The day you start earning money is the day you should make sure that you have a valid will. If you do not, the law will dictate how your assets are distributed after you die. A will is especially important if you need to make provision for your dependants. In this instalment of our series on how to manage your money, we tell you what you need to know about drawing up a valid will.
Your will sets out how you would like your assets to be distributed after you die.
If you don't have a valid will, your assets (less your liabilities) will be divided among your family members according to a formula. For example:
- If you are married but have no children, your entire estate will go to your spouse; and
- If you are single and have no children and only one of your parents is still alive, half of your estate will go to your surviving parent and the other half will be divided among the descendants of your deceased parent.
Intestate succession
If you have a will but it is not properly prepared, it can be declared completely or partially invalid and the law of intestate succession will apply to the invalid portion of your will.
The disadvantages of dying intestate include:
- It is possible that people to whom you did not bequeath assets will become your heirs.
- The administration of your estate may be more expensive.
- Your heirs will have to appoint an executor (someone who administers the liquidation and distribution of your assets) for your estate. If your heirs disagree over the appointment of an executor, the winding up of your estate can be delayed.
You should want your estate to be wound up as quickly as possible, particularly if you have dependants who need to live off the money in your estate. On your death, your assets, including your bank accounts, are frozen until your estate is wound up. Unless you have life assurance policies that pay out directly to your bene-ficiaries, your beneficiaries will have to wait for your estate to be wound up before they receive any funds from it.
- If you have minor children, their inheritance will be paid into the Guardian's Fund, which will administer the money for their benefit until they turn 18 and can withdraw it. Each time your children's guardian needs to withdraw money from the fund on your children's behalf, he or she will have to apply to the Master of the Court. This can be expensive and time-consuming.
Before you have a will drawn up, you should consult with your financial planner and have him or her go over what needs to be included in your will with you.
Then you need to find someone to draw up your will. You can either pay a lawyer to do this or you can have a bank draw up a will, possibly for free, but the bank will then appoint itself as the executor of your estate and will charge the maximum fee when the time comes for it to execute your will.
A lawyer will charge you between R1 500 and R3 000 to draw up a simple will.
But the fee can be much as R17 000 if you have a complicated estate - for example, if you are divorced and remarried and have children from both marriages, and have offshore investments.
If you bank with Nedbank, for example, and you appoint the bank as the executor, you will pay the bank R300 to draw up a single will, R350 for a set of two single wills (in the case of a married couple) or R350 for a joint will.
If you are older than 60 and your assets are worth more than R500 000, the bank will draw up both your and your spouse's will free of charge, provided the bank is appointed as the executor.
If you do not name Nedbank as the executor, you will pay R450 for a single will or R900 for a joint will or for a set of two single wills.
If you have offshore investments that are not rand-denomin-ated, you may need to have a will drawn up for the country or countries in which those assets are invested. You should contact the company through which you have invested to find out if you need to draw up a will for those assets.
If you need an offshore will, you can approach a trust company, or a lawyer can have a will drafted by an overseas law firm on your behalf. Alternatively, you can approach a reputable bank, a trust company or a law firm based in the country where you have invested.
ESSENTIAL CHECKLIST
- Is your will valid?
For your will to be valid, it must be signed by you and two witnesses who are older than 14 and who are not beneficiaries or spouses of the beneficiaries of your will. Check that your will has been signed and witnessed in the right places. In terms of the Wills Act, you must sign every page. Witnesses are required to sign the last page only.
- Is your will up to date?
You may find that your circumstances and/or your wishes have changed since you drafted your will. Legislation that affects your will may also have changed. Your financial planner and/or your lawyer should review your will and your estate plan every year.
- Where is your original will?
You may know where your original will is kept, but you need to tell someone close to you so that when you die your family can find your original will. If your original will cannot be found, a High Court order will have to be obtained before the Master of the Court can accept a copy of your will. This will lead to additional delays and costs in finalising your estate.
You should have signed duplicate originals of your will. You can print out your will four times and have all four copies signed and witnessed. Each copy will be considered an original because it bears original signatures. You can then arrange for yourself, your financial planner, your executor and a family friend to keep a copy.
- Have you named a guardian for your minor child?
