Ashley Percival, CFP®
A Last Will and Testament is probably the most important legal document you will ever sign in your lifetime; that is if you take the time and effort to get it completed! It is quite unbelievable that more than 80% of South Africans die without having a valid Will in place.
The consequences of dying without a valid Will are quite serious as your estate will be divided in terms of the rules of intestate succession as stipulated in the provisions of the Intestate Succession Act. In other words, your assets may not be divided according your actual wishes. It also means that funds for your burial and loved ones’ living expenses may be frozen for a prolonged period, e.g. if your bank accounts are in your name only. Furthermore, dying without a Will could result in costing the Estate thousands in unnecessary expenses.
When you have decided to draw up a Will, take care that it’s not drawn up in a willy-nilly fashion. You should consider the following when drawing up a Will:
1. List your Assets
As part of your estate planning to have a list of all your liabilities as well as all your personal assets including houses, land, shares, bonds, vehicles, jewellery, bank accounts, investment accounts, antiques, collections and anything of value. It is important to appraise the value of all your estate to get an idea of what your estate is worth. This will give you a good idea of what winding up costs will be, including transfer duty, capital gains tax, executor fees etc.
2. Your beneficiaries and allocations to them
Your beneficiaries are people who would benefit from your assets. They are usually family, relatives and/or friends, but it may include charity organizations and others.
You should specify the portion to each beneficiary as a percentage of your asset worth. It may not be ideal to specify a specific Rand value as the value of your assets may change over time. For individual items, such as jewellery, vehicles, antiques, etc., provide a detailed description and specify the beneficiary for each item.
3. Decide on an executor(s)
Executors are the people who carry out the directives set out in your Will. When writing a Will, do spend some time to seriously consider the executor(s) that you want to appoint. There is a misconception that you can avoid the fees by appointing a family member as the estate executor, but this could also mean that you are deferring the cost to the nominated family member.
Family members appointed as executors on larger estates immediately find themselves out of their depth, and not only end up hiring a professional executor, but may also pay more for these services than necessary. A simple way to address this is by appointing a ‘professional’ executor during your lifetime. This allows you to negotiate the executor fees, which can be as much 3.99% (incl. VAT) of the value of estate property. If you do negotiate a reduced fee, you should have this included in your will as a condition of the appointment of that particular executor.[i]
4. Decide on a guardian(s)
You should nominate a guardian if you have a child or children below the age 18, just in case both you and your spouse pass-on together. If you did not appoint a guardian, the court will appoint a guardian whom might not get along well with your child/children. The court appointed guardian may not possess the criteria or values that you seek in a guardian.
A guardian is most likely a friend or a relative who knows your family and preferably gets on well with your child/children. Once you have decided on a guardian, obtain his/her consent first before drawing up your Will.
5. Testamentary trust
Apart from deciding on a guardian for you minor children, you should make provision for the creation of a testamentary trust in your Will. The Will determines that the estate or a specific asset/s is to be managed and administered by the trustee/s of the trust for the benefit of the beneficiaries as stipulated by the testator. The trust provisions are contained in the Will which include the powers and duties of the trustees, the division of income and capital among the beneficiaries, the termination date/event, etc.
One of the main advantages is that it gives the testator peace of mind that assets are administered, invested and managed for the beneficiaries’ benefit by the trustee of the testator’s choice. If no such vehicle exists, it can have detrimental consequences, which include:
– The assets may be liquidated.
– It may end up in the hands of a legal guardian that does not have the intention or the skills to manage and preserve the assets for the intended beneficiary.
– It may be paid over to the Guardian’s Fund where the funds are generally invested at interest rates that will not sustain the impact of inflation.[ii]
6. Estate duty
Estate duty is levied on the net value of a deceased estate, after deducting from the assets of the estate the allowable deductions in terms of the Estate Duty Act and the abatement of R3.5 million. From 01 January 2010, a surviving spouse is entitled to an estate duty abatement of R7 million, reduced by so much of the abatement as has been used by the predeceased spouse, at the time of his/her death.
The deductions include:
– The liabilities of the deceased at the date of death, including Capital Gains Tax arising on death;
– Funeral, tombstone, deathbed expenses;
– Bequests to public benefit organisations as approved by SARS;
– Property included in the estate which accrues to the surviving spouse; and
– Estate administration costs.
Estate duty is payable at the rate of 20%. Where the deceased was married in community of property and is survived by a spouse, only half of the joint estate is brought to account.
7. Do you have enough liquidity in your estate?
Is there enough liquidity (cash/cash assets) in your estate to settle any claims or liabilities you may have on your death? The funds can be part of your investments or if necessary can be raised through insurance policies payable on your life.
Not planning for sufficient liquidity can lead to delays in heirs sourcing financing or even the need to sell an asset to meet the debt.
You should consider taking out a life policy to cover the costs of estate duty, capital gains tax, other fees and to settle outstanding debt that may be payable at death. Seek assistance of a professional to assist you with calculating what these costs will be.
Must I amend my will after a divorce?
A bequest to your divorced spouse in your Will, which was made prior to your divorce, will not necessary fall away after divorce. The Wills Act stipulates that, except where you expressly provide otherwise, a bequest to your divorced spouse will be deemed revoked if you die within three months of the divorce. This provision is to allow a divorced person a period of three months to amend his/her Will, after the trauma of a divorce. Should you, however, fail to amend your will within three months after your divorce, the deemed revocation rule will fall away, and your divorced spouse will benefit as indicated in the Will.[iii]
Do your family, the people you care for, and yourself a favour. Complete your Last Will and Testament, make sure it’s reviewed regularly to ensure that it is up to date and reflective of your future wishes. Having a Will in place when you die saves your estate and your family more money than what you will spend on getting it done. You will sleep better knowing that your family will be taken care of in the event of your untimely demise.
Consult a professional when drawing up a Will. Make sure to negotiate executer fees before appointing an executor.
[i] Geraldine Macpherson, senior legal adviser at Libert[ii] http://www.adfin.co.za/wp-content/uploads/2013/08/Asap-Testamentary-Trusts-9-July-2013.pdf