Wealth Advisory Newsletter

Leave your legacy – the right way!

Many South Africans are under the misconception that death happens to “other people” and that it will be a long time before it happens to them. This approach leaves personal matters “hanging in the air” and no clear-cut plan in place for their affairs when they are no longer there. A well-drafted Will means their voice will be heard from beyond the grave. Some think downloading a template, filling it out and signing it is sufficient. This is not a good plan as too many things could be left to chance. Drafting a Will should be part of a well-thought-out estate plan that is put in place with the assistance of specialist advisers. 

The Supreme Court of Appeal commented on this situation when it delivered a verdict in the case of Raubenheimer v Raubenheimer and Others (560/2011) [2012] ZASCA 97. The verdict reads: “It is a never-ending source of amazement that so many people rely on untrained advisers when preparing their Wills, one of the most important documents they are ever likely to sign” and continues to say that “…the courts continue all too often to be called on to deal with disputed Wills which are the product of shoddy drafting or incompetent advice”.

Dying without a Will

A common belief is: “When I die, my partner or spouse will automatically be entitled to my assets”.  This is not true. If a person passes away without a Will, the Law of Intestate Succession Act 81 of 1987 determines who will inherit their assets and in what proportion. The distribution may not be what was wanted by the deceased, and people who were never intended to inherit may become the heirs.

When engaging the services of a professional to draft a Will, all loopholes and gaps are identified and avoided to ensure a smooth transfer of assets to beneficiaries. To derive the maximum legacy for beneficiaries, the professional will ensure that the Will is drafted in the most cost and tax-efficient way possible.

 Choosing an executor

The Administration of Deceased Estates Act 66 of 1965 aims to formalise the role of an executor and sets out the process required to administer a deceased estate. When a person passes away, the executor steps into their shoes, takes control of their estate, settles liabilities, and ensures all other legal obligations are met before distributing the estate to beneficiaries.  The Master of the High Court appoints an executor familiar with the estate administration process. This includes estate administration experience and the necessary qualifications to fulfil the role.  

It is vital that the right executor is nominated in the Will. Remember, the executor is the person who carries out the instructions to leave the legacy the deceased envisaged. So, a wise choice must be made.

What happens to a minor’s inheritance if someone passes away without a Will?

A minor is a child younger than 18 and lacks legal capacity. If a person passes away without a Will, a minor's inheritance is paid in cash to the Guardians Fund of the Master of the High Court. It is then invested with the Public Investment Commission, which is managed by a government-owned company. Over the years, there have been several reports of extensive fraud and corruption at both institutions*.

According to the annual report for the 2021/2022 financial year, the rate of interest within the Guardian's Fund was 4.25%. The minor can access the interest for maintenance, education and other expenses. Capital up to R250 000 can be paid from the fund to supplement the interest payout. In our present economy, the growing cost of living is so high that access to sufficient cash from the Fund may be limited.

The inheritance is held in the Guardian’s Fund until the beneficiary turns 18. The question is: will the child be mature and responsible enough to handle the inheritance at that age? 

How else can a minor’s inheritance be protected?

A Will can make provision for forming a Testamentary Trust for a minor if their parent or guardian passes away. The executor will distribute the inheritance in accordance with the Will to a Testamentary Trust. In a Will, a person can direct that the minor can access the money for their maintenance and general well-being. Unlike the Guardian’s Fund, distributions from the trust capital are not capped.

Unlike the Guardian’s Fund, a Will can stipulate the beneficiary’s age when the trust terminates. It should preferably be an age when the beneficiary would be mature enough to manage the inheritance on their own. The stipulations can be changed by revising the Will from time to time.

Who will manage the Testamentary Trust?

A Trustee can be nominated in a Will. The role of the trustee is to preserve, protect and administer the inheritance on behalf of a minor. Trustees choose the investments best suited to the Trust that yield high returns and cater to capital growth. Proper accounting records mean that there is transparency in how the Trust is being administered. Trustees ensure tax compliance and attend to payments for the minor. A Trustee who will best fulfil the duties should be nominated when drafting a Will.

Nomination of a guardian

A guardian can be nominated for a minor child in a Will. A guardian is responsible for the child's care, development and well-being. Nominating a guardian in the Will guides the family left behind on who is intended to take up this responsibility. Without a Will in place, it can lead to much confusion and disagreements among family members, to the potential detriment of the minor child.

Wills must be reviewed periodically

Once a Will is drafted, it must be signed correctly and stored in a safe place. But this is not where it should end. Individuals should review their Will at least annually to ensure that it is still how they want their estate distributed. Life changes like marriage, divorce, birth or death of a loved one are some reasons why a Will should be reviewed.

For example, if a spouse was nominated as a beneficiary, they will not inherit within three months of a divorce. If a person passes away after three months of divorce, their former spouse will inherit if they have not amended their Will. A professional will advise to review a Will as soon as a person knows that there is a pending divorce. This is to to prevent unintended consequences.

Leave a legacy the right way, by engaging the expertise of a professional to draft a Will. This ensured peace of mind, knowing that all affairs are in order and loved ones will be cared for.

Kind regards,

By: Jocelyn Manda: PPS Fiduciary Specialist - Member of FISA

* https://www.citizen.co.za/business/what-exactly-is-the-government-guardians-fund/ and https://www.ft.com/content/7a8ac00a-64d2-11e8-a39d-4df188287fff

Disclaimer: Kindly note that this does not constitute financial advice the information provided is purely informational. In terms of the Financial Advisory and Intermediary Services Act an FSP should not provide advice to investors without an appropriate risk analysis and thorough examination of a client’s particular financial situation. The information, opinions and communication from the PPS Group or any of its subsidiaries, whether written, oral or implied are expressed in good faith and not intended as investment advice, neither do they constitute an offer or solicitation in any manner. PPS Ltd a licensed insurer conducting life insurance business, a licensed controlling company and an authorised FSP. PPS Fiduciary Services is a division of PPS, a licensed life insurer, controlling company and FSP.