“Death is the penalty we all pay for the privilege of life.” (Robert Half)
We know we can’t escape death. But most of us still do everything we can to ignore or avoid it.
The problem is that if we don’t acknowledge our own mortality, we won’t prepare for it. And, unfortunately, that can have a real impact on our families.
Thinking about what will happen when we die shouldn’t be seen as something introspective and morbid. We should see it as being considerate of those we leave behind.
Having things in order
We shouldn’t compound the trauma of our passing by leaving a financial maze for our loved ones to navigate. Regardless of our age or circumstances, it should be seen as a gift to our families to have matters arranged should the worst occur.
The simplest way of doing this is to have a file or a document saved on a computer containing all the important information relating to your finances. This would cover everything from insurance policies to bank account details and details of investments.
Information on any debts you may have like home loans or vehicle financing, and contracts for mobile phones, security or streaming services should go in here, too. These are all things that need to be transferred or ended if you pass away, and it’s very helpful if your family has them all in one place.
To make dealing with an estate as easy as possible, everyone should also consider these three key things:
1. Have an updated will
The Master of the High Court estimates that 70% of working South Africans don’t have a will. All of these people risk dying intestate, which means that the law gets to decide who should inherit from them.
In practice, this means that your assets will be shared between your closest relatives in a predetermined order and fashion. This may not look anything like the way in which you would actually like your wealth to be passed on.
By writing your wishes into a will, you can ensure that you are providing for your loved ones. It’s also a good idea to tell everyone what they can expect so that there are no surprises.
You should also revisit your will regularly. Your circumstances and wishes will change over time. Make sure that your current will reflects this.
2. Name (and update) your beneficiaries
Financial products like retirement funds, endowments and insurance policies allow you to specify who should receive the money in the event of your death. This is an important way of providing for your loved ones.
But be sure to update these beneficiaries if your life circumstances change. For instance, there are many cases of divorced partners receiving life insurance payouts long after they have separated, while the new spouse gets nothing because the policies weren’t changed.
3. Consider final expenses
It is an unfortunate reality that dying can be expensive. It’s not just that funerals can be costly, but winding up an estate takes time and expertise that needs to be paid for. There may also be taxes to hand over.
A funeral policy is a useful way of covering that expense. This is even a separate benefit on certain life insurance policies.
However, the bigger consideration is making sure that there will be enough available cash in your estate to pay for the process of dealing with your affairs. Executor’s fees in South Africa are set at a maximum of 3.5%, excluding VAT, of the total value of assets in the estate, and 6%, excluding VAT, on all income received while the administration process is underway.
That means that for an estate valued at R10 million, executor’s fees would be R350 000 plus VAT. It can be a good idea to make allowance for this, either through a life insurance policy that pays into your estate or a savings account (which could also serve as an emergency fund). This will ensure that nobody needs to sell assets just to cover these costs.
Estates valued at less than R3.5 million do not have to pay any estate duty tax in South Africa. Above that, estate duty is levied at 20% on the first R30 million, and 25% on any amount above that. It is more difficult to make provision for this, but again having adequate life insurance is a sound way to make sure that your family isn’t left with far less than you would have liked.
We can assist you with your estate planning.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.