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​​How can the businessperson ensure a smooth winding up of his or her personal estate?

Clive Hill, legal adviser at Sanlam Trust, looks at some fiduciary planning issues.

As a businessperson you can probably understand Robbie Burns’ frustration when he penned his famous lines: “The best laid schemes of mice and men gang aft agley.” (The best laid plans of mice and men often go awry).

When it comes to dealing with your own estate planning and ensuring that your Will meets all your wishes for your family’s provision and your business’s succession, you think you have finally got everything buttoned down, when you learn of something else which needs to be dealt with.

So what pitfalls should you look out for?

  1. It is worth reminding yourself that, unless you are a sole proprietor, you can’t deal in your Will with the assets in your company or CC. You can only deal with the shares in your company or your membership interest in your CC. Of course, if you have a buy-and-sell agreement in place, this will take precedence. Even without it, surviving co-shareholders or co-members will have a pre-emptive right to make an offer to your executor to buy your shares. Only if they don’t want to, can you leave them to other people. It is far better to have certainty and know that cash will flow into your estate.

  2. The same principles apply to a family trust. What happens to the trust assets is determined by the trust deed, not by your Will. The only link there might be is the so-called ‘testamentary reservation’ clause in the trust deed which allows you, in your Will, to nominate a trustee to succeed you on your death. Any clause in the Deed which purports to give you any type of control (even via your Will) over the trust assets themselves is dangerous and can be used against you by the revenue authorities who will claim that, because you have control, the trust assets fall into your estate for estate duty purposes.

  3. Back to the buy-and-sell agreement – it might be in place, but is it up to date? Has the insurance cover kept pace with the increased value of your business? If not, the surviving business partners will have to fund the shortfall from their own pockets, and you won’t be popular.

  4. Another aspect often overlooked is the impact on your estate of the tax on the capital gain made when your executor sells your shares to your partners, or when your shares are disposed of to your named heirs, thus triggering CGT. While your estate will, thankfully, receive a cash payment from the payout of the policy on your life, be careful not to allocate the entire sale proceeds to a specific person (a legatee) by way of a bequest. Because legatees receive what you give them free of any taxes, your other heirs (called ‘residuary heirs’) will effectively pick up the cost of any taxes or duties linked to the residue of your estate, even if they don’t receive any portion of these sale proceeds. You need to budget for enough cash in Estate Planning for Business Owners November 2015 2. your estate to meet a variety of expenses, not least of which is the CGT and estate duty attributable to the value of your business interests.

  5. It is quite obvious, but often not truly appreciated, that the bank which has taken a personal guarantee from you to secure a loan (often made many years ago), has the right, if that loan is not repaid from the proceeds of a life policy, to demand repayment from your deceased estate. This can lead to a cash crisis which in turn can force your executor to sell assets, including business assets. Contingent liabilities which arise in a situation where there is no plan to pay them off, can affect your other plans and provisions.
    Usually, however, the liability turns out to be something as plain vanilla as a mortgage bond. One would think that in this modern world a debt of this nature could easily be matched by the promise of an asset created by life cover. But many lenders could not be bothered to ask for such a promise. Their security lies in the asset itself, and when your executor has to sell it to create liquidity, the lender is strangely silent about the disruption caused to those left behind by the untimely sale of the property.

  6. For self-protection many businesspeople own firearms, and leave these to specified heirs. Sometimes they forget to leave the ammunition as well. More importantly, the heir needs to apply for a license and to pay for storage of the firearm if the license is not forthcoming after a 6 month period.

  7. The way you are married can have a major impact on the finalisation of your estate. For example, if you are married in community of property, you can dispose of only half of the joint estate in your Will (including the cash received from the sale of your business interests). If you are married out of community, but with the accrual system, your estate could face an accrual claim or be entitled to receive an accrual payment from the survivor.

  8. Historical problems of a compliance nature could delay the transfer of shares in your business to your partners or heirs. Matters such as arrear taxes, arrear CIPC returns, or unfulfilled contractual obligations, could create expensive delays which require intervention by an accountant or lawyer.

  9. Cash is king! Having sufficient in your estate can cure most problems. Conversely, having too little can cause forced asset sales along with further expenses and can leave your heirs and business partners frustrated.

So, unlike the mouse who never thought that a ploughman would tear her den apart, do plan for the worst-case scenario. If it doesn’t happen, you’ll always be better off.



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