AMANDA VISSER: We are already in September, a month by now recognised as Wills Month. There are many horror stories about family members fighting each other in court because of contradictions in a will, badly worded or poorly drafted wills and, worse of all, no will at all. The drafting of a will is generally the starting point for planning your estate and ensuring that your assets are transferred in accordance with your wishes.
With me, Amanda Visser, is Anneke le Roux, senior fiduciary specialist at PPS Fiduciary Services, to tell us about the importance of a will and the considerations to keep in mind when drafting your will. Anneke, perhaps we could start off by telling us why it is important to have a will.
ANNEKE LE ROUX: Yes, good day, Amanda, and thank you for inviting me to this podcast. This is very important and I am so happy that we have September as a month that expresses and creates awareness about wills.
The importance of a will, of course, is to capture your intention to express your wishes as to who you would like to inherit your assets in the event of you not being [around anymore].
But it allows you far more, Amanda. It allows you to make special bequests for special people [to whom] you want to leave behind certain assets, so avoiding just the generalisation of having a will but having specific planning in the will. It could avoid, of course – if you’ve got a will in place – some family conflicts in terms of who thinks they know your intentions.
But of course, from a legal point of view, a will allows you to appoint an executor, and an executor is a person who will deal with the administration of your estate.
Once you are not there anymore, an executor would be able to finalise your estate [according to] your wishes in terms of the will. And so [for] trustees there are many ways that we make provision for a trust. We will talk about that.
But a trustee appointed in terms of your will is a person who will manage that trust until a certain point in time or certain event. Of course, it allows you to also appoint a guardian, especially when there are minor children or [no other] parent is alive. So you can appoint guardians or legal guardians to look after your minor children.
I think, lastly, it helps you with a smooth administration process. Although I say a will is important, it is as important to make sure that there is planning around your will, so as to have a good, executable will. That’s the basic part of why the will is important.
AMANDA VISSER: You mentioned trusts. Explain to us where that fits in.
ANNEKE LE ROUX: Wills can cater for what we call a ‘testamentary trust’. There are different kinds of trusts, but a testamentary trust is specifically created through the will document. This trust can be utilised for minor children, children under the age of 18, or it can be utilised if you have a specific need for specific persons, like elderly people or a person who can’t look after their own affairs. So a testamentary trust is specifically created in terms of your will, and it only comes into operation in the event of your passing and if that event exists in terms of your will.
In other words, if your children are minors, under the age of 18, a testamentary trust is specifically formed for them to cater for their maintenance, education and welfare, as I said, until a certain point in time.
If you do not create a trust in your will specifically for minor children, the other side of this is that the inheritance [by] children under the age of 18 is protected by the upper guardian or Master of the High Court. So in the event that you do not have a testamentary trust in place for minor children, the inheritance [by] such children could be placed with the Guardian’s Fund at the Master of the High Court. Of course, Amanda, we all know that fund is managed by the government. So in order to make provisions and make specific provisions for minor children, this is certainly a better option in terms of having a testamentary trust in your will.
AMANDA VISSER: Anneke, what other factors should you consider when drafting your will – for example, the impact of your marital regime on the execution of your will?
ANNEKE LE ROUX: There are a lot of these. In fact, there are about 27 legislative impacts in terms of your will that you need to take into consideration.
Your marital regime is one part of this. So, whether you are married according to the accrual system, antenuptial contract with or without [the] accrual system, you need to understand how the accrual system could impact one’s estate.
A good example is that [the] accrual system is normally calculated in terms of the person that has the biggest growth: the one with the smallest growth will have, for example, a claim against the one with the biggest growth. So before distribution of your estate can be allowed, the executor always has to take into account in which estate accrual has happened. In order to understand that, we need to know in our estate planning what the impact of this accrual is. Does it have a negative or a positive effect in terms of our estate?
And of course the most common one in terms of the marital regime is being married in community of property, and the ‘in community of property’ effect is that a person’s estate is a combined estate. Assets that you have before you got married, as well as assets accrued [during] the marriage, all form part of this combined estate – including all liabilities.
It is important to understand, once we’ve drafted a will or given expression in terms of our assets, what is your share that you can bequeath, and what share is protected in terms of your marital regime, or limited in terms of your marital regime.
Also important, when we look at other factors you could consider, is the costs related to one’s estate.
Amanda, I often find that people say it is very costly to pass away, but we must understand what attracts costs in an estate. It is simply not just the estate’s administrative expenses that one needs to consider. We often hear that there isn’t sufficient liquidity in the estate to finalise an estate, so one needs to also consider what your liability is, or other contractual obligations. An executor can only do distribution of your estate once we have considered all estate-related costs or taxes, or liabilities and contractual obligations before your heirs can inherit in terms of your estate.
AMANDA VISSER: I thought perhaps we could just touch on the tax issues.
