Click here to print page

Estate planning expert says: don't delay, do it now

BY BALFORD HENRY
Senior staff reporter
balfordh@jamaicaobserver.com

Sunday, June 18, 2017

Mention the term 'estate planning', and most likely the average Jamaican will link it to some form of housing development.

Actually, the reason for the misapprehension is very simple: Most Jamaicans do not pay much attention to activities associated with their inevitable passing.

But, according to one of Jamaica's foremost experts in the field, Katia Denise Henry, it is never too early to start making such plans.

Estate planning is concerned with sheltering someone's estate against the large cash burden of transfer tax and stamp duty payable on death, and also with eliminating the complication of the client's affairs from a practical standpoint.

Leading investment firm, Mayberry Investments Ltd (MIL), said that after numerous requests from their clients for a forum on the subject, they invited Henry as a special guest presenter at their last Mayberry Monthly Investor Forum at the Knutsford Court Hotel in New Kingston on May 31.

The attendees posed numerous questions as they sought clarification on the complexities of estate planning.

Henry has been practising law for some 30 years on work related to Estate Management, including a stint with Myers, Fletcher & Gordon (MF&G) from 1987-1993, and Sagicor Life from 1992-1996. She returned to MF&G for another stint in 2004, and she has been practising as a probate lawyer at The Towers in New Kingston most recently. She is also director for probate practice and procedures at the Norman Manley Law School at Mona, tutoring on probate practice and procedures for the past 24 years.

One of the most disturbing things she finds about probate practices among Jamaicans is their tendency to procrastinate.

“The best time for you to protect your loved ones is now. I keep imploring, keep insisting that it is what you need to do now. Do not put off planning your estate, because what we are trying to do is to make sure that you have your taxes minimised by taking actions now when you are alive,” she urged.

“That is why it is so important. The time is now, everybody,” she exhorted the audience.

Here are some of the questions she has to consider on behalf of her clients: What happens to my clients' assets upon death, illness or incapacity? How long will it take to distribute their estate to the beneficiaries? How will their loved ones be protected?

She suggested the following ways to organise and dispose of property prior to death: Make gifts of personal assets; purchase life insurance; open joint bank accounts; purchase property as joint tenants; prepare a will; and/or establish a trust.

In terms of personal assets that can be left as a gift, she recommends assets that are not necessarily needed during one's lifetime, and which will have significance to the beneficiary, such as jewellery or an art collection.

According to Henry, the three main objectives of estate planning are: to shelter the estate from transfer tax and stamp tax that have to be levied when the estate is being done; trying to do it from an income tax perspective; and trying to avoid any complications that may have been created in the estate.

She said there are four basic sets of taxes which every estate is exposed to: transfer tax, stamp duty, attorney's fees, and executor's/administrator's commission.

She noted that transfer tax can be as high as 15 per cent, although it is now down to as low as 1.5 per cent and has started to attract interest of six per cent.

The tax is paid on any real estate owned by the deceased; and shares or debenture in any type of company, whether listed on the stock exchange or privately owned.

She noted that the Transfer Tax Act is not just limited to the property or debentures owned in Jamaica.

“It was opened up to any real estate, any stocks and shares that you have overseas, once you are Jamaican by birth,” she explained.

As to how the tax is calculated, she said that it is based on the value of the asset when the person dies.

“So, if you died in 2000, it's not what it is worth in 2017, it is the value of the asset when you died in 2000. They determine the value from the date of your death, then they apply the appropriate tax and it is currently at 1.5 per cent,” she noted.

“One year after every one of us has passed on, that figure attracts interest at the rate of six per cent. So since we have come down from 15 per cent to 1.5 per cent, the interest is now higher than the tax itself,” Henry pointed out.

“So you are going to want your estate administered so that you are not going to have the estate exposed to the six per cent tax, and once they have calculated what you are going to pay the tax on, there are only a limited number of liabilities that they are going to allow you to deduct,” she added.

“What they will allow you to deduct is literally the preparation of the body (for burial). So what the funeral home has generated is the only one we find that you can try and deduct, because they do not allow you to deduct for 'nine nights', they do not allow you to deduct for the funeral programmes, floral arrangements and tombstone. You cannot deduct those costs, only the funeral expenses related to the preparation of the body (for burial),” she emphasised.

In terms of stamp duty, she noted that for any document to be considered legal, it has to be stamped so people can sue on it.

“So when we do your estate, we have to stamp your documentation, and we give the revenue to the government so that, at least, the documents can be well presented,” she informed the attendees.

“Stamp duty, unlike transfer tax, is on every asset that you own - land, shoes, debentures, household contents, motor vehicles, jewellery, life insurance, bank accounts. They all attract stamp duty, and it goes as high as three per cent and it is also based on the market value. So we look at the value of the assets, make the necessary deductions for liabilities, and leave the net market value for the stamp duty, which is at the rate of three per cent,” she noted.

She said that it is always wise to have an attorney involved in the transaction.

“Once the estate is under $250,000, attorneys charge five per cent. If it is over $250,000, they charge three per cent.”

However, she noted that lawyers are now starting at five per cent, just to get a grant of probate at the court. To transfer real estate and shares, an additional two per cent is charged.

“So whereas before, the legal fees were ranging anywhere between three per cent to get the grant and two per cent to transfer, they are now charging five per cent to get your grant and two per cent to transfer. So legal fees are ranging anywhere between five per cent and seven per cent, plus GCT,” she pointed out.

Turning to the executors' commission, Henry stated that this only applies when the person has appointed executors. Then they are allowed to get a statutory commission for acting in that position.

If there is no will, an administrator would be needed, who is allowed to charge a commission of six per cent of all the money that passes through his/her hands. However, if there is more than one executor, they each do not get the six per cent, but it is shared among the executors and administrators of the estate.

All in all, attendees found the forum extremely informative.