How to secure intergenerational wealth

In a country still grappling with the structural inequalities of its past, intergenerational wealth transfer in South Africa is not just a matter of personal finance – it’s a deeply social and strategic imperative. For many families, it can mean the difference between starting each generation from scratch or building on the success of those who came before them.

Yet, despite its importance, few South Africans take full advantage of the legal and financial tools available to ensure their legacy endures. Inadequate planning can leave heirs entangled in costly legal disputes or cause a significant portion of that wealth to be lost to estate duty, capital gains tax and administrative fees.

Beyond the financial impact, the process can become drawn out, taking a deeper emotional toll on the family, or potentially even sowing discord. The lack of preparation is the biggest risk to ensuring that assets are smoothly transferred from one generation to the next, while reducing emotional and financial strain on surviving family members.

It all begins, of course, with being intentional and disciplined about building wealth. Spending less than you earn, starting early with saving to benefit from compounding growth, choosing the right investment adviser, taking full advantage of retirement funds and tax-efficient vehicles, paying off debt early, and being mindful of when to take risks.

A well-structured will is the cornerstone of any estate plan. It should clearly outline how assets are to be distributed, appoint a trusted executor, name guardians for minor children, and be regularly reviewed to reflect life changes such as marriage, divorce, or the birth of a child. It should be reviewed annually or after a major life event.

The next step is talking openly about finances in your household so that your spouse and your children are learning about money and making money decisions. Involve them in some business or investment discussions so that they have an idea of how to confront financial matters and gain access to financial education and mentorship early. If you’re stuck, be open about it, and use an adviser to navigate difficult situations.

Intergenerational wealth is more than just good planning and solid financial habits. Mindset is an important trait to pass on, too. That way, many generations after you can prosper.

It’s complicated, so having a financial partner who has a holistic understanding of your financial needs, those of your family and of the legacy you want to leave behind is crucial. They also need to have the skills to be able to handle intergenerational conversations, communicate effectively with everyone in the family and be skilled in personal and conflict management.

Even the most robust estate plan can fail if the next generation isn’t equipped to manage what they inherit. Many South African families are uncomfortable talking about money, which only deepens the problem.

When consulting an adviser, you want to make sure you’re entering the discussion with some information and have an idea of what to expect. Here are some common things to look for:

1. Estate planning

South Africa’s estate duty is 20% on estates up to R30m and 25% on amounts above that. Furthermore, it is deemed that the deceased disposed of their capital assets at death, and capital gains tax may also be payable. With proper planning, this tax burden can be reduced. For example, you can donate up to R100,000 annually tax-free, gradually decreasing your taxable estate. Assets left to a surviving spouse are seen as a rollover of estate duty and capital gains tax liability, deferring the tax until the second spouse’s death. In addition, all individuals receive an estate duty abatement of R3.5m that will also roll over to the surviving spouse if not used. A R7m abatement will be available upon the death of the last surviving spouse.

2. Trusts

Trusts are effective for estate planning when used appropriately. They protect family assets from creditors or divorce, streamline wealth distribution, bypass lengthy estate administration, ensure continuity for family businesses, and reduce estate duties and capital gains tax. However, trusts face high tax rates (up to 45% on income and 36% on capital gains), so professional guidance is crucial. Depending on your situation, consider family holding companies or foundations. The regulations on trusts in South Africa are constantly increasing, and it is imperative to ensure sound compliance and professional advice.

3. Life insurance

Life insurance can be vital for estates with illiquid assets such as property or family business shares. Policy proceeds can cover estate duty, executor fees and debts, and provide heirs with liquidity, avoiding forced asset sales. Adequate coverage allows

beneficiaries to focus on preserving value rather than being forced to sell assets to settle liabilities. Nominating the correct beneficiary on life cover can assist your heirs with cash flow while the estate is being wound up and provide much-needed liquidity to cover the relevant estate expenses.

4. Diversify globally

Build a diversified global investment portfolio using tax-efficient structures such as offshore trusts, retirement wrappers and second residences. Collaborate with a team of specialist legal and financial advisers to avoid double taxation or forced heirship laws in some jurisdictions.

5. Retirement tax benefits

Section 10C of the Income Tax Act allows retirees to reduce taxable income by offsetting non-deductible contributions made to retirement funds during their working years. This can lower income tax in retirement, reduce the estate’s value for estate duty purposes, and potentially benefit heirs tax-free, depending on how retirement death benefits are handled.

Creating a lasting legacy starts with disciplined financial habits. Real wealth is generated not just through frugality, but by earning significantly more than you spend and investing in tax-efficient vehicles.

Flexibility is key. Circumstances change, laws evolve, and families grow. Revisit your estate plan with a skilled financial planner regularly to ensure it still aligns with your goals.

Because wealth, wisely handled, can do more than just survive. It can empower.

Grow and preserve your wealth – now and for generations to come – with a customised wealth solution from Sanlam Private Wealth. Contact them here to set up a private client consultation.

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