Kezia Talbot, Legal Advisor and Remay de Kock, Legal Adviser at BDO SA.
One of the most difficult aspects we have had to deal with in recent years, is to ensure that clients realise the importance of having a valid Will in place. The most difficult part is probably to make sure clients understand why we “sell” the concept of having a Will. Clients’ first reaction to this topic is the fact that there are several other pressing factors to consider – tax, education, investments (for the short- and long term), holiday funds, etc. All aspects dealing with the present in order to ensure a stable and secure future. The second reaction is the excessive – and “unnecessary” - costs associated with drafting a Will. If I know to whom I want my estate to devolve, why do I need to pay avoidable costs?
If we rely on the client’s perception of dealing with a means to an end to ensure a stable and secure future, the importance of having a valid Will in place is one of the foundations to achieve this. When drafting a Will you ensure that your affairs are in place in order to guarantee a smooth process of administration, but you also ensure that sufficient means are met in order to guarantee your family will be looked after at your death. Thus, you are essentially ensuring a game plan in order to suffice for current and future events.
When dealing with new clients and their estate planning needs we often get to deal with Wills with are not only outdated, but does not coincide with the current affairs of the client nor does it relate to the wishes of the client as a result of changed circumstances. A properly drafted Will warrants a process where you are certain of a document which is in line with your current circumstances and any changes are in line with your wishes.
Whether you have a Will or do not have a Will, consider the following when attending thereto:
When nominating an Executor, ensure that successive nominees are mentioned in case of failure, for whatsoever reason, of the first nominee. I have come across situations where the spouse passed away, followed by their children. There were no other family members and the administration process suffered heavy delays as a result thereof.
2. Defining heirs:
To avoid confusion, heirs should be appropriately defined considering their relationship to the Testator and identity number, in order to easily identify them during the administration of the estate. A bequest of “R100 000 to Chris Marx” is insufficient taking into account the fact that there are 3 people with the same name related to the Testator.
3. Successive heirs:
Testators all too often do not provide for alternative heirs in the event of the heirs predeceasing the Testator. Although the Testator’s intention might be to have a specific person or class of persons inherit failing the others, if this is not clear from the Will, your executor will have to refer to the Wills Act to provide for a solution – a solution which might not be consistent with your wishes. To avoid these situations, ensure that provision is made for alternate heirs for all bequests mentioned.
4. Provision for Minor children:
When dealing with minor children a lot of confusion exists as to the proper manner to deal with this situation. Proper advice needs to be obtained to confirm if a Trust is to be established for their benefit or if funds can be paid directly to the Guardian. In most cases it is advisable to make provision for a Testamentary Trust, but each case needs to be assessed on their own merits, depending on the facts of each situation. Remember, if you do not make provision for a Trust or insert a clause that funds can be paid directly to a Guardian, then all funds payable to a minor will be paid into the Guardian’s Fund.
5. Foreign assets:
If you own foreign assets, it is of the utmost importance to ensure that you properly deal with these assets. When considering if a South African Will alone is sufficient for your worldwide estate, consider the following common law rule which is used in most scenarios: When dealing with movable assets, such as bank accounts and investments, the law of the testator’s last domicile governs the validity and distribution thereof, whilst, when dealing with immovable property, the law of situs thereof is used to govern the validity and distribution thereof.
Your Will needs to be signed by yourself and two witnesses in your presence and in the presence of each other. Ensure that the witness signing the Will is not a beneficiary, Executor, Guardian, Trustee in terms of the Will or any spouse of the aforementioned persons. Should any of these persons sign as a witness, although not invalidating the Will, they will be disqualified from receiving any benefit stipulated therein.
7. Liquidity constraints:
Remember that before any distributions can be made to your heirs, all liabilities – both before and after death – have to be paid. Thus, when attending to your Will, think about the consequences of the bequests:
- Will you have sufficient funds available to settle your debts?
- What are the consequences if funds are not available?
If no other alternatives are available, assets will have to be sold from the estate, or heirs will have to have liquid funds available, adding pressure to their financial capabilities, in order to settle outstanding debts so as to prevent assets, which may have a sentimental value, from being sold from the estate. Take cognisance of your policies, investments, retirement annuities and how these assets fit into your wishes at death. If you have a policy with a beneficiary nomination, then these funds will pay directly to the beneficiary, regardless of your Will. Testators tend to forget these funds and do not even take them into consideration when attending to the Will. These funds might prove to be useful in establishing surplus liquidity in your estate.
8. Tax consequences:
Taking into account liquidity constraints and your ability to settle taxes which arise at death, be aware of the tax implications of each of your bequests. If you wish to bequeath your entire estate to your spouse, as it entails a tax free distribution, you are probably not completely doing this for the right reasons. Remember that you are in effect only delaying payment of taxes and that your spouse will have to take responsibility for all taxes payable thereon at their death. The section 4A abatement of R3.5million is also at your disposal, thus fully utilise your tax relief before making decisions which do not correlate with your actual wishes.
Drafting a Will entails an understanding of all factors which may have an influence on your bequest. Consider speaking to a fiduciary specialist to guide you through the dynamics of proper estate planning, taking into account all of the above, and how it impacts your wishes regarding your family and loved ones.
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