Ceding Life policies – good idea or not?
Banks and other financial institutions often want to have first bite of your estate if you die and owe them. Hence the ‘cession’ of life policies, basically ensuring that they go to the top of the creditor pile. With the advent of the NCA a few years ago, credit providers could no longer insist on a client using their own, extortionately expensive, life cover. Clients could choose to get their own cover, cede existing cover – or still take that ‘bespoke’ cover (like the Stangen cover offered to the Ellerines and African Bank clients, often doubling the premium charged – and resulting in way more defaults).
In general, taking out a cheap, standalone policy just for the cover is usually the best option. The next best option is a ‘partial cession’ of the policy – in other words just the amount that the financial institution requires, not the whole lot. This is not available from all providers, and should be on a reducing balance, not the initial amount.
Why might cession not be a good idea?
If you’re patient, your staghorn will produce spores on the underside that can be harvested and produce hundreds more.
Tricked you! Make savings a game
People are complicated, as soon as you add money into the equation it becomes unfathomable. Understanding how your brain behaves around the folding stuff can help you hang onto that hard earned wealth. I have always been fascinated by the addictive nature of ‘games’ and whether or not they have any relevance to real life. As you might imagine, theses have been written on just this topic. One clear reason that games become successful is that if they ‘reward’ the player – particularly if it is isn’t predictable. Those ‘rewards’ can usually be traded in for something ‘rare’ or ‘cool’ in the game. What if that notion can translate into savings? FNB’s short-lived ‘millionaire a month’ campaign dipped it’s toe in that pond (before being closed down as it was defined as ‘gambling’). What is the difference between ‘gaming’ and ‘gambling’? The line is often blurred, especially with online bingo and poker sites – but basically gaming is win-win. Gambling, not so much.
Let’s see if we can apply this to saving. One of the most important cornerstones to your wealth is having a ‘safety net’ that you can fall back on when ‘life’ happens. This should equal at least three months after tax earnings (before deductions like medical aid, group benefits). That emergency fund you hear so much about, but 90% of people ignore falling back on credit cards, personal loans or equity in their bond when ‘life happens’ Read more
Don’t let the ordinary, hail damaged leaves fool you. The vine is easy to grow and these flowers are extraordinary and have a strong scent.
If you’re in a corporate environment, you probably have ‘Group Benefits’ like life cover, provident funds etc added to your ‘Cost to Company’, and because they are ‘fringe benefits’ you get taxed on it too. Historically they have had a bad rap, with good reason. It isn’t the ‘life cover’ that causes the problem, it is usually ‘disability’. The old fashioned Capital Disability lumpsum was (and sometimes still is) problematic. Even if you can limp into work and plonk yourself down on a chair you may not be considered ‘disabled’ enough by the insurance provider. But should you throw the baby out with the bathwater and completely disregard these benefits when doing a financial plan?
CGT can create a liquidity problem in your estate
Capital Gains Tax, when it was first introduced in 2001, was mooted to ‘replace’ estate duty. 13 years later not only is estate duty still there, but the ‘inclusion rate’ has increased. Call it what you like, this is a wealth tax, and the longer you hang onto the asset, the bigger the liability. As the years tick by post 2001, that bill is getting bigger and bigger. Nasty. Recent estate plans I have done has brought this very painfully to light. If second homes and company shares are held in the names of individuals, and not trusts from the start, the liability can grow out of control.
7 things you should do when you change jobs
Sometimes the little decisions that we make, or procrastinate over when we change jobs can have a significant impact on your long term finances.
1. Never burn bridges. You never know when you might need a reference for your dream job, or even want to approach the company to be a client.
2. Tightly manage your social media profiles. If necessary close down profiles and request Google to remove anything that is particularly noxious. All the social media profiles have a different ‘niche’ – Facebook is for friends and family really, give colleagues access to LinkedIn. Twitter causes more bloopers than any other social media platform. Pause before you hit the send button. Never hashtag past, present or future companies unless that’s your job.
Shareholder’s agreement – Is it worth the paper it’s written on?
If you have more than one partner in your business, you’ll have a buy-and-sell agreement or clause in your MOI. Often that is the last time a shareholder will worry about it, consumed with the business of, well, running the business. Why the concern anyway? You trust your partner to honour the agreement right?
The single biggest concern is the potential lack of liquidity in the hands of the other partners so that they can pay the value of your shares to the estate. It isn’t that they don’t want to, it’s just that the bank might not lend the money when the company is ‘unstable’. A partner is unlikely to sell his house, or other major asset to hand over the cash to the estate. This can draw out the ‘winding up process’ to years, and potentially force the company into liquidation.