Your Fiduciary Duty as an IFA
The Importance of a Will and Understanding the Cost of Dying:
In South Africa, it is paramount to have a signed and valid Will, yet a staggering statistic reveals that only 1 in 5 South Africans have taken this critical step (Capital Legacy, 2023). As financial advisers, it is your fundamental responsibility to enlighten clients about the vital aspects of effective estate planning and the financial ramifications of passing away without a Will. This article explores the compelling reasons for having a Will and sheds light on the often-overlooked costs associated with dying.
A Will is not merely a legal formalism; it is a vital document that governs the distribution of a person’s assets when they are no longer around. In the absence of a Will, the distribution is dictated by the laws of intestate succession, which may not necessarily reflect the deceased’s wishes.
Here are four reasons that highlight the importance of having a Will:
1. Control Over Asset Distribution
A Will empowers individuals to dictate the distribution of their assets in accordance with their personal wishes, thereby eliminating potential disputes among heirs and ensuring that loved ones are provided for according to their needs and desires.
2. Nomination of Guardians (a key consideration for parents!)
Clients with minor children can appoint guardians through their Will to care for their children in the unfortunate event that both parents pass away. In the absence of this document, the court will determine guardianship, which may diverge from the parents’ intentions.
3. Minimising Family Disputes
Precise directives within a Will can serve as a pre-emptive measure against familial conflicts regarding asset distribution. Furthermore, it simplifies the executor's task by providing a clear blueprint to adhere to.
4. Estate Planning and Tax Efficiency
A meticulously drafted Will is an integral part of broader estate planning, which encompasses strategies for minimizing estate duty, capital gains tax, and other potential costs that may arise following an individual's death. Financial advisers play a crucial role in assisting clients in structuring their estates efficiently, potentially leading to substantial savings.
The Cost of Dying: An Eye-Opening Insight
While the emotional toll of losing a loved one is undeniable, the financial costs associated with death can also be significant. It’s important for financial advisers to prepare clients for these costs, which can catch families off guard.
Funeral Costs
Funerals in South Africa can be expensive, with costs varying depending on the deceased’s wishes. These can range from R10,000 for a basic service to over R100,000 for a more elaborate ceremony. Clients should be encouraged to consider funeral policies or savings specifically set aside for this purpose.
Executor Fees
The executor of an estate is entitled to a fee, which can be as much as 3.5% (plus VAT) of the gross value of the estate. This can significantly reduce the amount available to beneficiaries if not properly accounted for in advance.
Estate Duty
Estate duty is levied at 20% on the first R30 million of an estate and 25% on amounts exceeding that. Proper estate planning can help minimise the impact of estate duty, but it’s a cost that clients need to be aware of.
Master’s Fees
The Master of the High Court charges a fee based on the value of the estate. Although this fee is capped, it’s still an expense that needs to be covered.
Outstanding Debts
Any debts left by the deceased, such as mortgages, personal loans, and credit card balances, must be settled before the estate can be distributed to the heirs. This can sometimes force the sale of assets to cover these liabilities.
Income Tax
The deceased's estate is responsible for paying any outstanding income tax, including capital gains tax that may arise due to the disposal of assets.
As Financial Advisers, helping clients navigate the complexities of estate planning is not just about wealth management; it’s about providing peace of mind for the now and the next. By emphasising the importance of a Will and preparing clients for the financial realities of death, you’re ensuring that they leave a lasting legacy that reflects their values and wishes. Make these conversations a priority in your client meetings, and you’ll be playing a vital role in safeguarding their futures and those of their loved ones. Capital Legacy’s Legacy Protection Plan, a simple insurance policy which is priced very effectively, is especially designed to help indemnify you against these costs of dying.
