Where there’s a will…

Where there’s a will…

Where there’s a will there’s a relative!

The end of your life is probably not something you want to dwell on which explains why globally more than 50% of people die intestate (without a valid will). If you die intestate in SA the state steps in (according to the laws of intestate succession) and effectively decides who gets what. Under these laws, your assets will most probably eventually get to the rightful beneficiaries but there is no certainty as to when or if it will actually happen. Obviously this could have disastrous consequences for your dependents. The solution to this problem is to draw up a valid will. This will require you to think about what will happen to your loved ones as well as your assets and possessions on your death.  Drawing up a will is therefore one of the most important things you can do.

The history of the will is long and the earlier laws governing the making of wills were vast and complex. In Roman times the making of a will was not just a means by which a person left property to his beneficiaries – often huge debts and crippling obligations were also left behind. (This became known as the ruinous inheritance.) The main purpose of the will in these times was to appoint an heir to (almost literally) step into the shoes of the deceased and succeed him for all legal purposes.  When the Roman testator was deciding whom he should name as an heir, he was obliged to ensure that the chosen person was also suitable to carry out the family’s religious duties. The heir was expected to carry out the deceased’s wishes, to perform the religious duties, pay off the debts, distribute legacies and generally act as the deceased’s successor in all matters. Today the executor winds up the estate and the ruinous inheritances are a thing of the past, leaving the heirs free to enjoy the proceeds. Fortunately too, the laws have been simplified to the extent that almost anyone can draw up their own will.

So just who can (and should) have a will?

There has long been a perception that wills are the exclusive domain of the wealthy. This is definitely not the case and in fact anyone with assets needs a will (especially if they have dependents or young children). Remember this, at the time that your will is needed, you will no longer be able to have your say. The intention of the will must therefore be to guide those left behind as to your wishes with respect to your beneficiaries and any assets you leave behind.

Current law states that anyone over the age of 16 who is mentally capable of understanding the implications, can draw up a will. In order for the will to be valid each page must be signed in full by the testator in the presence of at least 2 witnesses who are present at the same time. The witnesses must also sign the last page (although many wills will still have place for the witnesses to sign on each page as well). A witness must be over the age of 14 and competent to give evidence in court. They may also not be beneficiaries under the will as witnesses and their spouses are disqualified from inheriting unless it can be shown that they did not unduly influence the testator in the drawing up of the will. It is also advisable that the will be dated on the last page (although this is not a legal requirement it does help in terms of identifying the most current will).

What goes into a will?

As much info as is necessary to allow the executors to clearly identify your beneficiaries and establish your wishes. The obvious information includes your full names, ID number, marital status, where you currently reside as well as all of the same information for your beneficiaries. It should, however, not be a complex and detailed document – specific bequests such as the grandfather clock and goldfish should be made in a separate letter of wishes (which is not a public document like your will) and attached to the will. The letter of wishes is suitable for detail with respect to personal possessions and specific requests. It is also generally not advisable to include funeral arrangements in a will as the content of a will is often only made known after the funeral.

Pitfalls to avoid!

Under the current laws minor children cannot receive their inheritance and if they are not provided for under a will (by means of a trust) any funds which should have gone to them will be placed into the guardians fund. This is a fund administered by the state with the purpose of providing for minor children. Although it is governed by strict laws, the guardians fund offers limited growth potential on any assets as the funds are usually invested in interest bearing instruments. It is also pretty inflexible with respect to payouts – although they can often be done monthly, they are usually only made on a quarterly basis. The state will then also appoint guardians to care for and raise your minor children.

In most cases, the simple solution to the issue of minor children and dependents is a testamentary trust. Simply put, this is a trust that is set up in terms of your will and which only comes into effect after your death (without the usual trust set-up fees). It will allow for the appointment of trustees (chosen by you) to administer the funds for the benefit of your children. (Think carefully about your trustees or about acting as one for someone else as the law requires that you look after the assets in the trust with more diligence and skill than you would handle your own affairs.) If you have minor children then it is also necessary to appoint guardians in the will. Discuss it with them first though, as these are the people who will raise your children if you are no longer around to do it.

