WHERE THERE’S A WILL

WHERE THERE’S A WILL

Make a way to tie up your estate neatly and effectively… 

In the UK, some seven in 10 people die intestate. In the United States, studies show that 55% of adult Americans don’t have a will. In South Africa that number is as high as almost 70%. 

In terms of the law, if you die without a will the government steps in to decide the fate of your estate. Essentially you’d have a government will. If you are single with no dependents, then wrapping up your estate is simply a matter of dividing your assets between your parents, but dying intestate (without a will or with an invalid will) is not ideal for most people. An ideal situation is that you die with a valid will in place. 

Having a will is a foundation of effective estate planning. This will encompass what you want to achieve and what you want to pass on to your beneficiaries. A well-constructed will also allows you to make use of estate duty concessions and deductions. 

If you’re unsure of the validity of your will, the first step is to tick the following boxes: 

  • Is the testator 16 years or older and mentally capable of making the will?
  • Has the testator signed each page and the last page of the document?
  • Has the will been witnessed on the last page by two competent witnesses? In other words two people of at least 14 years and older and in good standing in terms of the law. Contrary to popular opinion, a witness can be a beneficiary too, although it is not advised as this can be a conflict of interests.
  • Has the will been updated to reflect life changes such as divorce or the birth of a child? 

Step two is to ensure the will contains all the necessary information. 

  • Establishing who your heirs are and what the extent of their entitlement is, as well as any conditions you want to establish.
  • Selection of an executor/s. This can be a family member who can opt to appoint a professional co-executor when the time comes. The estate will pay for those professional services.
  • In the case of a testamentary trust, the selection of trustees should be included as well as laying out the provisions of the trust.
  • Confirmation of legal guardians, if you have minor children.
  • Any last wishes or instructions can also be included. 

If you don’t have a will you leave your executor uncertain of your wants and needs. This is your last testament and your last way of being able to leave something to those people you love. It is also the vehicle for confirming conditions on the distribution of your estate and – in the case of parents with minor children- is an essential document which allows you to select trustees for testamentary trusts and to confirm legal guardians for your minor dependents. 

A MATTER OF TRUST 

If you are looking to establish a testamentary trust in your will – not to be confused with inter vivos trust, which is set-up during your lifetime – it’s vital that you consider the ins-and-outs carefully during the process of drafting your will. 

You might consider a testamentary trust if you have young children and want to ensure their financial future in the event they lose both parents, and avoid their inheritance being put under the administration of the government’s Guardian Fund, or if you want to create a charitable legacy or bursary fund after your death. If you have assets in excess of R3.5-million estate duty abatement, which exempts the first R3.5-million of your net estate from tax, you might consider a trust. 

A trust is a wonderful tool if it’s used in the right way. Unfortunately some 85% of trusts in South Africa are null and void due to incorrect establishment and “hey actually defeat what trusts are supposed to do. Many of those problem trusts are of the inter vivos nature. 

The key when establishing an inter vivos trust is that you’re physically transferring assets out of your hands. It’s not a book entry, cash physically has to transfer. So either donate and incur a 20% tax bill or you can sell the assets, complete with sale agreement, to the trust. But this has implications around loan accounts which you should talk through with your financial advisor. 

Be very careful that you do relinquish control. If you keep meddling (in an inter vivos trust) SARS is very likely to deem this an asset and it will be treated as part of your estate. Creditors have also attacked (inter vivos trusts) for this reason and the courts have declared them to an ‘alter ego’. 

Whether you opt to include a legal entity like a trust in your will depends on your personal circumstances and estate, but taking the time to speak to a professional about your will is a savvy move. 

Reference: 

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