What is the single most important thing you own?
Maybe a home? Or how about that car? Nothing at all? Here’s one for the ladies…what about your shoe collection?
We all own something, right? So I guess this raises a second question.
Who gets to own all this ‘stuff’ when you pass away?
Now isn’t that a good question.
In Luke 12 Jesus tells us the Parable of the Rich Fool.
It’s about a rich guy who has more ‘stuff’ than what he had place to store it in. So he decides to tear down his existing barn and build an even bigger one. Now that he has a bigger barn, he thinks he can sit back and relax. But just then he gets a massive wake-up call. God says to him, “You fool! This very night your soul is required of you; and now who will own what you have prepared?”
If I was that guy, the first thing I’d do besides repenting, would be to grab a pen and paper and start scribbling for all it’s worth.
Why is a last will and Testament important?
Well it allows you to do three important things with your financial planning:
- It allows you to choose your heirs
- It allows you to choose the trustees of your testamentary trust
- It allows you to choose your executor
Choosing your heirs
What can be worse than having an ex husband or wife inherit your estate simply because you forgot to update your will?
Or maybe in your case there’s a dead beat step brother who’ll inherit your holiday home in Plet?
A will is the only document which speaks for you when you no longer can. While you can’t choose your family, you can always choose your heirs. Man, I’ve seen some ugly fights over deceased estate’s where there was no will. People squabble over everything from kitchen tea sets to duvet and pillowcase covers. Family members don’t speak to each other for years.
And don’t hide the contents of your will from your heirs. Tell them who gets what while you’re still around. That way there’s no resentment towards you after you pass away. Let them resent you while you’re alive so that they can get over it.
Choosing your trustees
As I speak we have a client who feels that the wording of his will is a little too vague around the fixed property he owns in conjunction with his testamentary trust. Now a testamentary trust is established upon your death (it is established in terms of your last will and testament), and it’s there to take care of the financial needs of your children until they’re old enough to take care of themselves. This is what he said:
“The wording as it stands allows the trustees to do whatever they want with the properties. I don’t want them to sell off my properties simply because it’s the easiest option.”
While you want to keep your will as simple and possible (Don’t try to ‘rule from the grave’), you do want the reassurance of knowing your child’s best interests are taken care of. In this instance he had to consider what would happen if the area turned into a slum. The trustees needed the freedom to dispose of the properties.
Choosing your executor
You might not know this but the executor is entitled to 3, 99% (that’s including VAT) of the gross asset value of your estate.
Own a property worth R1 million? Well the executor is entitled to R35, 000 thereof (and the state takes the remaining R4, 900)!
Now quite a few people like to engage in a bit of wishful thinking when it comes to appointing an executor.
“Ag, I’ll appoint my son/my wife/my neighbour…”
It’s not quite that simple…especially when you estate is quite large. One miscalculation in the liquidation and distribution account and the executor ends up paying for his or her mistake.
In all likelihood, your son will appoint an executor to assist him anyway…so why not take that decision away from your son and make it yours instead?
What else does having a will offer?
Your will allows you to make full use of the various estate duty deductions allowed. For instance:
- Assets left to a surviving spouse are completely free of estate duty taxes
- Assets left to anyone else are also free of estate duty but only up to an amount of R3, 5 million.
Drawing up a will makes you think about “who’s getting what.” Then the next step is getting a financial advisor in to work out what it’s going to cost if you decide to go ahead with it.
What do I mean by that?
Well if you’re going to leave your R5 million holiday home to the kids then they (and you) better know that they’ll end up paying estate duty on R1, 5 million of that. Which means that somebody better have some life insurance in order to take care of the problem.
Let’s find out how many of us have a will:
Until next time.
The InsuranceFundi team