Closing the circle: The importance of closing the wealth management loop

29 November 2023 Private Client Holdings
Sarah Love

Sarah Love

The average person wants to enjoy life while they are working and building their wealth, then have enough savings to live on and maintain their lifestyle when they are no longer working plus make sure that a spouse and any dependants are financially taken care of when they pass away.

Achieving these objectives takes careful planning and a disciplined strategy. This is where a trusted wealth manager can play a role, someone who will look at your entire financial picture and create strategies that ensure you can achieve your short- and long-term financial goals. Done well, wealth management can reduce your stress about money, support your current financial needs and help you build a nest egg for goals, such as retirement.

Wealth managers are often required to delicately balance the short- and long-term needs of their clients to achieve these objectives and have calculated answers at the ready to respond to questions, such as: How much can I spend now? How much should I be saving to meet my long-term goals? How much risk can I afford to take with my current capital? How can I do all of this in the most tax efficient manner?

“Wealth managers owe their clients the best possible structuring and guidance for their lifetimes, but also the best possible outcomes if their lifetimes are shorter than expected,” says Sarah Love, a fiduciary practitioner with Private Client Trust (the fiduciary pillar of Private Client Holdings a multi-family office based in Cape Town). Love works with wealth managers to make sure that the financial planning loop is closed. She offers advice and guidance on estate planning and making sure that a legal and watertight Will is in place and that dependants have access to funds should a provider die.

Love starts her fiduciary role by establishing if a client has any legal obligations. Do they have a spouse or minor children or any other financial dependants, such as parents, that they are legally obliged to provide for? What is their relationship with money? Some people are big spenders, while others are prudent. Some believe that you must leave a legacy for your children, others think that the job is done once children become adults and choose rather to make bequests to charities. “Once we have this information, we need to establish if there is enough wealth, for them to meet both their legal obligations and maintain their chosen lifestyle. If not, we need to consider additional solutions to fill the gap,” says Love. A critical aspect of closing the wealth management loop is for clients to have a valid Will in place.

At the 2023 Berkshire Hathaway annual shareholders’ meeting ( ), a participant observed that most parents fail to prepare the next generation for the inheritance coming their way especially if the estate includes a family business, which is being left to the heirs. In his response, Warren Buffett said that in his family, he will not sign a Will unless all three of his children have read it, understand it and have made suggestions. He offered some sage words of advice:

• The reading of a Will should not be the first time that adult heirs of the deceased are hearing about it. Once a Will has been drafted and the person has died, it’s too late to make corrections.
• You need to handle the passing on of your estate correctly so that your children’s relationships with each other remain intact.
• If you want your children to have certain values, especially when dealing with your estate, it’s important that you live those values while you’re alive. A cleverly drawn Will, won’t substitute for your lack of values or poor behaviour while you were alive.

“Given the delicacy of family relationships, it’s critical to work with a fiduciary practitioner when drafting a Will as a minor oversight may have severe consequences for beneficiaries,” says Love. An incorrectly executed Will can not only tear families apart emotionally, but can result in intestate succession or, if there are grounds, a High Court application to ignore the incorrect execution and declaration that the Will is accepted. “If a beneficiary or spouse witnesses a Will, this could limit their inheritance to their intestate portion or they may be completely excluded if they are not related to the Testator,” cautions Love.

Another factor to consider is offshore assets. With people increasingly owning property and having capital offshore, it is critical that all worldwide assets are included in a Will. “We have seen how offshore inheritance taxes and estate duty have decimated local estates with devastating consequences for the South African heirs when a fiduciary practitioner was not consulted when the Will was drawn up,” says Love.

Once the Will meets the client’s wishes and is executed correctly, Love advises circling back to review all their beneficiary nominations for pension funds, annuities, endowments and life policies to ensure that the right people have been nominated to receive the right benefits. She also advises her clients to consult with their adult heirs and make them an integral part of the Will drafting process to make sure that everyone is on board and aware of its implications.

“Our structuring will have been in vain if a Will doesn’t meet the needs of a client’s heirs and factor in their whole financial plan. Unwinding structuring such as a trust and or company may also trigger unnecessary taxes and administration costs,” concludes Love.

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