By: Jeffrey Wiseman – CEO Momentum Trust
Death can unfortunately leave undesirable outcomes. There are often bonds, motor vehicle finance, credit cards and overdrafts to be settled. There are also the professional costs such as conveyancing fees, executors’ fees, admin costs and not to forget tax. According to Momentum Trust research, 94% of financial advisers agree that a will is critical. Momentum Trust’s experience shows that a will not backed by a financial plan leads to unintended negative outcomes. As an example, due to the lack of a financial plan and debt’s having to be settled, the family home needed to be sold, leaving an elderly widow with no option but to move into a garden cottage. This was not the intended legacy that her beloved husband wanted to leave her.
Busting the jargon – and why you need to know it
When you die, your deceased estate comes into existence regardless of whether you leave a will or not. Immediately after the death, the often-lengthy process of winding up the estate starts, and can be overwhelming for the family – often taking between 5 months to a number of years to finalise.
A will is a legal document in which you state exactly how your estate should be divided among your heirs. It helps to smooth and speed up the winding up of your estate. Many consumers with legally correct wills are still at risk of not having their wishes fulfilled if they do not go through a financial planning process with a financial adviser. This financial planning process is critical in leaving a legacy of provision and fond memories.
If you don’t have a will, in place, an executor will be appointed by the High Court. The estate will be administered in terms of the Intestate Succession Act, Act 81 of 1987, which sets out who inherits your assets. These heirs may be different to those you would have wanted to benefit.
Make sure the executor you appoint knows their stuff
An executor of an estate is an individual appointed to administer your estate and is required to comply with a wide framework of legal, accounting and taxation regulations. A loved one may not understand the nuances and challenges that come with this responsibility and could be seen to be biased in certain instances. As a result, the master will require a new executor appointment, resulting in unnecessary delays in winding up the estate.
Why is it important to have an executable will?
There are a few challenges that one may face when trying to wrap up an estate without the help of a professional, compounding what is already an emotional time for those you leave behind. These include:
- If, for some reason, your will cannot be found, is not signed or witnessed correctly it can cause a great deal of confusion and added stress for your loved ones. An incorrectly signed or witnessed will can be declared invalid and your estate will be divided according to the laws of intestate succession.
- If your estate is too low in value, i.e. less than R250 000, your family will have to deal with the High Court directly as it will be too expensive to appoint a professional executor.
- If you failed to provide for liquidity issues like cash shortfalls or there is insufficient cash available to settle estate winding fees and debt before you died, your loved ones will have to shoulder the burden of those costs.
- In the case of an insolvent estate with no provision made for settling debts upon your death, all your assets like your house and car will have to be sold to repay your debts before your loved ones can inherit anything.
What do administrator costs include?
Provision has to be made for your liabilities, funeral costs, executor fees, advisory fees, taxes, advertising costs, conveyancing fees, transfer fees, bond cancellation fees, clearance certificates as well as valuation fees. These often unforeseen costs can add up very quickly and it is for this exact reason that once the legally correct will has been drafted that financial planning commence. Without financial planning, a will is like a brand new car without an engine – beautiful to look at but going nowhere slowly. The good news is that your financial adviser can take care of and make provision for these professional services, thereby ensuring that it will not cost your loved ones a cent.
Here is a perfect example of how this works:
Jerry, a husband and father of two consulted a financial adviser to ensure he’d done the necessary planning in case he passed away. Together they calculated Jerry’s estate needs by assessing his assets and liabilities to calculate the cash flow requirements.
Upon his passing, Jerry owed R100 000 on his credit card, R2 000 000 on his bond and R50 000 on his credit card. To wind up his estate his executor will have to sell off his assets, which total R7 200 000 on which executor fees will have to be paid. Based on this calculation the adviser was able to estimate that the fees required to administer his estate were R464 226.
This is a big amount for many of us to have spare but there are products available to help fund this such as the Estate Provider Benefit, recently launched by Momentum Life.
Using the scenario above, if Jerry utilized this benefit he would be able to take advantage of the savings offered through the discounted executors fees and reduce the amount to R391 770. This translates to a saving of R72 450, which can be paid to into his estate without attracting any executor fees.
Make sure you leave a legacy you want to
Take the time and make sure that your will and the estate is drawn up correctly and that you understand the costs involved and have sufficient funds available to cover existing amounts in your name as well as all costs associated with the winding up of your estate. Please speak to your Momentum accredited financial adviser to assist you in leaving a legacy that counts.
All the expertise, products and service to help you to keep your clients focused on the destination.
Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services (FSP6406) and registered credit (NCRCP173) provider.