Dying without having a valid will in place is a sure recipe for family conflict. Yet, according to statistics from the High Court, 85% of South Africans don't have a valid will.
Unless you are part of the 15% who do have a will, National Wills Week, taking place from 16 to 20 September 2024, is a good opportunity to draft a will to ensure your assets are divided up among your loved ones in the best way possible.
“It is never too early to start estate planning,” asserts Felicia Hlophe, legal adviser at Allan Gray. "But it can be very complex, whether your family is a traditional construct, or a blended one."
Below are three essential steps she shares to have estate-planning success.
1. Draft your will – and keep it up to date
"Having a valid will ensures that your estate is distributed according to your wishes," explains Hlophe. Without it, your assets will be divided among your family members in accordance with the Intestate Succession Act. "This means your estate will be distributed according to a set formula and may limit your family members' inheritance."
The Intestate Succession Act states that estates without wills must be divided between the deceased's spouse and direct descendants. Although this may sound reasonable, relying on intestate succession is less than ideal. "To ensure all your wishes for your loved ones are carried out, you need to draft a will with legal help and nominate an executor, whose job it is to distribute your assets according to your will," comments Hlophe.
As well as having a valid will, it's important to keep it up to date. "Major life events, such as marriage, divorce or a child's birth can heavily influence the way you may want your assets distributed after you pass away," Hlophe notes. "Make sure that you review your estate-planning documents regularly with a professional."
2. Update your nominees on your retirement investments
When it comes to your investments, retirement products fall outside your estate, so it is important to keep your nominated beneficiaries up to date on any retirement funds that you have. The purpose of retirement funds is to save for your retirement, but if you die prior to retirement, the purpose changes to providing for those who were dependent on you at the time of your death – according to the Pension Funds Act (the Act), which governs pension, provident and retirement annuity funds. The intent of the Act is to protect the needs of your dependants. The role of the trustees of retirement funds is to allocate your benefits to your dependants, and their allocation overrides any wishes you may have stated in your will.
“It is a good idea to update the nominees listed in your retirement fund documents at the same time as updating your will. Although the trustees will need to allocate your benefits, having your documents up to date will assist them in their task,” she explains.
3. Plan for your beneficiaries’ liquidity needs
Depending on the complexity of your estate, the process of winding it up can be lengthy. "In some cases, it can take several years," asserts Hlophe, "which is why you should think about your family's financial needs while they're waiting to inherit."
A good way to do this is to invest in endowment products or tax-free investments. "A living annuity can also provide an income for nominated beneficiaries, as the beneficiaries can elect to take the death benefit as a cash lump sum, transfer it to a living annuity in their own name or a combination of the two,” she explains.
She adds that an offshore endowment is also a very attractive option for estate planning. An offshore endowment is an investment-linked, long-term product that is suitable for investors who want to diversify their portfolio across economies and regions outside South Africa, have a marginal tax rate of higher than 30% and require a product that offers tax efficiency and estate-planning benefits.
The recently launched Allan Gray Offshore Endowment is structured with flexibility in mind. “The Allan Gray Offshore Endowment is structured as a single plan made up of multiple underlying policies, which allows for more liquidity than when investing in a single policy. This gives investors flexibility and the potential to make more than one withdrawal, despite the restrictions imposed by legislation,” says Hlophe.
“Given all the complexity, it is worthwhile talking to an independent financial adviser who can advise you based on your specific financial needs and circumstances,” Hlophe concludes.
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