If you have named someone as your child's guardian and you want that person to receive and manage funds on behalf of your child, you must stipulate this in your will to prevent money or proceeds being paid into the Guardian's Fund.
Money from your retirement fund will be distributed to your dependants at the discretion of the fund's trustees. The trustees can either give the money to your child's guardian or they can put it into a trust for your child's benefit.
Cash you bequeath in your will cannot be paid to a minor but will go into the Guardian's Fund.
Although the money in the Guardian's Fund is managed by the Master of the Court and earns money market-related returns, the associated costs are heavy.
Also whenever funds are required, your child's guardian will have to apply to the Master of the Court for the money. The master has the right to reject the application or to pay out less than the amount requested.
APPOINT A COMPETENT EXECUTOR
An executor is responsible for carrying out the instructions in your will and seeing to the liquidation and distribution of your assets.
Although you must nominate an executor in your will, on your death that executor will have to apply to the Master of the Court for a letter of executorship, which effectively appoints him or her as the executor.
You can nominate:
- A professional trust company;
- A bank;
- A family member; or
- A professional company and a family member.
If you nominate a member of your family as your executor, you could save on executor's fees, because a family member is unlikely to charge your estate executor's fees.
You should, however, bear in mind that family members are likely to be traumatised and emotional after your death and may not be in a position to perform the functions of an executor, which can be time-consuming and stressful. In addition, the Master of the Court usually insists that a family member is assisted by a professional company, which will charge a fee for its assistance.
Your executor has to:
- Evaluate the estate and its debts;
- Prepare documents required by the Master of the Court, who authorises any dealing on behalf of the estate;
- Collect the assets of the estate;
- Settle any debts, estate duty, income tax, or Master's fees;
- Pay any legal fees and bequests; and
- Distribute or invest the remainder of the estate as required by a will, if applicable, or according to the rules of intestate succession.
Your executor needs to be knowledgeable about the Estate Duty Act, the Income Tax Act, the Intestate Succession Act and any other legislation or changes to legislation that affect your estate plan. If your executor does not possess this knowledge, it could result in a delay in the winding up of your estate.
Executor's fees are a maximum of 3.5 percent plus VAT, which amount to 3.99 percent of your gross estate, and six percent of any income collected after you die, but you can negotiate lower fees with your executor.
Although you may nominate your spouse as your executor, based on the assumption that he or she will negotiate fees with a professional executor when you die, it may be more efficient to negotiate fees with an executor while you are still alive. You can include the agreed fees in your will or in an addendum to your will.
Another important consideration when you nominate an executor is that he or she may be called upon to provide security that is equivalent to the value of your estate. This is to ensure that if your executor misappropriates assets that should have gone to a beneficiary, cover is in place to reimburse the beneficiary.
A family member may not be able to provide such security, whereas a professional company should have professional indemnity insurance to cover this security.
If the executor you have appointed is unable to provide the security, the Master of the Court will appoint another executor.
The executor has up to two years to finalise the liquidation and distribution of your estate, failing which he or she has to provide reasons for the delay to the Master.
If the reasons are deemed inadequate, the Master can either fine the executor or remove him or her and appoint another executor.
An executor can sell your assets only to settle a liability in your estate for which you have not provided in your will or if your will orders an asset to be sold.
Most executors have the discretion not to sell an asset if your heirs are prepared to settle a liability out of their own funds - for example, paying off your mortgage bond to keep the family home.
MISTAKES TO AVOID WHEN WRITING YOUR WILL
You should be very careful about how you word your will. Some of the things you should keep in mind are:
- When bequeathing items, you should be as specific as possible to minimise the likelihood of the bequest giving rise to conflict between your heirs. For example, "I leave my jewellery to my children" is very vague about which child should receive which item of jewellery.
- Bequests that are contrary to public policy and/or unconstitutional will not stand up in court. For example: "I leave my entire estate to my daughter, as long as she is no longer married to her present husband."
- You cannot cancel the beneficiary of your life assurance policy by naming another beneficiary in your will. For example: "I direct that the nomination of my brother, James, as beneficiary of the proceeds of a life assurance policy, number 4 521 673, issued by the Northern Assurance Company on my life, be cancelled, and that the proceeds thereof be paid to my son." If you want to change the beneficiary or beneficiaries of your life assurance policy, you must approach the life company concerned directly.