You may be investing diligently to ensure you have a secure financial future. But does your financial plan make provision for your loved ones, should you pass away? Drawing up a will is crucial as you provide the ‘blueprint’ of how your assets are to be distributed after your death. If you die without a will (intestate) your assets may not be distributed in accordance with your wishes. It could also be a lengthy and costly exercise to distribute your assets.
Drawing up a will is a key part of estate planning – one which you should not delay. If you have minor children or a special needs dependant, you could also consider establishing a testamentary trust to protect and preserve assets you wish to bequeath to them.1 When having your will drafted, it is important to also consult a professional who specialises in estate planning, such as a financial advisor.
Do your homework before drawing up your will
Gathering the relevant information beforehand will make the process of drafting your will easier and save time. The firm who will be helping you with your will, may provide you with a checklist to complete before your appointment. This will typically include a list of your physical assets such as property, vehicles and jewellery, as well as financial assets such as unit trusts and tax-free savings accounts. You will also have to list your dependants, name your heirs, appoint a guardian(s) if you have minor children and name an executor for your estate. While this may seem daunting, you will be guided by the firm drawing up your will.
Make use of beneficiary nominations where possible
If you have investments with nominated beneficiaries, these will be distributed directly to the named persons/entities and thus will fall outside your will. Examples include long-term policies such as endowments and sinking funds, and living annuities. Where you have such products, it is important to nominate beneficiaries because if you have no beneficiaries, the proceeds will be paid into your estate should you pass away. We encourage you to make use of the beneficiary option as it offers a number of advantages:
- Saves time and provides liquidity for dependants on death. Winding up an estate can be a drawn-out process, taking 6 months to 2 years or more. So, it can take a long time for loved ones to receive assets from an estate. Having nominated beneficiaries means that the assets/proceeds of these type of products can usually be transferred more speedily to beneficiaries as they do not have to go through the estate. This also assumes that the nominated beneficiaries have accepted the nomination.
- No executor fees payable. A further benefit is that there is no need to involve the executor of your estate as the assets/proceeds are transferred directly to the beneficiaries once they have accepted the nomination. Hence, no executor fees will be charged in respect of these products, which can be as high as 4.03%.
- The opportunity to save/delay tax. If the nominated beneficiary of an endowment, sinking fund or living annuity elects to take over the investment from the deceased, instead of taking the cash proceeds, the transfer will be tax neutral. However, if the beneficiary chooses to take the proceeds of the investment, there will be tax implications which will differ according to the product type.
Ensure your beneficiary nominations are up to date
If your nominated beneficiaries predecease you, the proceeds of these products will be paid out to the estate. In the case of living annuities, the proceeds will be taxed according to the retirement tax table. Capital gains tax will be payable on the proceeds from endowments and sinking funds. It is therefore crucial to ensure that your beneficiary nominations are kept up to date.
The Ninety One Investment Platform also offers the option of nominating alternative beneficiaries2 for its Ninety One Life Portfolio, Ninety One Global Life Portfolio and Ninety One Living Annuity. This provides peace of mind as it mitigates the risk of having no surviving nominated beneficiaries in place when you pass away.
Consider the role of trustees in allocating retirement benefits
If you are a member of a retirement fund – a retirement annuity, pension/provident fund or pension/provident preservation fund – ensure you have completed the beneficiary nomination form and keep it up to date. However, the nominated beneficiaries of a retirement fund will not necessarily receive the benefits on the member’s death.
The trustees of a retirement fund have to adhere to Section 37C of the Pension Funds Act. This means that they need to determine who the dependants and nominees are and allocate the benefit in a fair manner. This can be a lengthy process as trustees may take up to 12 months to conduct an investigation and to allocate the benefit. Where no beneficiaries were nominated and no dependants were found, the proceeds of the retirement fund(s) will be paid out to the estate as a last resort.
Understand the big picture – the value of financial planning
It is important to consider how each investment/product applies to estate planning, looking at aspects such as liquidity, beneficiary nominations, estate costs and taxes within a holistic legal and financial planning framework. Therefore, your will should not be drafted in isolation. The professionals drafting your will should take into account your broader financial plan.
A financial advisor can help you to determine the optimal mix of investments and products that will not only enable you to build a secure financial future but also ensure the successful transfer of wealth to your loved ones.
1 A testamentary trust is established after your death, according to what you have stipulated in your will. Setting up such a trust can take time and it is important to seek professional advice to ascertain what would best suit your personal circumstances.
2 An alternative beneficiary will only stand to inherit on the simultaneous death of the investor and primary beneficiary(ies), or if the primary beneficiary(ies) predeceased the investor and were not replaced before the investor passed away.
