Protecting your family when the unexpected happens

Image supplied.
Image supplied.

The six Absa/City Press Money Makeover candidates are all parents, so estate planning is a particularly important part of their financial plan. What happens to their children if they’re no longer around?

Create a testamentary trust

Make sure you have a will in place that includes a testamentary trust which comes into effect either on your death or the death of both parents.

This protects the children’s inheritance until they reach an age specified by the trust.

A single mom

As construction entrepreneur Bellah is a single mother, Absa adviser Stacey Coulson recommended a testamentary trust to provide for her children until age 25. “We’ve set up a trust that will only release funds for education purposes and to maintain the children on a monthly basis,” says Coulson.

Bellah has appointed her cousin as guardian. One should first discuss your nomination with the guardian; make sure they agree as they can refuse even if legally appointed

Children from other relationships

Both TV producer Nono and consultant Peter have children from previous relationships. “I was advised that my will needed clear instructions for the estate that would cater for all the children and their needs in case of my death,” says Peter.Nono’s daughter, Khanyi, lives with her parents, and her biological father is deceased. But despite not living with Nono, who recently married Vusi and is expecting their first child, Khanyi is still considered part of the family and will one day own the apartment Nono kept after buying a home with Vusi.Provision needs to be made for children from other relationships including guardianship and financial support.

Insuring their future

Adviser JP van der Merwe says in calculating property investor Colen’s family needs, they planned – assuming Colen passed away today – until the youngest child finishes university. Van der Merwe calculated that Colen would require R20 000 a month to provide for his kids and his insurance has been aligned accordingly.

“Insuring the future of his children is not only important if Colen passes away, it’s just as important should he lose his ability to earn an income.

Many people forget about this aspect and aren’t able to meet the family’s financial needs on becoming disabled. We’ve used the same figures as with death for this instance.”

When you’re trying to pay off debt, invest for retirement and save for your kids’ education, it can be difficult to find the extra money for life cover. But one should always have some cover so the children aren’t left financially destitute, says financial expert Maya Fisher-French.

Coulson identified Bellah’s children’s needs, but as the premiums are currently too high for her, Bellah has opted for a lower value which will be increased when she can afford it.

Executive PA Catherien reviewed whether she and her husband should purchase insurance policies to cover their children’s university costs. “This type of insurance is extremely expensive; we just can’t fit this into our budget currently. We’re also reviewing the need for sending them to university as during lockdown we realised that there are so many online options at a fraction of the price.”

Covering debt and taxes

You need to ensure your life cover provides for your outstanding debts, taxes and fees otherwise it will eat into your children’s legacy.

You should at the very least ensure you have cover that will settle all debt if something happens to you.

Leaving assets to a spouse

According to Van der Merwe, as Colen is bequeathing everything, including his properties, to his spouse, there’ll be a Section 4(q) deduction and a Section 3A Abatement with his death.

Under current law, there’s no estate duty or capital gains payable when you leave your assets to your spouse. The R3,5 million estate duty exemption is rolled over to the spouse’s estate which means on their death estate duty would only become payable on any amount above R7m.

However, there’ll be a cost for re-registering the properties in his wife’s name. “A property needs to be registered in the name(s) of a living owner. Many individuals believe this will be bypassed if a property is registered jointly, but this isn’t the case and it will have to be re-registered if an owner passes away,” explains Van der Merwe who adds that Colen also needs to provide for executor fees of 3,5% (excluding VAT) on his estate.

Leaving assets to a child

If you’re a single parent or plan on leaving assets to your children, such as Nono bequeathing her daughter her property, she has to consider any estate duty if her assets exceeded R3,5m, and capital gains tax would apply as the property would be considered as a “deemed” sale to her daughter.

Currently estate duty of 20% is payable on the value of an estate that exceeds R3,5m and capital gains tax applies on any gain in excess of R300 000, apart from the primary residence which has an exclusion of R2m capital gain.  

Make sure you update your pension

Your pension fund isn’t governed by your will, but paid out to financial dependants, so make sure to update your beneficiaries. When communication manager Mishack’s wife gave birth to twins the couple updated the details on their Government Employee Pension Fund (GEPF). It’s important to add your pension value or benefits to your estate planning. For example, with Mishack having been a member of GEPF for more than 10 years, his wife is entitled to a spousal allowance for the rest of her life. There’s also a benefit for minor children.

For more financial insights, you can follow the Money Makeover Challenge journey on social media #CPMoneyMakeover

Facebook: @CPMoneyMakeover,

Twitter: @CPMoneyMakeover and on Instagram: @city_press

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