How to use living annuities and RAs as wealth transfer tools

I have R15-million saved in a retirement annuity (RA). As I have sufficient income from other sources, I will not need these funds to provide me with a pension. I would like to leave the full R15-million to my son, who is about to start university. How do I do this, and how can my son avoid paying estate duty?

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You can nominate your son as the beneficiary of the RA. However, this will not guarantee that the full R15-million will be paid to him when you pass away and the funds are still in the RA. This is because retirement annuities are governed by the Pension Funds Act, so the trustees of the RA fund must do a full check to see that there are no other deserving claimants on these funds. This can result in delays in the transfer of the funds and the danger that your son may not get the full R15-million.

There are ways around this. The solution we choose will depend on your age.

If you are under 55

If you are under 55, you cannot mature your RA, so if you die, the trustees will have the ultimate say in what your son inherits.

What I would recommend in this instance is that you draft a note that expresses your wishes that your son should inherit the RA. If there are other dependants and potential claimants, you can mention how they would be taken care of in the event of your death.

You can give this to your financial adviser, who could pass it on to the trustees of the RA fund. It is not a foolproof solution, but it can go some way towards ensuring that your wishes are taken care of.

If you are over 55