Passing from this world is inevitable, and you must plan accordingly for when you do. When you engage in an estate planning exercise and sign a properly drafted will, you will ensure your assets are distributed the way you want, and your family and loved ones are provided for.

Going through this process can be daunting, and we’re here to make it easier for you. It’s why we’ve written this short guide that explains what you need to know about estate planning and wills. You can also start the process of drawing up a will online with Old Mutual for free.

What’s the difference between a will and estate planning?

Let’s start by explaining the difference between a will and estate planning.

Estate planning means making a plan for everything you own, and everything you owe. This covers anything of value, like property, cars, jewellery, and investments. It includes ensuring that there’s enough liquidity to cover debt, estate duty, capital gains tax, and other expenses related to your death, because you need to make sure everything’s settled once you’ve died. It further entails ensuring that there are enough funds available to cater for your dependent’s maintenance needs.

Drafting a will is part of estate planning. Think of a will as instructions you’ve given on how you want your assets to be distributed after you’ve died. Once you’ve done an estate plan, your will needs to reflect the decisions you made based on the estate planning process. By leaving a will, you avoid having loved one’s fight over your assets.

What happens if I die without a will?

If you die without a will, your estate will be distributed in terms of the provisions of the Intestate Succession Act .

Where do I start with writing a will?

Your first priority when drawing up a will should be making sure that you’ll have enough liquidity (cash) in your estate to cover all debt and expenses. The second priority is to make sure your beneficiaries (the people inheriting from you) will get what you intended them to have.

Start by adding up your assets. These are physical things like property and your car. Other assets that are considered part of your estate are:

• Savings
• Shares on the stock exchange
• Insurance policies that will pay to your estate after your death

All the assets in your estate will be valued at market value.

Once you deduct liabilities, long-term debts like a bond and taxes, you have your current net worth.

The cost of winding up your estate (i.e. by an Executor) is 4.03% (3.5% maximum fee plus VAT of 15%), on the gross value of your estate. This translates to R40 300 for every million-rand value of your estate).

Capital Gains Tax

Taxes at death are a liability in your estate that will have to be paid in the year that you die. One such tax is capital gains tax, payable at a maximum effective rate of 18%.

How does capital gains tax work?

Your death will result in a “deemed disposal” of your assets to your estate, equal to market value. The capital gain or loss is the difference between the market value of assets at death and the base cost of the assets (as of 1 October 2001) plus the value of any allowable expenses, for example, improvements made on or after this date.

In the case of any other assets, the base cost is the cost of acquiring the asset plus any allowable expenses in respect of the asset, for example, improvements made to the asset, as well as the costs of disposing of the asset.

In the year that you die, R300 000 of the gain is excluded for capital gains tax and 40% of the net capital gain will be taxed at your marginal rate of tax. The influence of capital gains tax, especially on business interests, immoveable property, and investments should not be underestimated.

Are there any exclusions for capital gains tax?

Certain exclusions are allowed, for example:

• The first R 2 million gain on your primary residence.
• Up to R1.8 million gain for assets of a “small business” of less than R 10 million which has been owned for at least 5 years prior to death.
• All personal use assets such as household goods, furniture, vehicles, and jewellery.

The gain on any assets that accrue to a surviving spouse upon your death is subject to ‘rollover’ relief. This means that capital gains tax is postponed until the surviving spouse subsequently disposes of these assets or on death.

What impact does marriage have on my will?

Your marital regime plays a vital role in estate planning and its impact is important. Unless you’re married with an ante-nuptial contract, your marital regime will be in community of property. This means that the estate you share with your partner will be divided equally after divorce or death. You and your spouse will share in the assets and the liabilities of the estate.

It's important to note that when you die, your bank account is frozen, irrespective of how you are married. If you’re married in community of property, this means your spouse can’t touch your bank account until the executor is sure your estate is solvent. The executor will then decide to make a distribution to the spouse for living expenses from your estate. The balance in your spouse’s bank account will also be considered for the administration process.

When you’re married out of community of property (with or without accrual):

• Each spouse has a separate estate.
• A surviving spouse will have access to their own bank account after death of the spouse.

A spouse left without enough cash might suddenly be in a financial crisis and might also be unable to pay the estate costs. A life insurance policy with a nominated beneficiary can prevent this. On death, the proceeds of the policy will be paid to the beneficiary directly. Some of the advantages include:

• Access to funds, provided all the requirements for payments are satisfied before the administration process is complete.
• A saving on executors’ fees (3.5% plus VAT) on the value of the policy.

Next steps for drafting a will

Once you have a clear idea of your assets and your wishes, a law firm, adviser, bank, or trust company can help you create a will, or you can do it yourself using Old Mutual’s online will drafting service It’s best not to leave it to chance and to ensure that you have a professionally drafted will. The costs incurred will be for:

• Drafting the will
• Safekeeping of the will (costs depend on the institution that you’re dealing with)
• Administration fee to wind up the estate up to a maximum of 4.03% (3.5 % + VAT @ 15%)

Interested in drafting your will online? We make the process easy for you through a simple and guided online process. Register for free on www.oldmutualwill.co.za to draft your will. This is a free will drafting service, with the option of additional services, such as safe storage of the will. Should you, however, require expert estate planning advice while drafting your will, certain fees and charges may become payable.

Update your will regularly to keep up with legislation and your own changing circumstances. Make sure that your loved ones have the contact details of the person or institution that has your will in safe custody.

When drawing up a will, keep the following important aspects in mind:

1. Make sure that you will have enough liquidity (cash) in your estate to cover all expenses. A life insurance policy payable to the estate could ensure enough liquidity where there is a shortfall.
2. Ensure your beneficiaries, the people inheriting from you, will get what you intended them to have

Resources for Estate Planning and Wills

You can read more about estate planning, wills, and trusts here. Or speak to a financial adviser about wills.

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Once registered, you can then also login to MyOldMutual to edit and manage your will at any time.