Who needs an Estate Plan

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Not just for the wealthy – you might be surprised

I keep coming across misconceptions around estate planning, and confusion about the Will, and making assumptions can cost your family dearly down the line. So, let’s clarify:

Who needs a will?

Bottom line? Any adult that has accumulated any capital or assets – even if it is car, some household contents, a few little investments or life cover at work. Dying intestate (with no Will)  is not smart! Your estate would then be governed by the ‘intestate laws of succession’ and your desires for the estate goes out of the window. If you want a say on what happens to your estate when you die, it must be reduced to writing, signed in front of witnesses and follow some basic guidelines. For example if you die intestate your spouse will get a ‘child’s share’ (or R125,000 whichever is the higher). Any proceeds from the estate for children under the age of 18 will go into the Guardian’s Fund – run by the government. Good luck with that! I have had to help unravel 2 ‘intestate’ estates and it is a nightmare, that is one of the reasons that I offer my clients a free Will, and will do a simple Will for non-clients for R500 and have it to them within 48 hours. Contact me HERE if you’re interested.

When do you need an estate plan?

One of the most enjoyable aspects of what I do is an estate plan, because it is like a puzzle – finding all the bits and pieces and uncovering potential weaknesses. Inevitably I am able to save a client thousands of rand. How? Usually it is simple structuring problems that cost very little or nothing to fix. For example: Incorrect beneficiaries on life policies (they should never be left to the estate), dormant inter-vivos trusts, no valuation documentation on property (for Capital Gains Tax), uncertain ownership of valuables (especially in owner-businesses), lack of liquidity – no freely available cash to pay executors fees, estate duty and the other costs, disorganised estate, spouse vulnerability – accounts frozen if married in community of property. This is when you need an estate plan:

      1. Once the assets in the estate approach R3m (all the property, investments, personal and group life policies – not as difficult as you think – many life policies today are over R3m) then you need at least a basic estate plan. For example it might make a good idea to have an ‘inter vivos trust’ (literally while you are alive, as opposed to a testamentary trust triggered by a Will).
      2. If you are a business owner. On your death the shares in the company become part of the estate, however the implications go further than this. Banks often call in all liabilities and security almost immediately. Bank accounts may be frozen making it very difficult to run as a ‘going concern’. An estate plan will address the ‘succession plan’ so that the value in this asset isn’t lost or eroded.
      3. If you’re married in Community of Property (COP). Remember this is not just the Community of property, but also of loss. On death of one spouse in COP, the entire estate of both spouses is frozen. Executor’s fees are charged on BOTH estates. If the estate doesn’t have sufficient liquidity (readily available cash) to settle fees and duties then property in either estate could be put at risk.
      4. If you aren’t sure what you have, what the value is, where your investments are and who the beneficiaries are. Just the process of getting the paperwork in order will take away the worry of leaving your estate in a mess.
      5. If you have rental properties. If these are in your name there could be significant Capital Gains tax implications (because they aren’t your primary residence). An estate plan will estimate the CGT and make suggestions on how to mitigate this.


Why does the executor matter?

There is a good reason financial institutions, or banks will do a will ‘free’ for you – they nominate themselves as the executor, and when the time comes the free is charged at the maximum and no-longer becomes negotiable. It’s ‘only’ 3.99% – no big deal – right? Say the only asset in your name is a R1m house that you’re going to leave to your spouse. The executor’s fee would be R39 900 (there would be other fees charged). For that fee the executor would make a couple of phone calls to a conveyancer, draw up a L&D report. Maybe ½ a day’s work. That fee has to be paid in cash (as do all the other fees). The same would apply if it was a R10m house – same work – R399 000 paycheck for the executor.
What is ‘liquidity’: Basically this is the cash or near cash (stocks for example) in the estate. The Executor, SARs (Income tax and Capital Gains Tax) , Conveyancers and the Master all want to be paid cash. Cash is often generated by life insurance policies and that is paid out directly to the beneficiaries and shouldn’t go anywhere near the estate. The executor will have to go to those beneficiaries and ask for money back. This isn’t such a problem when it comes to estate duty, but can be a real problem when Capital Gains tax has to be paid and the beneficiaries are different to the life policies. An estate plan will recommend what liquidity provisions need to be made. If you’re married in Community of Property then the entire estate, and all bank accounts are frozen. The best way to ensure liquidity for the surviving spouse is by way of a life policy that will pay out directly into their account. Many providers will ‘advance’ R50-R100k out of a life policy within 48 hours to help pay for expenses.

Why do you need to be ‘organised’: If your affairs are neatly filed in one place it can cut months, even years off the time it takes to wind up an estate. When I do an estate plan with a client, the first step is getting all the paperwork in order using my RedFile system. This File collects all the important documents related to a family unit in one place: All the deeds, trust documents, copies of ID, birth certificates, medical aid documents, short term insurance, life policies, local and offshore investments. If you’d like a copy of the Red File template, please contact me HERE.

Action: If you think you need an estate plan or just a Will, contact me HERE and I will let you have my pricing. If you’d like to read more on Estates, I have  a short ebook available for download HERE (Nest Egg).

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Author Dawn Ridler ©  

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