17 – 21 September is national Wills week and while I have seen a few posts covered on the subject, I thought I would share a few points on the importance of having your last wishes correctly drawn up, some points on what you should definitely include in your Will and what you should exclude from your Will. The idea is to 1. Ensure that you have a Will in place, 2. Ensure that it represents your wishes correctly and 3. Ensure that it is drafted and implemented in the most cost and tax effective manner.
First a little history, which is quite fitting as I am in Greece on holiday. There was a man named Solon who lived before Christ and was a reformer statesman in ancient Athens Greece. He amended the law of Draco which said that a person had to leave his estate exclusively to family members. Solon allowed for other beneficiaries as well, well sort of. You could leave property to others only if you had no sons and if you only had daughters, the men who you left property to had to marry your daughters. Talk about ruling from the grave.
The purpose of your Last Will and Testament changes over time and so it should be updated accordingly. We all go through different stages of life, but to keep it simple, if you have assets, you need a will. That should be your starting point, no assets no debt, no need for a Will. Whether you are married or not, you still need a Will. Most people though only tend to realise the importance of a Will once they get married or have children, which is fair as there are now dependents who need to be catered for.
When drafting your Will, you need to think about who you want to leave your assets to. You can be as specific or as vague as you like. It is important to know that if you are married and you leave your entire estate to your spouse, your estate is free of estate duty (DEATH TAXES) but your spouses estate will be taxed when they pass, (your abatement passes along with the estate though). As I mentioned you can leave specific items to specific people or leave everything to someone and trust they will distribute accordingly. You can leave a few things to some people and the remaining estate to a singular person (special bequests and residue). In short it is your estate and you can distribute it how ever you see fit.
Things start to get a bit more involved when you have minor (under 18) children, as you now need to think of guardians for those children if you pass away. Again in keeping it short, if you are married it will generally be your spouse who assumes this role fully, however should you both pass away you need to specify someone to raise your children. Two points to cover here, the money and the upbringing and most people worry about the guardians having access to the money and then squandering it. They wont, provided a testamentary trusts is stipulated to be set up if the children are under a certain age,(meaning the inheritance is administered by independent trustees for the well being of the children and the money is only used for actual expenses incurred for the children). For the upbringing, I recommend thinking of someone who would raise your children in a similar manner as you, someone who has a similar lifestyle to you, you don’t want your children’s lives to have to change even more, considering they just lost both their parents. When planning with my clients, I pose this question, if the financial aspect of the children’s lives are taken care of (ie, They can live the exact same lifestyle they currently live, school, home, holidays etc). Who would you want to raise your children? It’s a tough question to answer, but also not one that is cast in stone. Remember your Will can be changed at any time. Here again. you can be as specific as you like, you can stipulate exactly how the trust is to administer the funds it holds. If your financial plan while alive is to provide for your children’s first car, wedding and first home financially, provided the financial provision is available in the trust, those wishes can be carried out on your death as well.
Lastly when it comes to costs, Tax efficiency and ease of administration remember the following
- The executors fee is regulated by law at 3.5% ex VAT, this is the maximum fee that can be charged, but can be reduced if the executor is willing to.
- Ensure any insurance policy that has the option of nominating a beneficiary has one nominated, it means that it is not dealt with by the estate / Will and therefore the 3.5% doesn’t apply to that policy and it will be paid out a lot sooner.
- Make sure there are sufficient assets in order to carry out your wishes. Simply put, all your assets – your liabilities = the value of your estate – costs and tax (20% over R3.5m) = distribute-able estate.
- Ensure your financial plan on death, matches your financial plan while alive.
- Remember, you cannot rule from the grave, ie you cannot bequeath R1m to your sister on condition XYZ, give freely and willingly.
- Keep your will up to date as things change in your life and included those in your Will.
You Last Will and Testament requires a lot of consideration and conversation between you and your spouse and your financial planner. Your Living financial plan should make provision for your dependents so that your wishes can be fulfilled in the event you are not around. It is your responsibility to ensure a smooth transition happens for those you leave behind.