Estate planning has emerged as a priority for South African households since the onset of the COVID-19 pandemic, especially for parents who want to ensure their children are looked after should the worst happen.
In 2021, the Master’s Office, which oversees the administration of estates of deceased and insolvent individuals, estimated that about 70% of working South Africans did not have a will in place. However, as the pandemic progressed, subsequent studies found that there was an upsurge in people either drafting their wills for the first time, or updating the ones they already had.
Significantly, a large portion of first-time planners came from lower income groups, indicating that South Africans across the economic spectrum are better considering their financial legacies and the heirs of such.
“Estate planning – be it through a will, legal document, or other end-of-life considerations – needs more consideration when minors are involved. In these cases, parents must navigate several complex and emotionally sensitive issues when choosing trustees and guardians to safe keep the child’s inheritance until their age of majority, at 18 years old,” says Faeeza Khan, Senior Specialist for Legal Marketing at Liberty.
Any inheritance designated for children must be placed in a testamentary trust in terms of the Will, which is not only the instrument which creates the trust but is also the instrument which will allow the planner to nominate trustees.
“The trustees will then administer and control such inheritance on behalf of the minor child. It should be noted that a life policy also allows for a certain amount of money to be designated for a child’s monthly maintenance needs (including for education) and can also be used to leave a capital legacy. It is important that these policy proceeds are paid into the testamentary trust for safeguarding.”
She says there are a number of considerations one should note when estate planning, especially when a minor is involved:
- The Will should be simple and understandable. Many people make the mistake of trying to ‘rule from the grave’ which complicates the Will and makes it difficult to execute.
- Take time to choose trustees and guardians, and time to understand the child’s present and future needs. Furthermore, it is also important to decide how the accumulated wealth should be divided should more than one minor be involved.
- A testamentary trust as part of a will is a non-negotiable if there are minor children. In the absence of a testamentary trust, any inheritance that accrues to a minor child runs the risk of being liquidated/converted to cash and held in the Guardian’s Fund. The guardian of the child would then have to claim maintenance from the Guardian’s Fund to assist with the financial support of the child.
- Make sure there is enough liquidity in the estate to cover taxes and expenses in the event of death. Many leave assets such as holiday homes to their children without understanding that if they can’t pay the taxes or debts, the assets will have to be sold.
- Life insurance is often used as a tool to provide a cash injection into an estate to assist with estate expenses, liabilities, taxes and to leave enough money for a trust to maintain and leave a legacy for the minor children.
“If one dies without a will, the Intestate Succession Act (“the Act”) takes effect. In terms of the Act, only blood relatives and spouses may inherit from the estate; foster children, stepchildren, foster parents, stepparents, and possibly your partner, will therefore most likely be excluded.”
The importance of a valid will is often underestimated, as many mistakenly believe their heirs can take any document stating a deceased’s wishes to a Court for approval. While legislation does make provision for the High Court to be able to declare a document, that doesn’t comply with the necessary legal requirements, valid, it is not guaranteed that the Court will come to this finding, and in addition, this is a costly and time-consuming process.
Once the key documents for an estate plan is in place, it remains important to review them each year or whenever a major change in the family occurs, such as a birth, death, marriage, or divorce.
“Effectively, having a well-drafted, updated, and valid Will can prevent undue challenges and distress after one’s passing and ensures assets are allocated as per the wishes of the deceased. The process may initially seem daunting, but a sound financial adviser is best placed to detail the most efficient options and implement a legal plan to ensure a child’s continued wellbeing should the worst occur,” she says.
This article does not constitute tax, legal, financial, regulatory, accounting, technical or other advice. The material has been created for information purpose only and does not contain any personal recommendations. While every care has been taken in preparing this material, no member of Liberty gives any representation, warranty or undertaking and accepts no responsibility or liability as to the accuracy, or completeness, of the information presented. Please consult your Financial Adviser should you require advice of a financial nature and/or intermediary services.
Liberty Group Limited is a Licensed Life Insurer and an Authorised Financial Services Provider (no 2409).