Where there’s a will there’s a way

Every time I read about how many South Africans do not have a will, let alone how few have consulted an estate planner, I am astounded that so many people are willing to leave their loved ones to the mercy of the Master of the High Court to sort out their estate.

Meet Thandi

Consider for a moment a parent, let’s call her Noluthando or Thandi for short, wanting to make provision for her young children and mother for whom she cares in the event that something should happen to her.

Without a will, Thandi will die intestate, which is a legal way of saying that her assets will be divided up according to the law, not her own wishes. Any money which her children inherit will be paid to the Guardian’s Fund, a government-run fund which has had many problems over the years.

Thandi’s family will now need to go to the Master of the High Court and make representations about who should be appointed as the representative (the person who will wind up the estate). Winding up an estate is a complex, time-consuming and difficult process and can take years to finalise, and unless her children are being cared for by someone, they could be left destitute while waiting for the estate to be wound up.

The bottom line is that if you have children or any real assets, it is critical to have a will.

Drafting a will

Drafting a will has never been easier. There are a good number of online will offerings which would suit most individuals. Of course, the best approach is to see a registered estate planner who can help you through the process, but this comes at a cost (well worth it in most cases).

Many of the companies offering estate planning will offer executorship services as well. An executor is the person who is responsible for dealing with all the assets in the estate and making sure they are paid to the people to whom they are due. Again, this comes at a cost but can be a critical service which will help speed up the process.

Estate plans for Thandi

Thandi will probably need to consider not only the assets held in her estate, but also those stemming from her retirement fund arrangements, group life cover and any other insurance benefits which might be payable on her death.

Each of these needs to be considered separately, because the way in which they are dealt with differs.

Thandi can specify in her will how her estate assets (house, cars, savings, etc) are dealt with. She can even specify that those assets must be held in a trust on behalf of her heirs if they are too young to receive it themselves.

Retirement fund benefits

Thandi’s retirement fund credit (the money she has contributed to her retirement plus the investment return) is dealt with in accordance with Section 37C of the Pension Funds Act, which places the duty of distributing the money on the trustees of the fund.

It is important to understand that Thandi’s nomination form will be considered by the trustees when making their decision, but they have three primary responsibilities, namely to:

• Determine who the dependants are,
• Determine an equitable proportion to be paid to those dependents, and
• Decide on the mode of payment of the benefit (mostly applicable in the case of minors or those who do not have the capacity to manage their own financial affairs).

They are not bound to follow Thandi’s nomination of any beneficiary.

Group life benefits

Where group life insurance policies (policies provided by either the retirement fund or employer) are concerned, it is important to understand the nature of the policy.

The important distinction in this regard is whether the policy is taken out by the retirement fund (known as an Approved Group Life Policy) or by her employer (known as an Unapproved Group Life Policy).

For an Approved policy, the claim benefit is treated the same way as the retirement fund credit. For an Unapproved policy, the insurer can only pay the benefit to the person nominated by her, or in the absence of a nomination, her estate (note that this has consequences for how quickly that money can be paid out, and whether Thandi has a will or not, will also have an impact on the timing of the payment).

Retail or individual life insurance policies are those taken out independently of her retirement fund or employer and are dealt with in the same way as unapproved policies. This means the insurer can only pay to the person nominated to receive the benefit, or Thandi’s estate.

Those unable to manage money

In Thandi’s case, her main concern is that her young children and elderly mother are looked after. Her children are minors and cannot receive their inheritance directly. Her mom is unable to manage large sums of money.

For her estate assets, Thandi has the option of nominating a trust in her will to receive and administer the money due to both her children and her mother. For her children, she can instruct the trust to use the money to meet her children’s education and living costs and also nominate an age at which the money can be paid to them.

For her mother, she can instruct the trust to use the money to meet her care needs. Using an umbrella trust arrangement offered by a reputable trust company is one way to reduce the costs associated with a trust.

Advantages of the umbrella trust arrangement include:

No need to register a trust deed

Access to funds from day one

No need to appoint trustees

A simple process in place

Reduced costs when compared to a stand-alone trust

Transparency on costs

Peace of mind that funds are safely invested with best-of-breed investment managers

Beneficiary fund

For her retirement benefits, Thandi can do the same with the use of a beneficiary fund, by including her wish for a beneficiary fund to be used in guiding the retirement trustees in their death benefit allocation. A beneficiary fund is similar to a trust, but has the added advantage of being tax exempt.

Conclusion

In conclusion, Thandi’s situation highlights the danger of not having a will, and maps out how she can deal with her different types of assets. The key things to remember are:

1. Draft a will. Whether through a reputable digital platform or by using an estate planner, a will is absolutely crucial.
2. Make sure you complete nomination forms for all life insurance policies and retirement funds and keep the nomination form updated as your life circumstances change.
3. Nominate a trust – an umbrella trust is a good idea - in the case of estate assets, or a beneficiary fund in the case of retirement fund benefits (including insurance benefits) to house money left to minors or those who cannot manage it themselves.