National Wills Week, which is taking place from 11 to 15 September this year, is the ideal time to re-examine the important matter of estate planning. It is vital to realise that estate planning should form part of your holistic financial plan and the two work in tandem. Estate planning sometimes involves more than executing a will and is best embarked upon with professional guidance.
Hilary Dudley, Managing Director of Citadel Fiduciary, explains, “It is advisable to do scenario planning with your financial and fiduciary advisors. Try to design your estate plan in such a way that it caters for various scenarios to ensure that, despite what realities may arise, your plan will still succeed. One thing you can count on is that the future will surprise, and nothing is certain. Your plan should ideally be organic and regularly updated.”
FOUR ELEMENTS OF BASIC ESTATE PLANNING
Dudley explains the four elements that basic estate planning should ideally entail:
- A letter of wishes
If you have minor children, it is prudent to prepare a detailed letter of wishes relating to your children, to ensure that their nominated legal guardians have clear instructions on how to raise your children. The letter can set out your thoughts and wishes on how your children should be cared for in your absence, including details of which schools they ideally should attend, whether they should receive a car when old enough, guidelines on religious and philosophical matters, such as the appointment of a spiritual guardian, and so on. This is not a legally binding document, as it is evidence of your thoughts and wishes, but is morally and ethically binding.
- General power of attorney
While it can be a useful tool to assist with the administration of your affairs in certain circumstances, in South Africa a general power of attorney is not enduring – it is invalid when the grantor loses their mental capacity or on their death. Also bear in mind that the banks will not accept a general power of attorney to allow you to transact on another’s bank account. So, if you would like to give your family members the authority to transact on your behalf, or if you need to help a parent with their affairs, you need to approach the bank and request the bank’s authority forms to sign.
- Guidance on information transfer
Detail in writing how your heirs will access the information they will need when you die. From financial information, such as how to access information regarding your bank accounts and other assets, to how to access all your other important documents, such as photographs and digital accounts, including social media profiles they might want to close.
- A valid will
Your will can only govern the disposition of assets that you own directly (such as bank accounts, investments, motor vehicles, immovable property and so on) and indirectly (such as shares in a private company or a member’s interest in a closed corporation). Consider what assets you own and how you own them as part of your preparation to draft a will. Sometimes people try to bequeath assets in their will that do not belong to them, such as trust assets. It is important to ensure that you are in fact the legal owner.
Consider in what jurisdiction you want to have your will, especially if you own assets abroad. You may not need a will in all jurisdictions where you own assets unless it’s immovable property. Offshore laws may impact your estate, as well as exchange control regulations to which South Africans are subject.
THINGS TO CONSIDER WHEN DRAFTING A WILL
Dudley highlights the following considerations when drafting your will:
- Business partners
You need to talk to your business partners about what will happen to business shares should you die, as you presumably do not want to do business with each other’s families after a death. The company documents will often dictate what happens to shares in a company on the death of a shareholder, but if you have another form of business you may need to have some kind of agreement.
- Pension and life insurance policies
Pensions and life insurance policies require nominated beneficiaries. You will not be able to govern the disposition of those policies in your will, so it’s important to update your policies as soon possible.
- Your partner
It’s important to consider your life partner – whether you are legally married or not. If you are legally married, you have various legal duties of support and maintenance. It’s important to know in which marital property regime you are married when planning your estate.
Life partners: Permanent life partnerships and cohabitation is an interesting area of the law, with some grey areas at present. Some laws treat a permanent life partner the same as a legally married spouse, whilst others do not, which causes uncertainty. For instance, the tax laws and the Pension Funds Act will treat a permanent life partner as a spouse, but the Maintenance of Surviving Spouses Act does not.
Divorce: Remember, you must update your will to remove any bequest to your ex-spouse within three months of your divorce, otherwise if you die without having updated your will you will be deemed to still have wanted your ex-spouse to inherit. If you die within three months of your divorce and have not yet changed your will, your ex-spouse will be treated as having died before you and disregarded. If you are remarried, you may need to consider how to balance your wish to benefit both your new spouse and your children from your first marriage.
- Your descendants
Remember grandchildren or children under the age of 18 cannot inherit as they do not have legal capacity, so you should cater for them by way of a trust to avoid their inheritance being paid into the Guardian’s Fund, which falls under the administration of the Master of the High Court.
Professional help is essential to plan for and manage the inheritance to special needs heirs, or heirs that suffer from addiction issues or cannot manage their money. Sometimes in-laws can bring complexity to matters of estate planning, so it’s important to ensure that expectations and boundaries are clear.
If you have heirs living outside of South Africa, consider that it might be difficult to transfer funds to them if they have not yet formally emigrated. It is best to alert them to these issues ahead to time to avoid frustration and disappointment in the estate administration process.
- Family trusts
It’s important to plan if you might inherit from a parent. Ask them to place your inheritance in your family trust. Vice versa, if your children have their own family trust, consider bequeathing their inheritance to their trust. Very importantly, include existing trusts in your succession planning, for example, by nominating a trustee to succeed you when you can no longer act as such and making bequests to the trust. There are tax implications regarding distributions from trusts to individuals living abroad which you need to consider.
- Plan for various scenarios
Remember, if you are supporting your ascendants – your parents or grandparents – and you pre-decease them, it will be important to ensure that they are looked after. If your parents are indigent, you have a legal duty to maintain them.
In the event of a calamity where your entire immediate family dies, you could bequeath your estate to your siblings, other family members, friends, or a charity that you support. Bequests to
SARS-registered charities are exempt from estate duty.
SEEK PROFESSIONAL GUIDANCE
“Simplicity is frequently best when it comes to estate planning, but not always easy to achieve without professional guidance. It is hugely important that you consider your family’s ability to comprehend your plan and get their buy-in, otherwise it may not succeed. Many of life’s circumstances may require more sophisticated levels of estate planning that is both organic and adapts to changing circumstances and complexities in the family,” concludes Dudley.
Written by: Hilary Dudley, Managing Director of Citadel Fiduciary