Page 20 - Waterfall City MarApr Issue 2026

Waterfall City Finance

retirement, by purchasing either a
guaranteed annuity or a living annuity
with the proceeds.

The reality is that both retirement
planning and estate planning form
part of a holistic financial plan, and
retirement products – particularly
retirement annuities (RAs) and living
annuities (LAs) – play a significant role
in estate planning.

Retirement products and
deceased estates your beneficiaries elect to take from was nominated in the will of the
From an estate planning perspective, the proceeds of your RA or LA when deceased
one of the foremost benefits of RAs and you pass away, thereby reducing your
LAs is that they generally do not form tax burden in respect of the lump The importance of
part of your deceased estate when sum. A note of caution though: the nominating beneficiaries
you pass away. This means that the disallowed contributions deducted A smooth transfer of wealth is
proceeds of these products will not be will be included in your estate for perhaps one of the most important
tied up during the process of winding estate duty purposes. considerations in estate planning.
up your estate, and your dependants Beneficiary nominations are the most
will have access to these much-needed Distribution of proceeds practical and cost-effective way to
funds to sustain their lifestyle and It is important to understand that you achieve this. Beneficiaries can be
financial wellbeing. No executor’s fees cannot entirely rely on the provisions nominated on both an RA and an LA,
will be levied on these products, and of your will when it comes to the but with different implications.
the proceeds will not be subject to distribution of the proceeds of your RA.
estate duty. In the case of an LA, the proceeds will
An RA is a type of retirement fund, be paid directly to your nominated
An often-overlooked aspect of estate and the proceeds will therefore be beneficiaries, who may elect to take the
administration is contributions made distributed in terms of section 37C of proceeds as a cash lump sum (subject
to an RA before retirement. These the Pension Funds Act. The purpose to tax) or to purchase an annuity in
contributions are tax deductible up to of this legislation is to ensure that their own name. This enables planning
the annual legislative limits (currently those who were dependent on the for an uninterrupted income stream
27.5% of taxable income is capped at deceased are not left destitute. after you pass away. However, if you
R350,000). It is possible to contribute Section 37C makes provision for neglect to nominate a beneficiary, the
more than these limits and still benefit this by requiring the trustees of proceeds will be paid to your deceased
from tax-efficient estate planning. retirement annuity funds to exercise estate.
The larger your contributions to an equitable discretion in distributing
RA, the more substantial the portion the member’s death benefit. More As the trustees of a retirement annuity
of your wealth that will be excluded specifically, the trustees must: fund are legally required to determine
from your estate when you pass • Actively investigate to identify and your dependants in terms of section
away. Furthermore, section 10C of the trace potential dependants and 37C, your beneficiary nomination
Income Tax Act allows these excess assess their degree of dependency form will not necessarily be followed.
contributions (referred to as disallowed on the deceased member. The However, it will provide guidance to
contributions) to be offset against the trustees have 12 months in which to the trustees as to who your dependants
income you draw from your LA until finalise this investigation. were at the time of your death and the
your disallowed contributions have • Make an equitable distribution, extent of their dependency on you.
been depleted. Because section 10C taking into account factors such as a If you have no dependants (and your
allows for a tax exemption, you will dependant’s age, relationship to the estate is solvent), the proceeds will be
effectively receive your income back deceased and extent of dependency, paid in terms of your nomination form.
from SARS at the end of the tax year, the deceased’s wishes, and the
making these funds available to further dependant’s financial position. Pre-and post-retirement products
your financial goals and aspirations. • Determine how to effect payment play a crucial role in your estate plan.
– for instance, paying a minor’s Speak to your financial adviser about
Disallowed contributions will also be share into a beneficiary fund or a incorporating your retirement planning
deducted from any lump sums that beneficiary share to a trust that into a well-structured estate plan.

18 Waterfall City Mar/Apr 2026