Daily Maverick
Dailymaverick logo

Business Maverick

Business Maverick, DM168

Ensuring income security amid health concerns

Ensuring income security amid health concerns
Kenny Meiring
By Kenny Meiring
6 Feb 2025
Facebook
0
How to restructure your assets in the event of a spouse becoming mentally incompetent, or their death.

Question


My husband is 82 and not in the best of health. As a family, we are concerned that he may be showing early signs of dementia and will be seeing a specialist next month. He and I live off the proceeds of his investments, which consist of local and offshore unit trusts and shares. What should be done to ensure that I continue to receive an income no matter what happens?

Answer


It is important to restructure your assets now, because it will become a lot more difficult to do so should your husband be declared mentally incompetent or pass away.

I would recommend that you speak to a financial professional who can help you set up the right structures. Here are some of the options that you should consider.

Local assets


Since you are likely to be using your local investments to provide an income for your day-to-day expenses, they need to be restructured so that the decision-making required by your husband is removed.

You can consider doing the following:

Get your husband to donate some of the investments to you. Donations between spouses will not trigger donations tax.

Consider buying voluntary joint life annuities. They will give both you and your husband a guaranteed income for the rest of your lives.

If you have any investments with a timeframe of more than five years, you could move them into an endowment fund or a sinking fund. Should one of you die, the inheritance process is quick and the surviving spouse should have access to the capital within a month.

Offshore assets


The offshore assets must be urgently dealt with. Should your husband die, they would need to be transferred into your name. This can be a time-consuming and costly exercise, as you would need to work through executors and offshore lawyers. Depending on where these investments are held, situs tax of 40% could be payable.

I would recommend that these investments be split between you and your husband to ensure that you have easy access to some of the funds.

Consider moving them into an offshore endowment or a sinking fund structure. I would recommend using a sinking fund because if your husband is declared to be mentally compromised, then you may need to set up a special trust to take care of his needs should you die before him. A special trust can hold the assets of a sinking fund, but not those of an endowment fund.

The advantage of having the assets in a structure like a sinking fund is that should your husband die, they will immediately pass to you as the nominated beneficiary rather than being dealt with as part of an offshore estate. It will also not trigger situs tax, since the assets will be deemed to be part of your South African estate, which should save you a significant amount of money.

Warnings


You need to be aware of the following:

Capital gains tax (CGT) will be triggered when you change the ownership of the assets from your husband to you, or from your husband to the sinking fund. If it is any consolation, CGT would be triggered should either of you die, so you can see this as paying the tax in instalments.

Selling the offshore unit trusts and shares can be a time-consuming and cumbersome process. However, it will be much easier to do this now rather than later when there are issues with your husband’s mental capacity or should he be deceased.

If you use a voluntary annuity to provide you and your husband with a guaranteed income for the rest of your lives, remember that the capital used for this annuity will not be available for your children to inherit.

You should get a medical professional to confirm that your husband is mentally competent when signing any of the documents to effect these changes. You do not want these decisions questioned in years to come. DM

Kenny Meiring is an independent financial adviser. Contact him on 082 856 0348 or at financialwellnesscoach.co.za. Send your questions to [email protected]

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

Categories:

Tags: