Many of us are guilty of not revisiting our wills, or worse still, failing to have one. Naturally, none of us wants to think about our demise, but failing to properly plan for the inevitable may have far-reaching consequences for your family and loved ones. At Mella Fiduciary Services we have seen the devastating effect of this and, as a result, view a Will as a critical aspect of Estate Planning.
Why do I need a will?
A Will is your final checklist that ensures your wishes are met after your passing. Essentially, it is a written document that specifies to whom and how you wish your assets to be bequeathed and by whom you would like your Estate to be handled. A valid will may prevent uncertainty and possible conflict between family members. It can also responsibly provide for the maintenance and guardianship of your minor children.
What if I don’t have a will?
Without a Will, your assets would be distributed in terms of the Intestate Succession Act 81 of 1987, which could provide an undesirable outcome depending on your family circumstances. For example, you may wish for your brother to inherit a specific asset and your wife the balance of your estate. Without a valid Will, Intestate Succession Law dictates that your entire estate will go to your wife (assuming you have no children).
The danger of not having a valid Will is further exacerbated when you have minor children. Should you and your spouse die simultaneously, leaving your minor children behind, you have left no direction regarding their legal guardianship and maintenance. , As a result, your children might be placed in the care of someone they are not familiar with or someone who the deceased did not trust for that important role. Your assets will likely be liquidated and held in The Guardian’s Fund, administered by the Master of the High Court. This is a State-controlled savings account that is managed conservatively and as such, the returns generated will not necessarily keep pace with inflation. The net result may be that your children become poorer as inflation erodes the capital invested. Your children can only access these funds when they turn 18 years old and there are additional delays and administrative burdens in withdrawing remaining amounts.
A valid Will would prevent this, allowing you to create a Testamentary Trust on your death for the benefit of the children to be administered by your appointed trustees and specifying at what age their assets are to be paid to them. This gives you peace of mind knowing that your legacy can be preserved and maintained and that your children will be cared for when you are no longer around.
Who will be responsible for carrying out my wishes?
In creating a Will, you will be required to nominate an executor to wind up your estate. The executor ‘steps into your shoes’ and
takes control of the assets which form part of your estate, settles any liabilities and administration expenses and distributes the balance of your estate to beneficiaries in accordance with your wishes. We recommend nominating a professional who is conversant in the estate administration and the strict legal requirements under, specifically the Estate Duty Act, Income Tax Act and
Administrations of Estates Act. Dealing with and understanding the Master’s Office, SARS and Deeds office can be onerous and time-consuming. In our experience, choosing the correct executor could be the difference between an estate taking five months or five years to wind up.
What if my circumstances change?
Remember that, like your Financial Plan, a Will must be updated as your circumstances change such as the birth of a new child, divorce or remarriage. It can make a significant difference to your
beneficiaries after your death. We urge you to review your Will on a regular basis to ensure that it is kept up to date.
What is estate duty and executor’s fees?
Estate duty is a tax levied at a rate of 20% on the net estate that exceeds R3 500 000 after deductions. Any dutiable amount exceeding R30,000,000 will attract estate duty at 25%. The duty levied can be reduced through allowable deductions, such as those assets bequeathed to your spouse or a charitable organisation and thus an important review of your Will is pertinent to your Estate Plan.
The fee that an executor can charge is tariffed at a rate of 3.5 % (excluding VAT) of the gross asset value of your estate. Through efficient planning, this fee can be reduced by the use of beneficiary nominations on policies. It is therefore imperative that your financial adviser makes sure that your Financial Plan dovetails with your Will, to ensure a cost-effective and smooth transition of assets.
The above point is best illustrated by way of example:
- Molly is married out of community of property to Bill. Molly owns a property for R5,000,000 and holds a life policy worth R5 million with no nominated beneficiary and thus such policy is payable to the estate.. Molly drafted her own Wwill where she leaves her estate to her Grandchild.
- Molly’s estate will attract executor’s fees of R350,000 (3.5% x R10 000 000). This could have been reduced to R175,000 through the use of a beneficiary nomination on the Life Policy, as recommended by a Financial Adviser.
- If we assume the executor’s fee is the only liability in the estate and allowed as a deduction, Molly’s estate is liable for estate duty of approximately R1 230 000.00. If Molly had bequeathed her entire estate to her husband Bill, the bequest would be a deduction for Estate Duty and no duty would be levied.
The potential administration and tax costs of Molly’s estate amounts to approximately R1 580 000.
The above example simply illustrates the importance of estate and tax planning. At Mella Fiduciary, we have the expertise to professionally advise you on a plan suited to your circumstances.