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Don’t make costly assumptions about who gets your assets if you die

27 October 2020 Momentum

Momentum experts clear up the confusion around what your will covers and what it doesn’t this National Wills Week

You’ve made the effort to get an executable will in place, but are you all sorted in terms of knowing who will get what? Not necessarily. Unfortunately, it’s not that clear cut. Many of us confuse how our assets will be distributed through our will, with the distribution of death benefits from our company sponsored retirement fund – often assuming that our death benefits fall within the scope of our will. But the two are treated very differently when we die.

As National Wills Week kicks off on 26 October, Nashalin Portrag, Head of FundsAtWork, an umbrella retirement fund sponsored by Momentum Corporate, and Jeffrey Wiseman, CEO of Momentum Trust clear up the confusion and explain why it’s crucial – for the sake of your loved ones left behind – to understand the difference.

What happens to your retirement and death benefits?

Portrag explains that it’s not your will that determines who receives your retirement and death benefits, but rather the trustees of your retirement fund. Section 37C of the Pension Funds Act governs the distribution and payment of lump sum benefits paid on the death of a member of a pension fund, provident fund, pension and provident preservation fund and retirement annuity fund.

“What this means is that you need to specifically nominate the beneficiaries and dependants you want to receive your benefits and inform your retirement fund and/or insurer of your choices. This is usually done on a ‘beneficiary nomination form’ that your employer or retirement fund will provide, which you need to regularly review and keep up to date,” says Portrag.

And even then, Portrag says that the beneficiary and dependant nomination is a guideline and not necessarily how your benefits will be distributed. “Section 37C makes it the duty of the retirement fund trustees to allocate and pay the benefits in a fair and equitable manner,” says Portrag. “If the trustees cannot trace any dependants within 12 months of the member’s death, and there are no nominated non-dependant beneficiaries, the death benefit will be paid into your estate. Unfortunately, this means it loses value because estate duty and executor’s fees will be paid on the amount,” Portrag points out.

He adds that if the estate has not been registered with the Master of the Court in terms of Section 9 of the Estates Act, the proceeds will be paid to the Guardian’s Fund or Unclaimed Benefits Fund. “This could have devastating consequences for the dependants of deceased members who may be unaware of the benefits and struggle financially after the main income earner passes away,” says Portrag.

It’s also important to understand the differences between approved and unapproved death benefits

Portrag explains that employers provide death benefits for employees through group life cover with their retirement fund or through an insurance policy in their (the employer’s) name. “If the benefit is provided through the retirement fund, it is known as an approved benefit. If the benefit is provided through a policy in the employer’s name, it is known as an unapproved benefit,” says Portrag.

He says that approved benefits are paid out with input from the trustees, taking the member’s beneficiary information and dependants into account. Unapproved benefits are paid out, according to policy conditions, based on the member’s beneficiary nominations. The trustees have no say in the distribution of unapproved benefits. These two types of benefits are also taxed differently.

Portrag reiterates the importance of having an up-to-date beneficiary nomination if you are a fund member. “This is basically the list of dependants you want to share your death benefits. Nowadays the beneficiary nomination and updating process for members on top retirement funds is an easy, streamlined online process involving a few clicks, taps or swipes within a secure digital space.

From employee benefits to personal assets, don’t forget about the rest of your estate

One of the most important aspects of preparing your will is understanding which of your assets are dealt with in terms of your will and which are not. Your will covers assets that fall into your personal estate and does not deal with retirement fund benefits (discussed above), policy benefits payable directly to beneficiaries in terms of a beneficiary nomination and assets held in trust. Your will is an instruction on who should receive assets falling into your personal estate (after deduction of liabilities and expenses) in the unfortunate, yet inevitable, event that you pass away.

It is important to ensure that there is sufficient cash in your personal estate to settle estate liabilities and expenses because, as mentioned above, retirement fund benefits, policy benefits payable directly to beneficiaries and trust assets will not automatically be available for this purpose.

According to Jeffrey Wiseman, CEO of Momentum Trust by appointing a qualified executor you can ensure that your estate ends up in the hands of your loved ones as you always intended it to. Wiseman says that, “We tend to see issues when clients place executorship in the hands of a loved one who doesn’t understand the nuances and challenges that come with this responsibility.”

If you don’t have a will in place at all an executor will be appointed by the High Court. The estate will be administered in terms of the Intestate Succession Act, Act 81 of 1987, which sets out who inherits your assets. Wiseman says these heirs may be different to those you would have wanted to benefit. Your will is the other essential instrument for the distribution of your assets to your loved ones. And according to Wiseman, this requires a sound financial plan to be in place.

He says, “It’s critically important, perhaps now more than ever, to ensure that you have a plan in place that ensures the wishes in terms of your will are actionable. To ensure your will is actionable, financial planning needs to be conducted with a financial adviser.”

If you don’t make provision for settling debts and estate expenses upon your death, your executor may have to sell estate assets like your house and car to cover these costs before your loved ones can inherit anything. The solution is to have a solid plan that makes provision for these amounts to be settled on your death. Life insurance is often a cost-effective way to cover debts and estate expenses when you pass away.

“Give your loved ones the peace of mind knowing that there will be enough money available in your estate to cover administration costs, your will is safe, and that any amount not used will boost your estate instead of being lost to fine print. Whenever you have doubts, know that there are financial advisers out there ready to give you the advice and direction you need to protect your legacy. ” says Jeffrey Wiseman.

Quick Polls

QUESTION

Which of the following business models do you favour to achieve a sustainable succession outcome in your financial advice practice?

ANSWER

[a] I will find an independent financial planner to buy my business
[b] I will sell a portion of my advice practice to a large corporate
[c] I will join a large firm and give up my independence
[d] I will invite another independent financial planner to join me
[e] I will partner with a large firm
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