Warwick Wealth has selected Appleton to provide fiduciary services, Will drafting and Estate administration to its clients.
This month, the Appleton Managing Director, Lauren Hean, highlights the problems of illiquid estates and cash shortfalls.
Many estates have significant assets such as fixed property, but actuarial research reveals that less than 30% of all estates have sufficient cash to meet the costs of winding up the estate and less still to tide them over during the administration process. This has at least two consequences. Firstly, heirs (often a surviving spouse) are left with little or no cash to live on while the estate is being wound up. This, in turn, significantly
compounds the trauma of the loss of your loved one and can lead to the forced sale of property. The second and related problem is that certain costs have to be paid from the estate such as Master’s fees, SARS and executor’s fees. Cash has to be available to pay for these costs or has to be generated from the sale of assets and such
forced sales often result in a loss of value to the estate and ultimately the heirs. For example, assuming the value of your estate is R3 million, the statutory executors fee at 3,5% is R105, 000. On top of that, the estate has to pay conveyancing fees for the transfer of any fixed property, medical claims, any debts owing by the deceased, maintenance and accrual claims, rates and taxes due on the fixed property, Master of the High Court fees, advertising costs, courier costs and of
course, where necessary, funeral costs.
This is all at a time when the surviving spouse may have no regular income of their own and of course, the monthly bills do not stop, such as private security, DSTV, cell phone accounts etc. Remember too, that where there is a nominated beneficiary of a life insurance policy, this does not form part of the estate.
An easy, cost-effective and tailor-made option you may wish to consider to avoid a cash shortfall or liquidity problem, is to take out an Estate Preservation Plan, which can provide for immediate cash and a monthly payment to a designated beneficiary and covers all estate costs. It is always good to review your estate annually
and it may be worth speaking to your Warwick Wealth specialist, or personal Independent Financial Advisor to look into your current estate and identify any possible cash shortfall, or liquidity issue, particularly where there is a need for immediate and monthly income.