Scenario
A traditional life insurer was the issuer of a Living Annuity with three noted beneficiaries. All appeared to be in order and the owner of the Living Annuity sadly passed away. A death certificate was furnished to the life insurance office:
1. It was established early on that the deceased had made use of his retirement monies during his life time (which we all have done at some point, even if we don’t remember) and, in this scenario, the tax rate applicable to any withdrawals from the annuity by the beneficiaries would attract a 34% tax rate – something to remember when you think you have left enough for your loved ones.
Please refer to the current tax withdrawal tables below:
2. The first hurdle was that all 3 beneficiaries had to submit their decisions (whether to take the cash or preserve the benefits) at the same time. The life insurance office would not proceed until documentation was received from everyone – one of the beneficiaries already resides in Australia.
3. The first beneficiary applied for their share back in November 2022.
4. Once all three instructions were submitted, being an “old style” policy, the entire portfolio was liquidated, including the portion the one beneficiary who was to preserve it in an annuity for herself. The result, a global share portfolio was sold out of while the market was running upward and the Rand weakening. A significant loss already!
5. Once the documentation was submitted, a tax directive was requested and returned declined in March 2023. In total, 13 directives were requested and all declined holding up any processing of the claims to the beneficiaries. The life office offered no assistance in resolving the reason behind the declines.
6. The cautionary, the deceased had two Identity Numbers on file with SARS. Something many clients may have given the changes in the 1986 Restoration of South African Citizenship Act.
7. Our in-house tax practitioner, Kirsten Mitchell, was appointed to take the lead in resolving the matter and gave direction to the Executor on the steps to be followed.
8. The Executor of the Estate had to have an interview with SARS wherein he was required to have the original and certified copy of the current Identity Document of the deceased, together with certified copies of the Letter of Executorship and the Executor’s ID.
9. However, now it gets really tricky – proof of the old identity number was required because the original was not traceable. Fortunately, the spouse was able to find an old IRP5 from 1990 (can you believe this !!) as proof which SARS then accepted.
10. Mission accomplished – the deceased tax profile with SARS is corrected (thanks to Kirsten) so the life insurance office reapplies for the directive and – it is DECLINED!!!
11. The hunt was now on to understand the reason why? Kirsten approached SARS and established that one of the beneficiaries – her details were not correct on the SARS system!
12. The spouse had her pre-1986 identity number on system with SARS and not her current one, despite successfully submitting tax returns since 1998 when she was issued with her new identity document.
13. The only person who could amend these details was the spouse and she paid an in person visit to SARS to have her details updated.
14. The directive was reapplied for and successful. However, the beneficiaries only received their monies the end of July 2023!!
RESULT DRIVEN OUTCOMES
The service suite through Resolute Wealth allowed the wealth planner and the tax practitioner to work closely together to bring about a successful resolution to the impasse facing the client and beneficiaries.
Please ensure that your tax details are correct on system with SARS – not just yours but anyone potentially benefiting from the proceeds with your Estate.
It is not enough that you log into your e-filing profile.
Kirsten is exceptional in her understanding of tax and the complexities associated in dealing with SARS. In appointing her to manage your tax affairs, you are in very safe hands.
The wealth planner, Natalie, continues to challenge the life insurance company and is working with the portfolio manager to calculate the lost performance and have this recovered and allocated to the beneficiaries.
By Natalie Wheble and Kirsten Mitchell.
