Lauren Hean, Appleton Managing Director,

Managing Director, Lauren Hean, highlights a great FISA article on the importance of proper estate planning

Lauren Hean, Appleton Managing Director

Managing Director, Lauren Hean, highlights a great FISA article on the importance of proper estate planning

FISA Chairman, Eben Nel, comments:

Part of the estate plan is obviously your formalised Will, so even if you die without a Will or without a plan, the process will still be followed by the executor, but they won’t have any indication of what you wanted and there wouldn’t have been any plan. We all know the old adage that if you don’t plan then you’ll definitely fail.

Intestate succession will be applicable if there’s no Will – and if you did not have a plan before you made the Will, it is possible that there may be a cash shortfall in your estate. If you had the Will without a plan, it means that some of your wishes may not be practical; the executor will not be able to actually execute some of your wishes.

As an example, if you said that somebody must receive a certain amount of money, what we call a legacy, and there’s not enough cash in the estate to do that, then maybe the executor will have to sell a property, to pay out that cash amount. This means that the person who would have received the fixed property won’t receive the property any longer because a legacy, for instance, is stronger or stands first in the line before an heir.

So, there are different rules that the executor will have to apply and if no exercise was done beforehand to plan it properly then it may just mean that your wishes fail.

Seek professional assistance in estate planning

I’d say that the most important thing is to get somebody to assist with the process. It doesn’t mean that nobody can do it on their own, just like you might be able to service your car on your own, but you may not be able to do it as effectively as a professional.

My advice will always be that you go to someone who can assist you, and your estate plan should flow from your financial plan.

So, when planning for retirement or even after retirement, you’ll conduct financial planning with your financial planner to make sure that you have enough money to last your lifetime; to make sensible investments and so on. This is all good and well, but what happens when you die or what happens when the first one of a couple dies, what will be the outcome for the survivor?

It is very important because sometimes people may be in a second or a third marriage, there may be different sets of children involved, some people may have maintenance claims against the deceased and so on. There may have been a previous marriage and there may be some consequences from that marriage as a maintenance liability and so on. All those aspects should be considered by the estate planner to advise the client on what the effect of that will be, the legal effect, and how that should be integrated into the estate plan.

There are some financial planners who also do estate planning but in many firms you will have two different individuals. I always like to say that the focus of the financial planner is different; it’s to really make sure that you have enough money if you live too long, while the focus of the estate planner is to make sure that there is enough money if you die too early, and we don’t know which one will happen. So, they both have a role to play.

It is possible that the same person can do both but, as I say, in most cases you’d have two different individuals because the estate plan is a far more legal exercise, while the financial plan is mainly a financial and economic exercise. However, in both cases tax planning plays a central role because whether you are alive or whether you have passed on, there will always be tax consequences.

The impact of marriage contracts on estate planning

The way that people are married is very important because when they die, the marriage comes to an end. People often think that is an important factor when they get divorced, but it is just as important when they die because you have the same consequences.

Married in community of property just means that there’s only one estate – a joint estate – so if one of the two partners passes on it means that that one estate is actually administered by the executor. So, every asset that those two spouses have will be affected and will be administered in that process, although only half of the estate will be inherited. That means half of everything; every car, couch, and fixed property.

When you are married out of community of property it simply means that there are two different estates. Each party has his or her own estate, just like they had it before their marriage. They will also have their different estates and their separate estates after their marriage. So, if one dies it is only that estate of the deceased party that will be administered.

As an example, if spouses have a joint primary residence and they are married in community of property, it’s registered in both names and the full property will form part of the joint estate but only half of that property will be transferred in terms of the Will/Intestate Succession Act. So if they’re married in community of property and the will says that all assets go to the children and there are two children, it actually means that a quarter of that estate will go to each of the two children and the surviving spouse will be left with 50% of the house.

If they are married out of community of property and the house is only registered in the deceased spouse’s name, then obviously it will be transferred to his heirs. If it’s registered in the name of the surviving spouse, then it won’t be affected at all and won’t form part of the estate. Just to make it completely clear to understand, if they are married out of community of property and the house is registered in both names because that is also possible, then you will have a similar consequence to the situation where they were married in community of property where only 50% of the property is dealt with in terms of your Will/Intestate Succession Act.

If there is a combined estate, as an example, and the husband dies without a will, then intestate succession will take place. This means that his wife and children will collectively inherit, and there are certain rules, I won’t go into the detail, from the husband/father. So, the wife will ultimately sit with half of the property plus a percentage of the other half, depending on how many children there are, and the result will be that they will be co-owners – the children will automatically become co-owners of that house percentage-wise.

They will literally be able to say, ‘but we also want to live in the house’ and will have to contribute partly to the costs and the maintenance and so on. So yes, it can become a very unfortunate situation if there’s no plan and if people don’t understand the consequences of their wills and their wishes.

The original article can be found at https://www.moneyweb.co.za/in-depth/fisa/the-importance-of-estate-planning/