WORDS ON WEALTH
The word “estate” is a clinical, legal term, too easily confused with the other meaning of the word, which refers to residential or commercial property, as in “wine estate” or “estate agent”. I love the Afrikaans word for estate: “boedel”. To me that is far more down-to-earth and somehow descriptive.
Everyone has an estate, even the homeless man in a makeshift tent underneath the bridge. It’s just the size and complexity that differs.
When does your estate become important? There are several instances when it needs to be assessed and, if necessary, liquidated or broken up. The main ones are: getting married; getting divorced; declaring insolvency; and dying.
The first three instances may be avoidable but the last one isn’t. Estate planning is the act of deciding what happens to your assets on your death, and its most essential element is your will.
According to the latest Sanlam study by Brand Atlas, 44% of economically active South Africans either amended or created wills in the last 18 months. Covid-19 has obviously brought death closer to us. However, 54% of South Africans still do not have a valid will. Why?
Moremadi Mabule, head of wills operations at Sanlam Trust, says: “The prevalence of South Africans without wills is concerning. What has been positive is that we’re seeing a psychological shift, with different demographics starting to invest in estate planning. It’s no longer seen as reserved for the rich.”
In the 18 months, 35% of people updated their wills while 9% drafted their will for the first time. Nearly half of the first timers came from lower income groups, suggesting that awareness about what you leave behind is beginning to grow.
“Covid-19 is not the only reason. We have seen a number of other factors influencing why South Africans do and do not have wills,” Mabule says.
The biggest reasons for not having a will appear to be apathy and the belief that the size of the estate doesn’t warrant it. Of the respondents polled, 90% said that they either did not believe they had enough assets to warrant having a will or simply hadn’t got around to it. “I always thought it was a lot of admin to draft and I didn't have the kind of money that warranted that kind of effort,” one respondent said.
“I think what scares people off drafting their wills is this idea that it may be very complicated. It really isn’t – most people’s wills are simple,” Mabule says.
However, Gerhardt Meyer, a Certified Financial Planner and head of technical support at PSG Wealth warns against doing it yourself. With online solutions popping up, promising to spew out an estate plan in minutes, you may be tempted to go the DIY route. But this may ultimately cost you more than you think.
First of all, legal requirements matter. “For a will to be valid, the testator (who the will belongs to) must be over the age of 16 years, and the will must be in writing (typed or handwritten), with each page, including the last page, signed by the testator and two competent witnesses who are 14 years of age or older,” Meyer says. He also points out that anyone who stands to inherit under that will (and his or her spouse) does not qualify to be a witness.
Almost as bad as not having a will is one in which the wording is ambiguous. “A badly drafted will where the wording used is unclear or ambiguous often leads to disputes, court actions, unnecessary delays, and additional costs to the estate. This can easily be avoided if you enlist the help of a professional to draft your will, ensuring that the language used clearly expresses your wishes, and the formalities are strictly adhered to,” Meyer says.
Of course, estate planning can get hugely complicated and costly the more marriages (and ensuing dependants) and the more assets you have, especially if some of those assets are held offshore.
“Assets held in foreign jurisdictions can have various tax and other cost implications that need to be catered for. Assets in the UK or the US are subject to inheritance tax or Federal Estate Tax under the legal concept of situs. In the UK this results in tax at a rate of 40% for assets over the value of £325 000 and in the US tax at a rate of up to 40% for assets in excess of $60 000. In the case of US situs assets of more than $60 000, there will be an obligation to report the assets to the Internal Revenue Service. The cost of making the necessary filings through a US lawyer is approximately $5 000,” Meyer says. Which further reinforces the need for a professional.
Wills Week
Next week, from Monday September 13 to Friday September 17, is National Wills Week, an annual initiative by the Law Society of South Africa. If you have a relatively simple estate, law practices and fiduciary firms participating in Wills Week will draw up your will free of charge. Go to the Law Society website (www.lssa.org.za/our-initiatives/advocacy/national-wills-week/) for lists of participating attorneys in the nine provinces.
*For more on wills and estates, read the September 2021 issue of our information-packed IOL MONEY monthly digital magazine.
PERSONAL FINANCE