Estate planning is a complex but critical component of the financial planning process, although very few people take the time to have an estate plan drafted.
In this article, we provide answers to some commonly asked questions regarding drafting a will, bequeathing assets, and administering a deceased estate.
What happens if I die without a will?
If you die without a will or your will is found to be invalid, your estate will be wound up in terms of the laws of intestate succession, and these laws determine who is entitled to benefit from your estate. Dying intestate is never ideal and can cause delays, administrative problems, and heartache for your loved ones at an already traumatic time. The unintended consequences and complexities that can arise from dying intestate can easily be avoided by putting a valid will in place.
Can my spouse and I draw up a joint will?
Yes, you can draft a joint will as this would be a practical option should the intention be that the estate of the first dying spouse is bequeathed to the surviving spouse, and that provision is made should both spouses die simultaneously or within a short period of one another. Your joint will should also deal with the eventuality of the surviving spouse dying without making a new will. It is advisable to seek advice from a fiduciary expert when setting up a joint will.
Do I need a separate will for my foreign assets?
Unless otherwise specified, your South African will covers your worldwide assets, although there may be instances where you require a foreign will. Whether you need a foreign will depends largely on the type of assets you hold and where they are located. Other considerations include whether your foreign assets require probate and whether your estate can deal with a delay in the winding-up process. Generally speaking, a foreign will is almost always advisable if you own immovable property overseas. The fixed property will need to be transferred according to the laws of the land and you will need to ensure that all formalities are complied with. Also, some countries only recognise a locally drafted will when it comes to disposing of property and your South African will may therefore be disregarded. If you own shares in an overseas company, you will also likely need a foreign will. A foreign will is generally not needed for assets such as life insurance policies.
Can I leave my assets to whomever I choose?
Our law provides testators with freedom of testation which means that you can bequeath your estate to anyone, although this freedom is subject to a few common law and statutory exceptions. For example, in terms of common law, a person drafting a will must ensure that no provision in their will is unlawful, against public policy, impracticably vague or impossible to fulfil, and if found to be of such a nature, cannot be executed. Another example is the Maintenance of Surviving Spouses Act which imposes a statutory limitation on a testator’s freedom by providing a surviving spouse with the right to claim reasonable maintenance from the deceased spouse’s estate in circumstances where they have not been adequately provided for.
Should I mention my policies in my will?
If you have a life policy or endowment in place, the proceeds of such policies will be paid by the insurer directly to your nominated beneficiaries. If you have not nominated beneficiaries to your life policies or endowments, the proceeds will be paid directly to your deceased estate. As such, there is no need to mention these policies in your will as doing so will only cause confusion. If you have pension, provident, preservation or retirement annuity funds in place, these benefits will be distributed to your financial dependants by the fund trustees in terms of Section 37C of the Pension Funds Act – and, again, these policies need not be mentioned in your will. Further, the proceeds of any living annuities will be paid to your nominated beneficiaries or, in the absence of any, to your estate and therefore do not necessarily need to be included in your will.
My husband and I are married in community of property. Will all my bank accounts be frozen when I die, and how will this affect my husband?
In theory, your bank accounts should be frozen in the event of your death. However, in practice, there is generally a delay between your death and the appointment of your executor whose job it is to notify your financial institutions of your death. Your executor can also make arrangements with your bank to ensure that your husband can continue to transact provided that the executor is satisfied that the estate is not insolvent.
Should I use a letter of wishes to bequeath personal items of jewellery?
Yes, you can use a letter of wishes to allocate specific items of jewellery to your loved ones, although keep in mind that a letter of wishes is not a legally binding document and does not override your will. If there is any disagreement or animosity amongst your loved ones regarding your letter of wishes, your assets will be distributed in terms of your will. In this instance, it can be better to make special bequests in terms of your will.
Can I leave my primary residence to my child but allow my spouse to continue living in it after my death?
Yes, there are several mechanisms available to allow your spouse to continue living in the family home although this is a complex area of estate planning so be sure to consult an expert. You can make a bequest to your spouse in your will which grants them a limited real right which can take the form of a usufruct, usus or habitatio depending on your intentions.
Should I set up a testamentary trust in my will?
A testamentary trust, also sometimes referred to as a will trust, is a commonly used trust when it comes to estate planning. Unlike an inter vivos trust which comes into existence during the lifetime of the trust founder, a testamentary trust only comes into existence on the death of the testator and can be effectively used to protect and preserve assets bequeathed to minor children, mentally or physically disabled beneficiaries or a surviving spouse. Therefore, if you have any such dependants that you wish to provide for after your death, it makes sense to set up a testamentary trust in your will.
Can I nominate my spouse as my executor?
Yes, you can nominate your spouse as executor of your estate although this is not always a good idea. The job of an executor is a time-consuming and onerous one bearing in mind that an estate can take a couple of years to administer depending on the complexity. Your executor will need to get to work in the immediate aftermath of your death, and this can be an enormous burden for your spouse to bear. You may want to consider appointing a fiduciary expert as co-executor with your spouse.
Who will be responsible for paying the estate duty liability in my deceased estate?
The executor of your estate is responsible for paying estate duty to Sars. The executor must complete an estate duty return which must be submitted to the Master together with the liquidation and distribution account, and a copy must be submitted to Sars. However, in circumstances where property accrues directly to a beneficiary, such as in the case of a life insurance policy, the beneficiary may be liable for paying a proportionate share of the estate duty over to Sars.
Will my estate be liable for capital gains tax?
In the event of your death, you will be deemed to have disposed of your assets for an amount equal to their market value on the date of your death. Capital gains tax (CGT) is charged on the gains made from the sale or transfer of an asset that is deemed to have taken place on your death. CGT is regulated by the Income Tax Act and all tax owing to Sars by your deceased estate must be paid before the executor can distribute any inheritance to your heirs. That said, Section 4 of the Estate Duty Act makes it clear that any debt owing in your estate – including any debt owing to Sars – is deductible for estate duty purposes. The Income Tax Act makes provision for a once-off CGT exclusion of R300 000 in the year of your passing, which means that the first R300 000 of gain realised in your deceased estate will not be taxed. Any gains realised above R300 000 will be included for CGT purposes at a rate of 40% and will be taxed at your marginal tax rate, subject to certain exclusions. For instance, any assets that you bequeath to your surviving spouse will be rolled over to their estate for CGT purposes, as well as the first R2 million gain on the sale of your primary residence. Similarly, personal use assets such as cash, retirement funds, and motor vehicles are also excluded for CGT purposes.
Article credit Estate planning: Frequently asked questions – Moneyweb
Estate Planning Photo