What can we learn from a Cape Town man’s nightmare experience with his father’s will and estate?
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A recent article on a Cape Town man’s nightmare experience as his adopted father’s estate was being administered and the challenges he’s going through regarding his inheritance elicited a number of comments and responses from readers with similar experiences.
Some of the comments on Facebook include: distrust of service providers; what to expect when a loved one’s estate is administered; who to nominate as an Executor; and challenges with liquidity (cash) within the estate.
But what clearly stood out as the single most important thing you should do – draft and finalise your will.
Too many people don’t even get this important task done and the disaster they leave for their dependants can be devastating, both financially and emotionally, says Wills and Estates company, Capital Legacy.
In the above case, the son was actually not legally adopted. The fact that there was a Will in place and he was named as the sole beneficiary, despite not being a relative, is very important. If there was no Will in place, he would not have legal standing to have a claim on the estate, says Alex Simeonides, CEO of Capital Legacy.
There are many people in South Africa who care for others who may not be their relatives as defined in the Intestate Succession Act. To this end, if you want someone to be a beneficiary of your estate, especially if they aren’t directly related to you, you need to expressly mention them in your Will as a beneficiary, he advises.
Simeonides shares some of the reasons why you should draft a Will:
1. Why Draft a Will?
* Guardians for your minor children: When you have minor children (children under the age of 18), you have the opportunity in your Will to state who you wish to be your child/ren’s guardians if both parents should pass away.
* Minor children’s Inheritance: Should you pass away while your child/ren are still minor/s they cannot directly receive the inheritance you leave to them. Someone else needs to take custody of the inheritance to manage it until the child becomes of age and can manage their own finances. Where no provision is made for a testamentary trust through the instruction in a Will, the inheritance is either paid into the Government Guardian’s Fund or paid directly to the legal guardian to manage on behalf of the child. However, by making provision for a testamentary trust in your Will you can ensure that the inheritance for your child is placed in a financial structure that enjoys certain tax benefits and that will ensure that the inheritance you leave to your child will be managed well as though you yourself were managing it for them, ensuring that you create a positive legacy for your children.
* Who inherits what: Clearly stating in your Will what your wishes are regarding your assets and how they should be distributed between your heirs ensures that there is no in-fighting between your loved ones. “We have had to manage scenarios where family members have fights over assets and have resulted in terrible breakdowns in the family. It’s sad to see how unclear intentions rip into a family at a time when they are still dealing with loss,” Simeonides says.
* Executors, co-executors and trustees: You should nominate an executor, co-executors, and trustees you know and trust to take the fiduciary responsibility seriously to ensure your estate is administered according to your wishes, in the best interest of your beneficiaries, and timeously.
2. Who can I nominate as executor?
It might provide you with a sense of comfort to nominate a close friend or relative as executor, but when the time comes for them to administer your estate, this could be a massive burden to them, especially as it can take anywhere from six months to 3 years to finalise your estate.
When it comes to the administration of Estates, the Master of the High Court will either provide a Letter of Authority (if an estate’s value is below R 250 000) or a Letter of Executorship (for an estate valued at over R 250 000). But something to note is that all administration of estates is done under the authority of the Master of the High Court and has to be conducted according to the various legislations that may be applicable.
If you were to appoint a family member or friend who does not have the know-how, then it’s important to note that if your estate is valued at over R 250 000 the Master of the High Court would likely insist that they appoint a professional to help them with the administration and then the burden falls to them to find an executor.
“You can save your loved ones the burden of finding and selecting an executor under pressure by simply appointing one in your Will and then nominating your family member or friend as a co- executor if you still wish to do so. Through this approach you ensure your family member or friend will not have to carry the burden of administration on their own,” recommends Simeonides.
3. What happens when there is property to be inherited?
When property forms part of the assets within an estate, it needs to be transferred regardless of whether the property is in two people’s names and the one is still alive. This conveyancing of property incurs transfer costs based on the market value of the property, conveyance attorney costs, paying 3-4 months rates and taxes, clearance certificates and getting the bond figures, etc.
When an executor opts to sell a property, he/she has to do so with the Master’s approval and according to the Administration of Estates Act and at fair market value, in the interest of ensuring there is liquidity within the estate.
4. What does liquidity (or lack thereof) in an estate mean?
Simply put, liquidity in an estate means access to cash to pay for debts and the costs associated with winding up the estate.
Regardless of how many assets you may have in your estate, or the value thereof, if your estate does not have access to cash to pay for legal fees, taxes, transfer costs, debts and other expenses, the executor is empowered to sell off assets to cover these costs - before the beneficiaries and heirs may inherit.
“We have seen too many cases where people rely on their home as their primary form of inheritance for their spouse or family, only to see this plan fall apart because they haven’t considered the material costs of dying and the home then needs to be sold to raise cash,” notes Simeonides.
It’s not all doom and gloom, however. There are several options available to effectively cater for these costs and ensure your family is not left with a nightmare scenario should you pass away. The key is to be aware of them and put together a proper estate plan starting with your Last Will and Testament.
Estate planning is so much more than just securing life cover. You need to consider your assets, businesses, spouse, dependents, debts, and taxes. These days foreign assets and investments are also becoming a key part of people’s portfolios and need to be accounted for in the estate planning process.