Speak well from the grave

2013-08-21 10:00

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Your will holds your wishes, but be careful what you stipulate as unforeseen consequences will be set in stone

Sorè Cloete, a legal manager at Old Mutual, recently dealt with a case where the provisions of a will inadvertently resulted in the surviving spouse having to pay money over to his young kids.

In this particular case, the couple was married out of community of property with accrual. “The accrual system states that upon death or divorce, the difference in growth of the accumulated assets must be divided equally between both marriage partners,” says Cloete.

In this case, the wife had left all her assets to her children in her will. What she had not realised was that her assets included 50% of her and her husband’s combined estate.

“As her husband’s net worth was greater than hers, he had to pay money over to her estate even though he was the legal guardian and would be raising the children,” says Cloete.

When drawing up your will, you need to consider not only the implications in terms of your marriage contract but also how your wishes will be interpreted.

For example, there was another case where a father had created a family trust on his death with the stipulation that only grandchildren born of his daughter could become beneficiaries along with his son’s children.

If she did not give birth to a child then his son’s children would become the sole beneficiaries.

This was obviously intended to prevent any stepchildren from inheriting. But what he had not envisaged was his daughter adopting a child.

Legally, the adopted child had no claim on the trust and the son’s children were entitled to the full estate.

While a will can be a very simple matter, as your estate grows and you get married and have children, there are legal and tax implications to consider.

When drawing up your will, consider the implications of your marriage contract and also how your wishes will be interpreted

CHECKLIST FOR YOUR WILL

Your will needs to make sense, so keep it simple. Make sure it is written in a way that other people will understand it. Many people make the mistake of trying to rule from the grave, which complicates the will and makes it difficult to execute.

Your will needs to specify what happens to your assets, such as your house and savings, as well as what happens to your dependants.

Nominate an executor

1 This is the person who is responsible for administering the deceased estate.

By nominating this person in your will, you prevent an unnecessary delay to the administration of the estate.

If no executor is appointed, the Master of the High Court must take steps to appoint an executor. Such appointment would take place with the involvement of the estate’s beneficiaries and creditors.

Nominate heirs

2 You need to decide who you are leaving your worldly assets to. This can become more complicated if you have young children.

There is no estate duty payable if you leave your estate to your spouse. You could decide to leave your full estate to your spouse, which he or she would use to help provide for your children.

This would be the simplest solution as it does not require any special structure to house the funds for minor children.

Alternatively, you could take advantage of the tax abatement, where no estate duty applies on the first R3.5?million of your net estate, and leave money directly to your children tax-free. This could ring-fence money for your children should your spouse remarry.

You would need to take into consideration that your marriage contract could limit how much of your estate you are able to leave directly to your children.

Nominate a guardian

3 If you have young children, you need to stipulate what will happen to them if both parents die. This is also an important requirement for single parents.

The Children’s Act requires you to nominate a guardian for any minor children should both parents die prior to their children reaching the age of majority.

You can include a letter of wishes as to how your children should be provided for, but be careful of ruling from the grave. For example, if you have left sufficient finances, you can stipulate that the children must belong to a medical scheme and what type of schooling they should receive.

It would, however, not be helpful to include curfew times and that they are not allowed to smoke. You need to appoint someone you trust will raise your children to the best of their ability.

Decide on a testamentary trust

4 You need to decide if the inheritance would go straight to the minor children, or into a trust. If left to the children, the money would be in essence administered by the guardian.

You can select to house the funds in a testamentary trust until such time as the child attains either the age of majority, or some other age predetermined by the parent – the average age is 25.

A testamentary trust is a trust that is formed upon your death and your will must include the provisions for this trust, which must include the appointment of the trustees.

The child’s guardian does not necessarily have to be the trustee, and it’s often a good check and balance to have a separate, independent person who is financially astute as a trustee.

It is important to note that if you do not form a testamentary trust, the trustees of your retirement fund could elect to have the children’s portion of your retirement fund paid to the Guardian Fund, which would then provide an income each month to the surviving spouse or guardian to provide for the children.

Protect your kids’ inheritance

5 Ensure that your will contains a clause specifying that any assets left to the children would not form part of their matrimonial regime.

If, for example, you left a property to your daughter, who then gets married in community of property, including this clause in your will would ensure that the property will not form part of your daughter’s joint estate.

Nominate an alternate heir

6 Include an alternate heir as another person you nominate. The person may be deceased and, in that case, you will not have an heir in your will.

Know where your documents are

7 There is no point in having a will if no one knows it exists or where to find it. It is advisable to keep your original will in either a safe or a secure place and then also have a copy of your will kept at a separate location.

If you have a financial adviser, ask them to keep a copy on file. Alternatively, the person who drafted the will may keep a certified copy.

Make a list of people or institutions to call in the event of your death – your financial adviser, broker, medical aid, and so on.

List your bank accounts, policy numbers and investment details, and also make sure your family knows where to find this information.

»?Information provided by Tristan Naidoo, legal adviser specialist at Old Mutual

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