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Category Life Insurance

Do you have the will to plan ahead?

18 September 2018 Thandi Ngwane, Allan Gray
Thandi Ngwane, head of strategic markets at Allan Gray.

Thandi Ngwane, head of strategic markets at Allan Gray.

What do Prince, Michael Jackson, Bob Marley, Jimi Hendrix and Aretha Franklin have in common, besides illustrious musical careers? They all died without a Will, leaving behind personal wealth without heirs, despite having dependents. With the spotlight on National Wills Week between 17 and 21 September 2018, will you consider the importance of planning ahead?

Aretha Franklin, who passed away last month following a battle with pancreatic cancer, did not have any formal documentation to dictate what would happen to her US$80 million estate (approximately R1.2 billion) when she died. Already various family members have filed court papers trying to claim a portion of her wealth. But, without a Will in place, the proceedings may become protracted, taxes and legal dues could become costly, and the emotional investment may take its toll on the ones she has left behind.

“While we all find conversations about death very difficult, the reality is that if you have dependents and you die without planning for them, you put their financial future at risk,” says Thandi Ngwane, head of strategic markets at Allan Gray.

Ngwane says that when you die without a Will, and without nominating beneficiaries for your investment products, things become complicated.  She explains that your estate will be dealt with in terms of the Intestate Succession Act, the provisions of which may not provide for loved ones who were factually dependent on you at the time of your death.

“The Master of the Court will step in and appoint an executor to manage the dissolution of your estate. During this process your assets, including some of your investments, will form part of your estate. While your estate is being wound up your loved ones will have no access to your money, which if you were the breadwinner, may mean months without financial aid for your dependants.”

It’s best to understand which products do fall within the bounds of your Will, and which can be excluded, so that you can make sure your dependants are provided for.

Ngwane explains that when it comes to your investments, retirement products fall outside your estate. “The purpose of retirement funds is to save for your retirement, but when you die prior to retirement the purpose changes to providing for those who were dependent on you at the time of your death,” she says. Pension, provident and retirement annuity funds are subject to the Pension Funds Act, which makes it the trustees’ duty to decide who will receive the death benefit. The trustees have to do a careful investigation which can take time.

Meanwhile, living annuities, endowments and tax-free investment products fall under the Long-Term Insurance Act. Subject to the terms and conditions of each product, you can appoint specific beneficiaries to receive the death benefit. “It is relatively quick and straightforward to process these benefits, so it is worthwhile appointing those who would need immediate financial support as beneficiaries,” Ngwane suggests. If you don’t appoint beneficiaries, the death benefit will become payable to the estate.

Unit trusts fall under the Collective Investment Schemes Control Act. While you can make provision for your unit trust investments in your Will, your wishes will only be honoured provided there is sufficient liquidity in your estate once all liabilities are taken care of.

Ngwane stresses the importance of having a Will and thinking about estate planning, no matter your lifestage. She offers five tips:

1. Make sure you have a valid, up to date Will

Draft and sign a Will, either on your own or with the help of a professional, and store it somewhere where it can be easily located. 

A Will is a binding legal document. There are some basic formalities that must be followed for a Will to be valid – including that it must be signed by you and two competent witnesses (who are at least 14 years’ old). A witness should not be a beneficiary or the executor of your estate. Ideally, it should be drafted alongside your financial plan.

During National Wills Week you can have a basic will drafted for you free of charge by attorneys participating in the project. You can find attorneys by visiting the Law Society of South Africa at www.lssa.org.za/our-initiatives/advocacy/national-wills-week.

2. Incorporate your children into your plan

It is important for your Will to carefully outline guardianship for your minor children and how you want finances to be managed until they are adults. Children under the age of 18 will need a guardian to sign any documents pertaining to their assets. You may wish to consider using a trust to administer the assets.

3. Consider estate duty
 
Estate planning is an important part of your financial plan that cannot be overlooked. When it is done right it can reduce estate duty and ensure liquidity in your estate. Estate duty is a tax on the value of your estate (which includes property, investments and cash both within SA and abroad) after you die. These costs can be very high, but a good independent financial adviser can help you manage this.

4. Remember to keep your beneficiaries up to date
 
There are certain investments that your Will doesn’t cover, as discussed above. Remember to keep your beneficiaries up to date. Consider filing important documents pertaining to beneficiaries on your investments, or ownership documents over jointly-owned assets, with your Will.

5. Plan for final expenses

Depending on the complexity of your estate final administration can be a lengthy process, in some cases even a number of years. During this period your loved ones will have a number of immediate expenses that may still need to be taken care of such as funeral expenses, any rentals or bond repayments, utilities and other expenses. Ensuring that you plan to alleviate this financial burden from your loved ones is important and should form part of your estate plan.

“Having a Will is as important as it is to have a financial plan. Tell someone you trust where your important documentation can be found, especially your Will. This will ensure that your loved ones are taken care of when you are unable to,” concludes Ngwane.

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