Living longer: essential tax and estate planning considerations

One of the big trends of our times is a demographic one. Thanks to improvements in lifestyle, diet and medicine, most of us can expect to be able to live longer lives than the generations that went before us. This however has implications from a tax, estate planning and exchange control point of view, creating new levels of complexity.

With the right planning, you can make sure your longer lifespan is free from worry, both for yourself, your heirs or the causes that are close to your heart.

We chatted to our Tax and Fiduciary team about some of the issues you need to keep in mind in this changing world of longevity.

Assuming we can enjoy a longer life, what does this mean for our heirs who presumably have to wait longer to receive their inheritance?

There are three important aspects to look at when dealing with a delayed inheritance, namely:

Delayed Inheritance: As benefactors live longer, their heirs may find themselves inheriting at a later stage in life. This shift can influence their financial strategies, given that they may not benefit from inherited wealth during the formative years of their adult life. During this time, such funds could be essential for significant expenditures, including purchasing property, making investments or covering the ever-rising cost of education.

Increased Estate Value: Longer lifespans could result in larger estates, as individuals have more time to accumulate wealth. However, this could also mean that the estate might be depleted to some extent if the benefactor has to spend more on healthcare and living expenses in their extended old age.

Changing Family Dynamics: Family dynamics might shift as generations spend more time together. This can give rise to intricate family frameworks, with numerous generations living concurrently, which may have implications on the allocation and recipients of wealth.

Families might engage in more strategic intergenerational wealth planning, including donations or loans to children and grandchildren, trusts, and other mechanisms to distribute wealth before death, but careful consideration and planning will have to be done as there is no “one size fits all” solution.

As we live longer, we are also likely to have more generations of heirs (children, grandchildren and great-grandchildren) – many of whom will be living in different jurisdictions. What is the impact on my will or trust?

When you have multiple generations of heirs living in different jurisdictions, there are a number of factors to take into consideration. Different countries, and even different regions within countries, can have vastly different inheritance laws that can affect how your assets are distributed on death.

With heirs in various jurisdictions, the administration of your estate can become more complex. Executors or trustees may need to deal with multiple legal systems, languages and administrative processes.

Differing laws and expectations can also lead to conflicts among heirs. For example, some jurisdictions enforce forced heirship rules that guarantee certain heirs a portion of the estate, which can conflict with the wishes expressed in a will.

Very important to also consider is that not all jurisdictions may recognise foreign trusts and many jurisdictions that do recognise foreign trusts could have punitive tax consequences for beneficiaries in those jurisdictions benefitting from these foreign trusts.

To navigate these complexities, it is crucial to have a well-drafted estate plan that takes into account the laws of the jurisdictions where your heirs live and where your assets are located. Consulting with legal professionals who have expertise in international estate planning is often necessary to ensure that your wishes are carried out effectively and efficiently.

If I live longer, it implies a lengthy retirement. What are some of the key things to think about from a tax and fiduciary point of view? Are there any ways to mitigate this impact?

Longer lifespans could strain pension systems and retirement funds, which could mean less wealth being passed down as more is needed to support longer retirements. With careful estate planning, and in consultation with your financial adviser, you can mitigate this risk.

What should I take account of if I’m looking to retire abroad (emigrate)?

Retiring abroad is a significant life decision that requires careful planning and consideration of various factors. Here's a list of some key considerations if you're looking to retire abroad

Visa and Residency Requirements: Research the immigration policies of the destination country. Some countries offer retirement visas for individuals who can prove a steady income or significant savings.

Cost of Living: Evaluate the cost of living in the potential country, including housing, healthcare, food, transportation and entertainment. Ensure that your retirement income will cover your expected lifestyle.

Taxes: Consult with a tax adviser about the tax implications of both leaving your home country and living abroad, including potential taxes on your retirement income, estate taxes and any tax treaties between your home country and the destination country.

Banking and Finances: Look into the banking system, currency stability and how you will transfer and access your funds internationally. Consider the impact of exchange rates on your income.

Property Ownership: Investigate the laws regarding property ownership for foreigners if you plan to buy a home. Some countries have restrictions on foreign ownership or require additional paperwork and fees.

Legal Matters: Understand the legal system of the country, especially as it pertains to wills, estates, and inheritance laws, which can be very different from those in your home country.

Pensions and Social Security: Determine whether you can receive your pension or social security payments while living abroad and if there are any conditions or reductions applied.

Before permanently relocating to another country, it's always advisable to spend an extended period there to ensure it meets your expectations and needs. Additionally, consulting with legal and financial professionals who specialise in expatriate matters ahead of your move can provide valuable guidance and help you avoid common pitfalls.

A longer life may not necessarily mean a healthy one. What are the things I should consider if I become incapacitated?

Regularly review and update your legal documents and plans to reflect any changes in your wishes, health or personal circumstances. Keep all important documents, such as your will, Power of Attorney, insurance policies, living will and investment information in a safe and accessible place.

Inform your appointed attorneys and loved ones about the location of these documents.

Ensure that your finances are in order and that someone you trust has the authority to manage your assets, pay bills and make financial decisions on your behalf.

Important to remember in this regard that South African law doesn’t provide for an enduring power of attorney – if the person who granted it is no longer of sound mind, it will lapse, presenting problems for those responsible for their relative’s welfare.