This week is National Wills Week. If you do not have a will, now is the time to get one drawn up - many law firms and financial planning practices draw up wills for free during the week, so check out your community newspaper, website or Facebook page for such offers. If you do have a will, it is an opportune time to review it and make sure it is up to date.
A word of warning: wills “drawn up for free” may have hidden conditions and costs - ask about costs to your estate on your death, such as the executor’s fee, as well as other administration or asset management fees. Executors’ fees are capped at 3.5% (plus value-added tax) of the value of the estate, and they may take up to 6% of returns on investments while the estate is being wound up.
For most South Africans, having a will is sufficient for estate planning purposes - on their death, the nominated executor will “take charge” of the deceased estate, determine its assets and liabilities, collect what is owing, pay its creditors, and distribute the remaining assets according to the terms of the will, all under the watchful eye of the Master of the High Court.
Winding up an estate can be a long, drawn-out process and your assets are “frozen” during this period. The clearer the will and the simpler the estate, the quicker it will take, so getting “your house in order”, such as paying off any debts, will be of huge benefit to your heirs.
Some “assets” fall outside your estate, which can be to your heirs’ advantage. These include the proceeds from retirement funds (occupational pension and provident funds, preservation funds and retirement annuities), life and funeral policies and endowment policies (investments in a life insurance wrapper). They are not subject to the provisions in your will but to the rules of the policy and, in the case of retirement funds, to the Pension Funds Act regarding beneficiaries.
While a payout from a retirement fund may take some time, payouts to beneficiaries from life policies and endowment policies are normally almost immediate.
Another word of warning: make sure you have nominated beneficiaries on these policies and on your retirement fund. Otherwise, the money will go into your estate.
Estate planning, which may be described as optimally planning your estate for the benefit of your heirs, gets more complex the more assets you accumulate and the variety in the types of assets increases. (It also gets more complicated the more marriages you go through.)
Above assets of R3.5 million (R7m for couples owing to the R3.5m roll-over on the death of the first-dying spouse), estate duty comes into play, at a rate of 20% on the first R30m and 25% on anything over that.
At this level, it is a good idea to use a professional estate planner, who may be a fiduciary practitioner or financial adviser who has specialised in estate planning.
Estate planners have ways of ensuring that the wealth you have accumulated is passed on as effectively as possible to your heirs, minimising estate duty and other taxes, while freeing up money immediately on your death for your loved ones to live on while your estate is wound up.