor is crucial,” Cilna says. “Their role is to oversee the process fairly and impartially, ensuring that everyone’s interests are respected.”
Cilna also recommends adding life insurance to your estate planning: “It is an excellent way to provide funds for covering taxes and fees. This reduces the financial burden on heirs and ensures that the estate is not depleted to cover these obligations.”
Additional considerations
Cilna and Shaun both stress the importance of adapting your estate plan to changing circumstances. “Keep your will up-to-date as your life changes,” advises Cilna. She also highlights the need to consider digital assets, such as online accounts and cryptocurrency, as part of your estate plan. These assets are often overlooked but can hold significant value.