Estate planning: What to consider when structuring the legal ownership of your assets

How you choose to structure legal ownership of your South African and international assets can accelerate or slow the distribution of assets on your death. Just as important, different legal structures attract different tax rates and levels of asset protection.

Neglecting the issue of choosing an appropriate legal structure can be one of the costliest decisions any investor can make.

Nedbank Private Wealth has summarised the various options in a guide that narrows the focus down to five potential legal structures, as shown in the table below.

These options for South African assets are:

• Sole name: owning assets in your own name
• Co-ownership of assets with one or more individuals
• Trust: placing assets in a trust
• Company: owning shares in a company in your personal capacity
• Trust and company: the trust owns shares in the company.

The table below provides an ‘at a glance view’ of how the legal ownership options for South African assets compare against some of the key estate planning considerations.

Source: Nedbank Private Wealth

When it comes to international assets, the legal ownership options are similar, with some differences being that international trusts and investment holding companies are used in place of local trusts and companies; and there are different rules that apply to joint ownership of international assets.

Each of these ownership options has different potential outcomes during your lifetime, in the event of death, or in the case of sequestration or incapacitation.

The key factors to consider in choosing an appropriate legal ownership option are:

• Continuity: The extent to which significant events such as incapacity, sequestration or death can disrupt the management of, or access to, your assets.
• Effective distribution of your assets after death: Assets in the estate may be frozen for some time before being distributed to beneficiaries. There are also costs involved in winding up the estate.
• Protection of dependants: The extent to which minors or those with disabilities are financially protected, and the degree to which education planning and intergenerational wealth transfer is enabled or supported.
• Protection of assets from seizure: The type of legal structure selected affects the ability of government, creditors and others to seize assets.
• Flexibility: Different legal structures limit or enhance the ability to accommodate changes in circumstances, regulations or best practices over time.
• Tax cost and administration implications: The applicable tax rates and associated tax risks that apply, and the tax administration requirements and responsibilities that stem from the assets you own.

Holding assets in an international trust has been the preferred legal ownership option for South Africans – and with good reason. It allows for continuity, effective distribution of assets to beneficiaries, and protects assets against seizure. This is important where children are involved and are dependent on receiving distributions from the trust on the death or incapacitation of a parent.

Sole name or joint ownership of international assets

There are some issues to consider when it comes to choosing between sole name or joint ownership. For example, joint ownership of South African bank accounts is generally not recognised or allowed in SA, the exception being SA bank accounts belonging to couples married in community of property. In the international context, each joint holder is generally entitled to 100% of the jointly-owned property (unless there is another arrangement in place that stipulates a different percentage ownership).

As an example, when holding a joint bank and or investment account in the United Kingdom, the Isle of Man or Jersey, the ‘right of survivorship’ is invoked in the relevant jurisdiction. This means that all joint holders have equal rights and obligations and any one of the joint account holders may, during their lifetime, access or give instructions relating to the international assets without the consent of the other joint holders. On death, ownership must be transferred to the surviving joint holder(s) on receipt of a copy of the death certificate of the deceased joint holder without the account being frozen or the need to obtain probate in the specific country (which could be a costly and lengthy exercise).

In cases where assets are held under a sole name, control over and access to the assets will be interrupted at death (unless held in an endowment). Your assets will form part of your estate and will be distributed according to your will, unless held in an endowment, in which case ownership will be transferred to the nominated beneficiaries on your death.

The sole name option does not offer protection or provision for dependants unless specifically provided for in the will, by way of a testamentary trust, or through the appointment of a dormant inter vivos trust as heir.

An inter vivos trust is one that is created and becomes operational during your lifetime, as opposed to a testamentary trust, which is only set up when you pass away.

Trusts have considerable benefits over other types of legal ownership options in that they allow for continuity, can exist in perpetuity, and tick all the boxes (so to speak) in terms of flexibility, protection of dependants and safeguarding assets from seizure – as can been seen in the table below.

Source: Nedbank Private Wealth

You can fund a South African or international discretionary inter vivos trust in one of two ways: by way of donation or loan, each with different tax implications. Nedbank Private Wealth explains the taxation of international trusts here.

Nedbank Private Wealth’s legal ownership guide takes clients through a questionnaire that simplifies an otherwise complex maze of options and allows them to choose the option best suited to their needs.

You can find out more at the Better Investor Conference on Tuesday, 29 November, from 09h00 to 16h00. Register here. 

Brought to you by Nedbank Private Wealth.

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