Why beneficiaries and trustees should have valid wills
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ALL ABOUT TRUSTS
It is estimated that the average person spends 76 800 hours on building their estate, yet very few people spend any time ensuring that their estates are not diluted by more than 30% on death through death taxes.
The court in the Raubenheimer v Raubenheimer case of 2012 concluded that estate planning, wills, succession, and the administration of deceased estates are inevitably linked to the proper drafting of a will, and the following was said:
“It is a never-ending source of amazement that so many people rely on untrained advisers when preparing their wills, one of the most important documents they are ever likely to sign. This is by no means a recent phenomenon. Some 60 years ago, a high court decried the number of instances in which wills had to be rejected as invalid due to a lack of compliance with prescribed formalities and the regularity with which the courts were being approached to construe badly drafted wills, before urging intending testators ‘in their own interests as well as in the interests of those whom they intend to benefit when they die ... to consult only persons who are suitably trained in the drafting and execution of wills and other deeds containing testamentary dispositions’. Despite this, the courts continue all too often to be called on to deal with disputed wills which are the product of shoddy drafting or incompetent advice.”
In South Africa, if one dies without a will (or with an invalid will), one dies “intestate”. Although, generally speaking, one can decide who inherits and who does not, dying intestate will result in the deceased’s assets automatically being split between blood relatives in a particular order. The assets will, therefore, be divided in terms of the Intestate Succession Act, and this may not be how you wanted your assets to be split. On the Department of Justice and Constitutional Development’s website, intestate succession is practically explained.
Importance of a valid will
Most people delay addressing their wills because it is an emotional document to prepare. However, proper estate planning includes the drafting of a will, which complements your estate plan. Your will should always be up to date and reflect your current wishes in terms of how you would like your assets to be distributed upon your death. It is critical to comply with all the requirements to draft a valid will, failing which it may be open to attack. People who believe they should inherit, but do not, will try to find a loophole to invalidate the will. The court will always consider the intention of the testator or testatrix. To avoid any court battles after your death, ensure that your will complies with all the legal requirements. Otherwise, your wishes may not materialise.
Be mindful of the fact that even though you may intend for your assets to be protected in a testamentary trust for the benefit of your family upon your death, such beneficiaries may renounce or cede their rights if it means inheriting (and abusing) such assets personally as a result of such revocation or renouncement. This may not be what you intended. Therefore, be mindful of achieving unintended consequences through your will, such as forfeiting assets to creditors of one of your legatees or heirs.
Estate planners and trustees should also be mindful that once distributions are made to beneficiaries, such amounts or assets vest in those beneficiaries. Often distributions are made to capitalise on tax advantages without the amounts being paid to the respective beneficiaries. These amounts remain payable to the relevant beneficiaries. On their deaths, the amounts would fall into their estates. It is, therefore, wise to draw up wills for trust beneficiaries to whom trustees make distributions without actually making payment.
Be mindful that a person can have a will only once they reach the age of 16, so all unpaid distributions to minor children below the age of 16 are dealt with in terms of the intestate succession rules. The trustees have no say on who should receive such amounts claimed by the executor on the death of the minor.
As a general rule, do not appoint your children or grandchildren as trustees while you and/or your spouse are still alive. Too often, children have different goals and motives from their parents. They may decide to out-vote their parents, which can lead to a great deal of unnecessary stress, especially when the parents are relying on the trust as their sole source of income during their final years. Rather only allow your children to take over the management of the trust when you and your spouse (where relevant) are no longer alive or unable to act as trustees. It is recommended that you make an allowance in the trust instrument to appoint follow-up trustees in your will – and that you consider appointing your children to ensure continuity. You can also appoint your follow-up trustees in the trust instrument. However, bear in mind that each time you change your mind as to who your follow-up trustees should be, the trust instrument will have to be amended and submitted to the Master of the High Court, unlike a will that can be changed any time.
Keep it current
Your will is a living document and should always be up to date and reflect your current wishes in terms of how you would like your assets to be distributed upon your death. Personal circumstances change which may warrant changes to these documents. Review your will, together with the trust instrument when your circumstances change (but at least once a year) and update it where relevant.
Phia van der Spuy is a Chartered Accountant with a Masters degree in tax and a registered Fiduciary Practitioner of South Africa, a Master Tax Practitioner (SA), a Trust and Estate Practitioner and the founder of Trusteeze, the provider of a digital trust solution.
*For more on wills and estates, read the September 2021 issue of our information-packed IOL MONEY monthly digital magazine.