By Marnus Mostert
What do singer Amy Winehouse, artist Pablo Picasso, author Stieg Larsson and SA performer Riky Rick all have in common? While fame or success might be the first thing that springs to mind, the answer is actually that all of these celebrities died without a will, leaving a complex web of financial and personal affairs to be untangled by their loved ones.
If you’re a cynic, you may be thinking, “At least they were left with money to help ease the pain” but the reality is that in several of these cases, those closest to the deceased – such as their life partners – ended up getting nothing, as the deceased had no will in place explicitly stating what their partner should receive in the event of their death.
It sounds like a strange and dark question, but the reality is that many of us are ill-prepared for death. While no one likes to think about dying, the reality is that if you do not make provisions, those you love most in the world will suffer the consequences of your lack of preparation.
Every person needs to have a clear and legally-sound will in place, and should also have some form of cover, such as life insurance, to help cover the expenses associated with death as well as leave something behind for their families.
Here are all the questions you should be asking yourself when it comes to dying.
What do I want to happen if I were to pass away?
Should the worst come to be, what are your wishes? What do you want to leave for your family? What will become of your assets? These are all questions that you need to ask yourself – and once you know the answers, these need to be clearly laid out in a Last Will and Testament.
Having a will ensures that your assets are distributed according to your wishes after your death, preventing family disputes and ensuring that loved ones are provided for. In South Africa, without a valid will, your estate will be distributed according to the laws of intestate succession, which may not align with your intentions.
Your will needs to:
· Be in writing
· Nominate your beneficiaries
· Nominate guardians for minor children
· Appoint an executor to manage your estate
· Specify how your assets should be distributed
· Specify if you want to be cremated or buried and whether you are (or want to be) an organ donor
· Make provision for a trust, if required
· Nominate trustees
· Be co-signed by independent witnesses to ensure compliance with the law
While free online tools exist to help you draw up a will, it is worth the money to have it drawn up for you by a professional, such as your financial adviser or lawyer. There are specific requirements involved in drawing up a will as well as its signing, and if you fail to adhere to these, you risk your will being contested or deemed invalid.
A professional helps you to consider things like tax implications, various methods to cover estate fees and other associated costs, as well as the liquidity of your family on your passing, helping to keep food on the table and having the cash at hand to pay creditors.
Do I understand the extent of the costs associated with passing away?
Spoiler alert: It’s probably a lot more than you realise. The common estate administration fees in South Africa typically consist of executor fees (up to 3.5% of the estate’s value ex VAT), conveyancing fees, advertising fees, master fees, other miscellaneous taxes, and estate duties (20% on the first R30 million and at a rate of 25% on the dutiable value of the estate above R30 million).
These fees can significantly reduce the assets left to beneficiaries, especially if the estate isn't liquid. A lack of planning for these costs could force beneficiaries to sell assets like properties or investments to settle the fees, which could diminish the estate's value or impact the family's financial security, he adds, “which is why sound financial planning is so important.
How do I ensure there is money available to cover these costs, and that my family are not financially impacted?
There are a few avenues, but one of the best ways to ensure sufficient cash flow to cover these administrative expenses, is to have a life insurance policy in place.
Life insurance provides financial support to a family after the policyholder’s death. It offers the necessary liquidity to settle fees and taxes, while also covering any debts you may owe, as well as ensuring the living expenses of your family are met.
Consider the amount of coverage needed, who your beneficiaries will be, and the affordability of your monthly premium. It's essential to align the insurance benefits with the overall estate plan to avoid liquidity issues. For instance, if the estate requires liquidity to settle debts, the beneficiary should not be another person but rather the estate. Consulting a financial adviser will help you to distinguish between what the estate requires and the needs of the beneficiaries.
Where do I start?
Start by consulting a financial adviser who can guide you through the process. List your assets, debts, and beneficiaries, and consider your family’s future financial needs. It's also helpful to understand the potential costs involved, such as estate duties and executor fees. A professional can assist in drawing up a legally binding will and ensuring that your life insurance and other financial planning aspects align with your estate plan and any other goals for your family, such as education.
The key is to take it one step at a time, focusing first on the most critical elements.
* Mostert is the franchise principal and Certified Financial Planner CFP® at Consult by Momentum.
PERSONAL FINANCE