Tag Archives: wills

Fear of dying

As human beings, emotions often dictate our behaviour. One of our dominating emotions (if we are honest with ourselves) is fear. Fear of loss, fear of being hurt, fear of being poor, fear of missing out, fear of being sick, fear of clowns, fear of needles…and probably most significantly, for most of us; the fear of dying too soon.

One of the “problems” of dying too soon is that we are often unprepared for the event which means that those left behind could be left up the creek without a boat (never mind the paddle) if our affairs are not in order.

A good starting point to prevent this happening is to make sure that you have a valid will in place and that someone else knows where the original is kept. Drawing up a will is a relatively simple (and completely painless) process – no needles will be used.

But this is where our emotions get in the way – we have the mistaken belief that somehow if we draw up a will we are increasing the likelihood of our demise. The truth is that we are all going to die one day – drawing up a will is a responsible and thoughtful thing to do – it does NOT increase the chance of you dying! If you have dependents and don’t have a will then you are being incredibly stupid and very selfish too.

Stop putting it off – get it done today!

 

 

 

Some things can be ignored

Following another bout of load-shedding I noticed that the clock on the clock-radio in our bedroom was flashing on and off (it needs to be reset each time the power goes off). I was too lazy to reset it (again) and decided to ignore it (maybe my wife would do it if I pretended not to see it).  This got me thinking that there are some things in life that can be ignored but there are also some things (especially in our financial lives) that cant be ignored – such as the need to have a valid will if you are married and/or have dependents.
The resistance to drafting a will (that many people experience) is one of those completely irrational fears that we have. We are all going to die (someday) and yet somehow we think that if we draft a will, or even talk about it, we have tempted fate and summoned the grim reaper. The reality is that the consequences of dying intestate (without a valid will) could be devastating for your family. They could be left without access to funds and worse still, your assets could end up in the guardian’s fund (which is in a mess) and your children could end up in state care. Need any more motivation to get it done?

In short, you need 4 things to draft a will:

  • An executor – the person who will do the winding up and distribution of your estate
  • Beneficiaries – who do you want to inherit if you are no longer around.
  • Guardians for minor children – they are the people who will look after your minor children if you are not around. Don’t think into the future but rather appoint the people who are currently the most appropriate. You can always amend this again in a few years.
  • Trustees – they are the people who will look after the money for your minor children and need to have a good track record when it comes to dealing with things financial!

Armed with this information you can approach just about any Certified Financial Planner® or attorney for assistance. Typically you could expect to pay between R500 and R750 for the will to be drafted. Once you are satisfied with the wording then you need to sign it in the presence of 2 witnesses, who must not be people mentioned in the will and who also don’t need to read the will. They are just witnessing that you are signing it. They will also need to sign in the appropriate places.

Once signed, either hand it back to your financial planner or attorney for safe-keeping, or put it into a safe place at home/the office. Just make sure that you have told someone else where you have put it – if no one can find it when you die then it would almost be the equivalent of not having one.

Remember, drafting a will is a simple exercise that does not increase the probability of your death and unlike the flashing clock it cannot be ignored!

Not if but when…

“No man is an island, Entire of itself.
Each is a piece of the continent, A part of the main.
If a clod be washed away by the sea, Europe is the less.
As well as if a promontory were. As well as if a manner of thine own
Or of thine friend’s were. Each man’s death diminishes me,
For I am involved in mankind. Therefore, send not to know
For whom the bell tolls, It tolls for thee.” *

I was reminded again this week of the importance of financial planning, especially with regard to getting your affairs in order for when you “check out” of this world. It is not a nice thing to talk about or even to think about but the reality is that death will come to us all and one of our legacies will be how we leave our affairs and our loved ones when we go. Two cases in quick succesion this week made this alarmingly clear…

When you are not here, you wont be able to tell people what you wanted to happen to your things…so it is vital that you put it in writing (that’s the point of the will). Without a will, not only do you leave people emotionally distraught beause of your death but you potentially also leave them financially distraught (stuffed night be a better word here) as your funds will sit in limbo for a very long time (maybe even 5-10 years) while the courts decide who gets what. This issue was highlited by a case of a father of 2 dying without a will…if only he had made the time to draft the will – its an half hour exercise (at most).

The other point I want to make is that you cant (or should not) try to rule from the grave…it’s just messy and it often also reveals a lot about the kind of person you really were while you were alive. Things change and your will needs to allow a degree of flexibility so that those left behind can really benefit from your legacy – too often we have seen cases with trusts that have been set up that have fortunes in them but where trustees are unable (or unwilling) to make funds available to the beneficiaries because of some wording in the will or trust deed. You wont be around to change this so keep it simple.

While I was reading the 2nd will this week I read some very hurtful and unkind things that were in the will and I could not help but think that “this is now in writing, for all to see, for all eternity…ouch it’s got to hurt”…and that will be a lasting memory. So never draft (or alter) your will in a fit of emotion – it is something that needs calm and rational thought.

Finally, when you draft your will, do it as if you are leaving today. What is best if you are leaving this afternoon (not what will be the best in 10 years time)?

*Quote from: For whom the bell tolls by John Donne

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.

Dilbert on Finance

The Dilbert cartoonist, Scott Adams, earned a MBA from Berkeley, worked at a bank (got held up twice at gunpoint), and is worth millions. So we presume he knows a thing or two about money. In an interview with the Akron Beacon Journal, Adams says he read about a dozen personal finance books and began working on one himself. However, he found it all boiled down to these nine points and he “couldn’t figure out how to fluff it up.”

1. Make a will.

2. Pay off your credit cards.

3. Get term life insurance if you have a family to support.

4. Fund your 401(k) to the maximum.

5. Fund your IRA to the maximum.

6. Buy a house if you want to live in a house and can afford it.

7. Put six months expenses in a money market account.

8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement.

9. If any of this confuses you, or you have something special going on (retirement, college planning, a tax issue), hire a fee-based financial planner, not one who charges a percentage of your portfolio.”

If we adapt these to South Africa they might  read something like this:

1. Make a will (you are going to die one day and the consequences of not having one if you have beneficiaries is too great to contemplate).

2. Pay off your debt including your credit cards and home loan.

3. Get life insurance if there is financial risk at your death (i.e. you have a family to support or debts that need to be paid including estate duty).

4. Fund your pension fund to the maximum (that the company allows).

5. Fund your Retirement Annuity to the maximum (if you dont have a pension fund).

6. Buy a house if you want to live in a house and can afford it. I guess the same logic would apply to buying a car – if you can afford it.

7. Put six months expenses in a money market account (once you have paid off your debt).

8. Take whatever money is left over and invest 70% in an equity based unit trust or exchange traded fund (etf) and 30% in a bond fund or 100% into a balanced unit trust fund and never touch it until retirement. As South Africans, probably at least 20-30% of this should be offshore (i.e. out of SA).

9. If any of this confuses you, or you have something special going on (retirement, college planning, a tax issue), hire a fee-based financial planner, not one who charges a percentage of your portfolio.”