Remove blind-spots with combined wills and retirement advice – BJM

Advisers specialising in retirement planning have an opportunity to add considerable value by encouraging clients to integrate estate planning and will-making into preparations for ‘the golden years’, says BJM Private Clients, a long-term advocate of holistic strategy formulation.

Cases of client hardship and distress continue to highlight the danger that blind-spots can occur when planning processes occur in isolation, according to BJM, an asset manager, financial adviser and provider of retirement planning, trust formation and management and stock-broking services.

One example occurs at the intersection of retirement planning and estate planning, says Karen Coetzer, head of BJM’s trust division.

Funds invested in products that fall within the definition of a pension fund set out in Section 1 of the Pension Funds Act do not form part of a client’s estate. This usually means pension, provident and retirement annuity funds. Therefore, these assets are not covered by the will of a deceased fund member.

Section 37 of the same Act then establishes the right of fund trustees to distribute a death benefit to dependants and decide the proportions when the benefit has to be split.

Trustees have discretion to define ‘dependant’ according to various criteria.

Section 37 is important, says Coetzer, as it creates mandatory procedures that override a fund member’s “freedom of testation” and the provisions of the Intestate Succession Act.

The financial position of an heir to a client’s estate can be compromised by the ability of fund trustees to decide who is a dependant and the percentage distribution to each dependant in cases where there are more than one.

A client may have assumed that perhaps his widow would be considered his sole dependant and that retirement products would provide adequately for her future support. If other dependants are identified by fund trustees, this assumption could be fatally flawed.

These issues are not always clear to consumers as they prepare for retirement.

“A contributor to a retirement annuity may be focused entirely on tax efficiency and be unaware of Section 37,” notes Coetzer.

“There is great need for improved market education on these points.

“The challenge can best be addressed by holistic planning that covers not only retirement issues and retirement products, but estate planning and the proper, professional formulation of wills that are made in full knowledge of legal provisions such as Section 37.”

Communication with fund trustees becomes a vital consideration for those engaged in retirement planning.

Coetzer adds: “Fund trustees are not bound by a will; nor are they bound by the nomination form usually completed by fund members, though it may be used as a guide. Even so, it is vital that a client sends fund trustees up-to-date beneficiary details and distribution requests.

“In determining the dependants, trustees consider various factors, including their ages, their relationship with the deceased, financial status of each dependant and their future earning capacity. The wishes of the decease might also be among the mix of factors.

“As is often the case in our industry, it’s not enough to cover just one of the bases. Clients and their loved ones can only rest easy when all the bases have been covered, and that takes holistic planning.”