“…to have and to hold from this day forward…to love and to cherish, till death do us part…” – excerpt from the Book of Common Prayer

This quotation is taken from the rites for the celebration and blessing of a marriage ceremony. Although the words herald the official union between a man and woman, in some ways they also speak to the relationship that we may have with our money.

For some people the acquisition of money is a passionate pursuit. Once it has been attained, their wealth is paraded like a beautiful trophy wife. Their possessions are held very close to their hearts, and this love affair lasts throughout their lives. Unfortunately this wedded bliss is only for a time, as in death they must part ways with their money.

The reality is whether we have lots of money or very little, whether we hoard money or pass it on charitably, death will come to take it away from us all. While we may physically leave this earth, our wealth usually remains behind, and it makes sense to make proper arrangements to distribute it when we are gone.

Estate planning is the process of making provisions to manage and transfer your money and property when you have died. Estate planning helps to ensure that your assets are preserved as much as possible and that they are passed on according to your wishes.

Recently, First Global Bank presented a money management seminar featuring estate planning. Denise Henry James, legal expert in estate planning, noted that our possessions are subject to tax just because we have died. Benjamin Franklin got it right when he said, “In this world nothing can be said to be certain, except death and taxes;” for while some may evade the taxman while they are alive, in death he may have the last laugh.

Henry James outlined four types of taxes and fees that can be levied on your estate:

Transfer Tax

Transfer tax is charged on three types of assets – real estate, shares, and debentures. The tax is payable on real estate owned by any Jamaican by birth, whether the property is located in Jamaica or overseas. Similarly, shares owned in private companies or in those listed on a stock exchange, whether in Jamaica or overseas, are subject to transfer tax upon your death. Debentures are long-term debt instruments that are usually issued by governments and large companies, and these are also taxable.

The transfer tax rate is 15 per cent for persons who died before June 1, 2005, and 7 ½ per cent for anyone who has passed after that date. The executor, the person appointed to carry out the terms of a will, has one year in which to pay up the transfer tax that’s due. After that time, the transfer tax is subject to interest of six per cent per annum. “This interest is compounded annually,” Henry James pointed out, “so if you have an estate where the executor did nothing for seven years, you will have to pay six years of compounded interest on the transfer tax that’s due.”

Stamp Duty

Henry James explained that documents to be tendered in the courts have to be stamped. This document is called a grant of probate if you left a will, or a grant of letters of administration if you died without writing a will (intestate). Assets that are subject to the three per cent stamp duty are real estate, money in the bank, motor vehicles, life insurance left to estate, shares, debentures, jewelry, artwork, and every asset owned in your name only.

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The transfer tax and stamp duty are charged on the net market value of the specific property. This is calculated by subtracting certain liabilities from the market value of your assets at the time of your death. Henry James outlined the allowable costs as:

Funeral expenses – for receipted costs for preparation of the body only (not the headstone);
Medical expenses -must be reasonable and incurred up to one month before your death;
Mortgages- allowed only if the real estate has a mortgage that was not insured.

Attorney’s Fees

Henry James revealed that it would be impossible for lawyers to charge an hourly rate for winding up an estate because of the length of time it can take to conclude. The Bar Association had fixed charges of three per cent of the gross market value of the estate for obtaining a grant from the courts, and two per cent of the gross market value of the estate to be transferred to the beneficiaries, plus G.C.T. She noted that under the Fair Competition Act, attorneys could no longer set fees, so the costs can differ among practitioners. Total charges now range between 5 ½ per cent to 7 ½ per cent plus G.C.T.

Executors Commission

Executors are allowed to charge a commission of six per cent for their services. If you have appointed more than one executor, the fee is shared. This commission is only paid on cash assets that pass through the executor’s hands such as bank and investment accounts, life insurance left to estate and rental income on property. Henry James noted that no commission is payable on real estate that is not sold, but transferred directly to your beneficiaries.

Henry James pointed out that the charges will differ based on the asset composition of each estate, with total fees falling between 20 – 25 per cent. Next week, find out what this legal expert had to say about using estate planning to help minimize these fees.