Why endowments deserve a place in modern wealth and legacy planning

When it comes to building long-term wealth, investors often focus on choosing the right asset allocation, fund manager or investment strategy. Yet one of the most effective tools for growing, protecting and transferring wealth is frequently overlooked: the endowment.

For decades, endowments have been used by investors as a way to improve tax efficiency and support estate planning objectives. Today, however, their value extends well beyond tax savings. In an environment of rising taxes, increasing estate-planning complexity and growing concerns around wealth transfer, endowments offer a combination of benefits that few other investment structures can match.

A powerful solution for high-income investors

One of the primary reasons investors consider an endowment is tax efficiency. South Africa’s top marginal income tax rate currently reaches 45%, meaning a significant portion of investment returns can be lost to tax. Endowments provide an alternative taxation framework, with income taxed at a maximum rate of 30% and capital gains at an effective rate of 12% within the policy. For investors whose marginal tax rate exceeds 30%, this can create a substantial long-term advantage.

Just as importantly, the tax administration is handled within the policy by the insurer, reducing the burden on investors and simplifying tax reporting. But focusing only on tax savings misses the bigger picture.

Where investing meets legacy planning

Many investors spend years building wealth but far less time considering how that wealth will ultimately be transferred. The reality is that estate administration can be lengthy, costly and administratively complex. During this period, loved ones may face delays in accessing assets, while executor fees and other costs can erode the value of an estate.

Endowments can help address these challenges. They allow you to nominate a beneficiary for ownership or beneficiaries for proceeds, or a combination of both. By nominating a beneficiary for ownership, you can choose who the new owner of your policy will be should you pass away. This is an excellent way to ensure the endowment’s continuity. By nominating beneficiaries for proceeds, you can ensure that the funds reach the loved ones who you intended to benefit from these funds. It is also worth noting that an endowment becomes open-ended at the death of the policy owner, so the beneficiary for ownership becomes the new policy owner and will have complete access to the full lump sum or they can choose a monthly payment to cater for income needs while the rest of the deceased’s estate is wound up.

For many investors, this combination of tax efficiency and estate-planning support makes an endowment far more than simply an investment wrapper. It becomes a strategic wealth-planning tool.

Protection for what matters most

Another often-overlooked benefit of endowments is creditor protection. Where certain legislative requirements are met, and after the policy has been in place for three years, benefits paid under the policy and assets acquired with those benefits may enjoy protection from creditors for a specified period. This can provide an additional layer of security for investors who want to preserve wealth for future generations.

An endowment that goes further

While the traditional benefits of endowments remain compelling, the Sanlam Wealth Edge Endowment Plan takes the concept a step further by rewarding investors for staying invested over the long term.

At the heart of the solution is the Wealth Bonus feature. Investors receive a 4% Wealth Bonus at inception, after the deduction of the initial advice fee and VAT, giving their investment an immediate boost. Those who invest in Glacier Solution Funds receive an additional 1% Wealth Bonus at inception.

The rewards do not stop there. Additional Wealth Bonuses are added throughout the life of the investment – at years five, eight and ten, and every five years thereafter. This creates a powerful incentive for investors to remain invested and benefit from the effects of long-term compounding.

Flexibility without complexity

Today’s investors want flexibility, but they also want simplicity. The Wealth Edge Endowment Plan gives investors access to a carefully selected range of investment funds, allowing them to build portfolios aligned to their individual objectives and risk profiles. Alternatively, they can make use of professionally managed solution funds, overseen by a specialist investment team at Glacier Invest.

Investors retain the flexibility to adapt their portfolios over time as circumstances change, while still enjoying the tax and estate-planning advantages that the endowment structure provides.

A valuable feature in uncertain markets

In recent years, market volatility has reminded investors that protecting capital can be just as important as generating returns. The Wealth Edge Endowment Plan offers an optional unit price guarantee on selected investment funds. Depending on the underlying fund’s exposure to market risk, the guarantee provides varying levels of downside protection, helping investors navigate periods of market uncertainty with greater confidence. This feature reflects a broader shift in investor priorities: achieving growth while managing risk responsibly.

Looking beyond wealth creation

Successful investing is not only about accumulating assets. It is about ensuring those assets are structured effectively, taxed efficiently and transferred smoothly when the time comes. Endowments occupy a unique position at the intersection of investment management, tax planning and estate planning. They can help investors grow wealth more efficiently, support beneficiaries, improve estate liquidity and provide an added degree of certainty around succession planning.

Solutions such as the Sanlam Wealth Edge Endowment Plan build on these traditional strengths by combining the established benefits of an endowment with investment flexibility, optional market protection and a unique Wealth Bonus structure that rewards long-term commitment.

For investors seeking a smarter way to grow, preserve and transfer wealth, an endowment may be one of the most valuable planning tools they have yet to fully explore.

The Sanlam Wealth Edge Endowment Plan is underwritten by Sanlam Developing Markets Ltd (FSP11230) and administered by Sanlam Life Insurance Ltd.

Sanlam Life Insurance Ltd is a licensed life insurer, financial services provider (FSP 2759) and registered credit provider (NCRCP43).

Sanlam Developing Markets Ltd | Reg No 1911/003818/06 | Licensed Life Insurer and Authorised Financial Services Provider (FSP 11230)