Another pitfall to watch out for (particularly if you are going to draw up your own will) is to remember to insert a clause exempting the executor, trustees and guardians from having to provide security (usually in the form of assets) for the fulfilment of their duties. Failure to do this can result in serious delays as well as the executors and trustees possibly being unable to fulfil their roles due to financial constraints (when this was never the intention).

If you are paying maintenance as a result of a divorce settlement you need to keep this commitment to your ex spouse and children in mind when compiling your will. You also need to consider whether or not you want your heirs spouse’s beneficiaries to share in the proceeds of the estate i.e. your daughter’s husband’s family.

While there is no prescribed minimum time for winding up an estate, it can be done in less than 6 months (where it is a simple estate). On the other hand it can take years (if there is ambiguity or if there are complex structures involved. Think about this when you plan your insurances and when thinking about what your spouse and beneficiaries will do for cash while the estate is wound up.

When to update/change your will?

It is good practice to review your will every 2-3 years. Marriage, the birth of a child as well as other life changing events such as divorce, are also good times to review your will. Following your divorce the law automatically assumes that you no longer wish your ex-spouse to inherit and allows you a 3 month grace period to change your will. If you still have not changed it after this period then your ex spouse could get it all.

Where can I get a will?

Trust companies, attorneys as well as some financial advisers can give you guidance regarding the drafting of your will. This is often done for “free” on the understanding that they will then act as the executors on the estate. In order to avoid any confusion in this regard discuss the costs upfront, as well as the appointment of the executor and if necessary be prepared to pay for the will. Typically this should not cost you more than R250 to R500. Alternatively you can buy a basic will off the shelf from some stationery shops – just make sure that you complete all the formalities correctly and that all the necessary clauses are in place. The original will be kept in the executor’s (trust company, bank, lawyer) vault – keep a copy at home.

Costs and fees?

The only things certain in life are death and taxes – unfortunately when you die they get you for tax as well in the form of estate duty. The first R3.5 million of your estate is exempt from estate duty, but anything over and above that is taxed at the current rate of 20%. With a little bit of estate planning this can be reduced greatly. On top of estate duty your estate can expect to pay up to 3.99% in executor’s fees – (3.5% +Vat) as well as 6% on any interest income that is earned by the estate. Many people’s response to this is to appoint a family member to act as the executor. In theory anyone can act as the executor, but consider the circumstances in which they will be asked to perform this duty and think again. The reality is also that while this is not a complex or difficult task, it is fraught with bureaucracy and red tape – often the appointed family member will end up outsourcing this task to an expert (many of the Masters are insisting that the executor is someone with the necessary qualifications and experience).

Often a simple cost (and time) saver is to ensure that you appoint beneficiaries on all your insurance policies – this money while still forming part of your dutiable estate, goes directly to your beneficiaries and is not handled by the executors (4% saved!).

What about those offshore assets?

Any one with offshore assets and investments should draw up a separate will for these assets. This should be done by an expert in that jurisdiction taking care not to revoke your current SA will.

Remember that it is important that your will must be a practical document that is easy to understand and simple to execute – if you are not sure about anything then seek expert help or opinion.

Who are the key players?

  • Testator/testatrix – person making the will
  • Executor – person who acts on your behalf and executes your instructions in the will.
  • Beneficiaries – those people or institutions that inherit from you
  • Guardians – people you should appoint to raise and look after your minor children
  • Minor children – children under the age of 18
  • Trustees – people who will administer a trust that has been set up under your will
  • Inter-vivos trust – a trust set up while you are still alive. Assets can be sold or donated to the trust.
  • Testamentary trust – a trust that is created on your death (usually for the benefit of minor children).
  • Codicil – any addition to a will (signed and executed as per normal requirements). It is usually better to draw up a new will to avoid confusion.

This article was first published in Men’s Health Magazine in 2004 – it has been updated since then.