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Category Life Insurance

Estate Planning considerations for Retirees

27 October 2020 Johan Strydom, Growth Head at FNB Fiduciary

Recently, the importance of proper estate planning and specifically the importance of having a valid and up-to-date Will, has gained some attention. What is often not addressed is the unique estate planning needs of consumers at the various stages in their lives, such as retirement. During Seniors Month we took a look at our retired clients and unpacked their particular needs and concerns.

The first concern often raised is around the cost of transferring assets from a deceased’s estate to the beneficiaries. This is very relevant given that, in many cases, these costs have a direct impact on the livelihood of a surviving spouse. To save on executor’s fees, it has become the norm for some people to rather nominate a family member as an executor. The intention is for this family member to negotiate a reduced fee with an executor at the time when the estate needs to be administered.

The issue here is that one’s estate could end up in the hands of the lowest bidder and not someone you trust with the necessary care and expertise to step into your shoes. Rather discuss the fee when drafting your Will with an executor of your choice. Most practitioners would be willing to quote a fee that is based on your unique asset composition and the value of your estate.

Another concern raised is around “who would take care of the financial needs of a surviving spouse”. In particular, where the surviving spouse has not been involved in the day-to-day running and management of investments or other financial products. This is also very relevant in cases where children reside abroad and can no longer assist with the day-to-day management of a parent’s assets.

An option to consider here is to make use of a properly structured testamentary trust, to nominate professional trustees and to bequeath assets to the trust. The sole objective of the trust would then be to look after the interests of the surviving spouse. By doing this the trust beneficiary (surviving spouse) would have professionals looking after the assets and make decisions only for the benefit of the beneficiary.

There are no costs involved in creating a testamentary trust and it is provided for in a person Will, the trust however needs to be structured correctly so as to ensure that the ongoing costs and taxes are limited. The right advice is necessary when this option Is considered.

Many pensioners have joint bank accounts and we always get asked what will happen if the bank receives notification of the death of one of the joint account holders. The reality is that all banks have a responsibility to protect the interests of their deceased clients and when proof of the death of an account holder is received the bank accounts will be “frozen”. This includes joint bank accounts. It is important that the surviving spouse immediately opens a new bank account and have funds available to cover immediate expenses and to be able to switch debit orders to the new account.

Considering the impact, it could have on the immediate needs of the surviving spouse or other beneficiaries, planning around this should be prioritized. Only an authorised executor will ultimately have access to the funds in a deceased’s frozen bank account.

There is also always the question around how the executor will know what assets will form part of an estate or whether there is a possibility that the executor might “miss” something and forget to transfer it to the beneficiaries. Fortunately, is has become a lot easier with the availability of online registries and databases whereby an executor can check to see what local properties and investments formed part of an estate. This is however not going to be enough, especially if there are assets and investments overseas. To assist your executor and next of kin, ensure that you have an up-to-date and complete inventory which is easily accessible, detailing all assets and liabilities and other notes pertaining to your balance sheet.

Lastly, it is important to review your Will and estate plan on an annual basis, unfortunately we have seen too many instances where a Will was drafted years ago and in some cases, beneficiaries or the nominated executor were no longer alive at the time of winding up the estate.

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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