ANNEKE LE ROUX: I think the tax [involved] is very important because, in the event of a person passing away, there are two additional taxes in a person’s estate.
The one tax, or what we call your wealth taxes, are estate-duty taxes. Now estate duty [involves] calculated estate taxes. In other words, certain assets attract estate duty, other assets are exempt from estate duty. It could also be that you’ve got some rebates that apply to your specific estate.
It is important, with regard to estate duty, that not [only] your South African assets could be taken into account for the calculation of estate duty. A lot of our clients nowadays have international assets, and those international assets could attract estate-duty taxes in South Africa. So it’s important, if you have an international portfolio, that you understand the tax or estate-duty implications in terms of your international assets.
Estate duty is not the only concern a person has when you do estate planning. You also need to understand capital gains tax, which is another tax that tracks all parts of your estate planning. So capital gains tax in general, also certain rebates that do apply in general – it could be also a deferred tax – even if it doesn’t apply in an estate of a person, might be applicable in the event of a later-dying or surviving spouse passing away. So in general, Amanda, capital gains tax is not payable if a surviving spouse receives an inheritance.
But, as I said, we need to understand the implications in the event of that surviving spouse passing away. That is what we call deferred capital gains tax – and how do we plan around that?
AMANDA VISSER: Anneke, from your experience, what are the biggest mistakes people make when drafting their last will and testament?
ANNEKE LE ROUX: There are a few mistakes that I can think about, but let’s start [with] the general drafting errors.
Once you have a will in place the most common mistakes I find people make is [that], once they’ve drafted the will, they do not sign the will properly. An unsigned will still is not a valid will, and doesn’t represent your wishes. Often I find that people sent me a copy of their will to have a look at and give a view, or to interrogate the will – but a will not signed is not your valid will.
On top of that, it is important that you have complied with the legal formalities of the will, and that is to make sure that your will is correctly dated and correctly witnessed; in fact, you need to sign your will in front of two competent witnesses who are above the age of 14 – and of course, those witnesses must not be a beneficiary in terms of your will. That includes not being nominated as your executor, not being nominated as your guardian or your trustee, and it includes not being a spouse of [such] beneficiaries.
So in general after the will is drafted we often find that those general mistakes render a will still invalid or partially invalid.
We also find that if a will is not properly drafted, a single word in a will can cause the will to have misrepresentation or not [reflect] the true intention of the testator or the testatrix.
I dealt this morning with a will that was drafted with a common clause mistake that was put into that will, which in the event of this person passing away could have had a huge negative effect in the execution of that will. So it’s important when we deal with the drafting of wills that we make sure that the wording and the intention of the testator or the testatrix is the real and true intention.
But of course, just the word ‘drafting’ is as important as the planning around one’s estate, or the drafting of the will. We often find that, even if your will is in place, a will can still not be executed because you have not considered all the other related aspects to estate planning. So planning around your estate and making sure that the executor can execute your wishes – that planning is an integral part of your will and the drafting of your will.
A simple example or an easy example is when you have life insurance. Life insurance is a very important part of estate planning because life insurance can afford you the opportunity to pay for liabilities in your estate or to make provision for the replacement of income in a person’s estate. So it is important that your plan with your drafted will is a well-executed plan. And then the will, with all the formalities of the will, will make sure that there is a smooth administration process.
AMANDA VISSER: Anneke, how often does one have to update one’s will?
ANNEKE LE ROUX: [You] should really think about your will as a document that is regularly reviewed. One always talks about the fact that any life-changing event causes you to go back to your will – and the planning, of course. So what are these life-changing events? One can look at when you get married, your life has changed, you’ve got a partner; when you have children, when your children are still minors or when your children have left the home and there are different needs for them. One can also look at if you get divorced – the impact in terms of your will and what you should change. And of course, when you acquire assets, the buying or the selling of certain assets can always assist you to go back to your will and the calculations in terms of your estate planning. And of course, if you have a specific bequest, change those bequests.
Often when one changes career, it is also important to re-look at your will. And of course at retirement, if your will has changed, you need to re-look at that. We often find that in the event of joint wills, when your partner or your spouse passes away, that creates an opportunity to re-look at your current will and redraft [it]. So, as often as your life changes, you should consider re-looking at your will and your estate planning to make sure that it’s still executable.
AMANDA VISSER: Anneke, can you give us some pointers when drafting your will?
ANNEKE LE ROUX: Amanda, I think it is important to always keep it simple, and not to be too technical about it. The second part would be to make sure that you appoint a professional executor and a trustee who will deal with your estate and trust when you are not there anymore.
Lastly, I would like to say: think about your family and take time to plan for the event that you are not there anymore. It is your legacy that you leave behind – and one would not want to have this lost in translation.
AMANDA VISSER: That was Anneke le Roux, senior fiduciary specialist at PPS Fiduciary Services, highlighting ways to ensure that your last wishes will not get lost in translation.
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