Caring for your loved ones by caring for their future

We’ve all seen it in movies and novels: A young unsuspecting person wakes up one day to find out that they had been left an extraordinarily large estate from a distant relative that they hardly knew existed. We chalk it up to an absurdity. Something like that would never happen in real life, would it?

Although it may seem farfetched, intestate succession happens far more often than one might realise. Statistics from the Master of the High Court in September 2019 showed that 70% of working South Africans do not have a will (or by extension, estate plan). Apart from the emotional distress caused by the death of a beloved, the families of these South Africans are in for a tough time should they pass away.

When somebody over 16 years of age dies, their property will be distributed according to a will or estate plan. If there is no will to speak of, the estate of the deceased is distributed in accordance with the Intestate Succession Act 81 of 1987.

In many respects, intestate succession is a complex and unnecessary complication in the distribution of an estate after death. Although somewhat clear cut regarding who is included in the distribution of the estate, the Intestate Succession Act leaves much of the how of the distribution and transfer of the estate to the inheriting parties.

In the case of intestate succession, the estate of the deceased will be distributed in accordance with a predetermined line of succession, which usually includes their spouse, children and/or parents. Intestate succession can lead to procedures that take time, money and energy, which are luxuries for those who are mourning and settling the estate.

One should keep in mind that the largest part of any estate is often real and private property. Without a plan for the distribution of one’s estate, it means that the physical property of the deceased also becomes part of a plan for distribution, which can take extremely long to settle (since assigning a monetary value to physical assets depends on valuation).

As for the how of the distribution of the estate, it ends up falling on the shoulders of the heirs to the estate to nominate someone to act as executor, failing which an executor is appointed by the Master of the High Court. For this reason, family disputes are a commonplace in intestate succession as the fair distribution of the estate is brought into question.

More often than not, there is very little liquidity in the estate to cover debts and taxes related to the property to be inherited. Since most of the real and private property does not have an immediate monetary value, any possible liquidity in these assets are locked up until the executor makes a decision on how the property is to be managed.

Having a will is one thing, but estate planning goes further than a mere will, in that it gives direction for the management of the estate in preparation for when you die. Where a will only gives an indication of how assets should be distributed, a complete estate plan will give guidance as to how money is made immediately available to those who need it and how investments and financial assets are to be managed.

Issues of custody, settling of debt, the continuation of school fees, and management of digital assets, among many other urgent matters, can also be simplified through a well-developed estate plan.

The purpose of an estate plan, then, is to guide the management of your assets in a way that a will cannot. Good estate planning can speed up the processes that take so long when executing a will and comprises a holistic strategy to ensure that your loved ones are cared for after you die.
In the case of estate planning, the adage holds true: Failure to plan is planning to fail. Don’t leave your dependents in a vulnerable position while they mourn. Instead, give them the best chance to live the life you’ve always hoped for them.

References:

Wills Act 7 of 1953
Intestate Succession Act 81 of 1987
https://www.moneyweb.co.za/financial-advisor-views/no-will-in-place-it-will-have-consequences/

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

Print Friendly, PDF & Email

Your Will – an important document

Life is unpredictable, therefore we advise our clients to lose no time in drawing up their will and planning their estate. Below are important reasons why this should be one of your top priorities. 

Q:  Why should I have a will?

A:  A will enables you to name your heirs. Should you die without a will (intestate) your assets will be divided according to the Intestate Succession Act. That may advantage people whom you did not wish to name as heirs. 

Q:  Who is allowed to sign your will as witness?

A:  Your will must be signed in the presence of two witnesses, who also sign in each other’s presence. Only persons older than 14 years are qualified to sign as witnesses. 

Q:  What is the cost of Executor’s fees?

A:  The maximum remuneration payable to an Executor is determined by law and is currently fixed at 3.5% of the total gross estate value. Executor’s fees should, however, be negotiated with the person who has been appointed as Executor of your will. 

Q:  How often should I revise my will?

A:  It is recommended that wills be revised at least every 2 years. It is also important to review your will after events like marriage, birth, divorce or the purchase of property.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. (E & OE)

Print Friendly, PDF & Email

Appointment of the executor of my Will

This is a subject which causes more and more discussion and people become more knowledgeable about Executor’s fees and how it is calculated.

As mentioned in previous articles, the maximum Executor’s fee is fixed by law. The current maximum permissible Executor’s fee is 3.5% of the gross estate value plus 14% VAT (should the Executor be registered for VAT).

It seems as though this fee is very fair or even at a very low percentage, but let us illustrate with an example:

Let us suppose that the gross estate value is R2 million. Due to the drastic increase in the value of fixed property over the last few years it is quite possible to attain a gross estate value of R2 million and very realistic if you own fixed property.

R2 million x 3.5% = R70 000-00

Plus 14% VAT = R9 800-00

Total Executor’s fee = R79 800-00

This Executor’s fee does not include any additional administrative costs such as transfer fees of the fixed property or funeral costs. Thus it becomes clear that the cost of administering an estate to the value of R2 million could easily escalate to R100 000. The result is that more and more individuals consider appointing the person who lives longest or another family member as Executor, assuming that the appointed Executor is then enabled to negotiate an Executor’s fee with an institution which will then act as the appointed Executor’s agent.

It does happen, however, that the appointed Executor (e.g. the surviving spouse) is not well-informed about the actions he/she should take when his/her spouse dies, therefore he/she often appoints the first agent who offers his/her services. No negotiation takes place and the agent imposes the maximum tariff as fixed by the law.

Our recommendation is therefore the following:

  1. Appoint the person who lives the longest or another family member as Executor of your estate, but ensure that the appointed Executor is fully aware of the fact that he/she may negotiate the Executor’s fee with an institution; or
  2. Should you have every confidence in an institution, appoint that institution as Executor of your estate, but negotiate beforehand and fix the agreed tariff in your will. Do not leave it up to any other person to negotiate Executor’s fees after you have passed away.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. (E & OE)

Print Friendly, PDF & Email