Estate planning: be careful when planning your legacy
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To cover such fees, Capital Legacy claims to offer a unique solution in its “quest” to drive down “the cost of dying”.
The company has rapidly grown into the largest administrator of estates in the country. It works on a referral system, whereby financial advisers refer clients to Capital Legacy, which offers a free will-drafting service as part of an insurance product covering death costs.
The free will service is available only if customers take out policies with them - starting at a few hundred rands a month. Capital Legacy then becomes the executor, charging an allowable fee of up to 3.5% (plus 15% VAT) of the value of the gross assets of the estate, as well as up to 6% commission on all income collected after death to the date of wrapping up the estate. They also do transfers of property, profiting off the fee splits, and manage investments.
But concerns have been raised about the quality and professionalism of the free wills, other service issues, whether financial planners are abrogating their fiduciary duties by passing on a core part of their work to a third party, and the actual nature of the insurance product.
One complainant, Shaun Mills, who is a financial adviser, says his ex-wife had a policy with Capital Legacy when she died more than a year ago. Their sons, both minors, were the beneficiaries and he, as their guardian, found out only eight months after her death that her life policy had been paid out to Capital Legacy, as they are the trustees of the testamentary trust established in the will for the children.
“I only found out because I work in the industry. My children are very young and needed psychologists - but it took forever to pay the bills. We agreed on an amount that was to be paid to me, but they decided willy-nilly when to pay it out, and then it would be a lower amount,” Mills says. “I don’t know where the money is, where it’s invested. I’m told it has nothing to do with me, so I don’t see any statements. Nobody responded to emails for months - they just ignored me.”
Mills says Capital Legacy has the money, so they decide what to do with it. “For the rest of the money, as the trustee of the testamentary trust, if they say no, it’s no.”
A trust and estate practitioner has raised further concerns after discovering a number of clients’ wills were poorly drafted - with potentially devastating consequences. She says people are so hung up about getting “free stuff” that, instead of going to the professionals, they are drawn to such free “carrots”.
Phia van der Spuy, who pens the regular All about Trusts column for Personal Finance, says: “In many instances, testamentary trusts are created so they can serve as the only trustee/co-trustee, while the client already has a trust structure in place.” She has seen instances of her clients’ wills botched by Capital Legacy advisers - in one case, a testator’s large estate was incorrectly bequeathed to his sister-in-law instead of his wife and nephews.
Van der Spuy says the financial adviser retains advice risk when referring a client as part of the estate planning process, and receives commission, yet has no other involvement in the product. “For many financial advisers, this is ‘easy money’, as they do not have to do any work - they merely refer the clients to Capital Legacy and earn commission for that, even a portion of the executor’s fees earned by Capital Legacy.”
Alex Simeonides, the chief executive of Capital Legacy, has subsequently intervened in Mills’s case and blames the poor communication on the death of a staff member who was assigned to the case. But it signals troubling gaps in their systems.
Simeonides says they’re working on improving systems and that not all policies were sold by Capital Legacy advisers, and financial planners themselves were drafting wills.
Now, advisers are required to do training to write wills. They’re also conducting audits of their existing wills and “only a few thousand wills” are believed to have been incorrect, Simeonides says.
”Since 2015, we’ve had a system to validate wills and have them corrected. Mistakes are, of course, unacceptable - and possibly due to other brokers’ mistakes.
“While Capital Legacy and its employees are not faultless, we certainly try our best to resolve complaints urgently and to the satisfaction of the client. Albeit unavoidable at our scale, we still see one unhappy customer is too much and it hurts us when we have made a mistake and myself and my team will do anything and everything possible to make it right.”
Michelle Dommisse, an attorney and conveyancer, says specialist lawyers and accountants receive intensive training in their fields, not short courses, and are skilled at drafting solid contracts. Such services are not “free” but clients have peace of mind. And it’s cheaper than having to pay a lawyer to deal with your estate if your will is found to be invalid.
“It’s always a good idea to take sound advice from an attorney who winds up estates, or an accountant, to ensure that your estate is structured in a way that will maximise the benefit for your loved ones. Once advice has been taken, a will can be drafted to ensure that your wishes will be carried out upon your death,” Dommisse says.