Estate planning can be complex, and any mistakes can have far-reaching consequences for those you leave behind. If you’re in the process of developing or updating your estate plan, here are some common errors to be aware of and to avoid:
- Not understanding your matrimonial property regime: When setting out to develop your estate plan, one of the first factors to take into consideration is the nature of your matrimonial property regime. This is because your marriage contract provides the financial basis of your union and, as such, provides the framework for your estate plan. If you and your spouse are married in community of property, you each own 50% of the joint estate. All the assets and liabilities that you and your spouse own are pooled into one common estate with each of you being equal ‘shareholders’. As a result, only half of the joint estate is yours to structure your estate plan around meaning that, should you die, your Will can only deal with your half-share of the communal estate. Therefore, when drafting your Will, you need to be sure that only your share of the joint estate is dealt with. On the other hand, if you and your spouse are married with the accrual system, you are deemed to be married out of community of property and you are free, within certain limitations, to bequeath your assets as you deem fit. However, in preparing your estate plan, it is important to take into account any potential accrual claims that may arise in the event of your death. Remember, if the value of your estate exceeds that of your surviving spouse, she will have a claim against your deceased estate for her share of the accrual. In structuring your estate plan, it is therefore important to account for your surviving spouse’s accrual claim and to ensure that you have sufficient liquidity in your estate to provide for this.
- Providing incorrectly for your minor children: If you intend to leave a financial legacy for your minor children, keep in mind that children under the age of 18 have no contractual capacity and are incapable of inheriting. If you bequeath cash directly to your minor children, these funds will likely be administered by the state-owned Guardian’s Fund until your children reach the age of majority. Similarly, if you bestow fixed property upon your minor children, such property will be administered by your child’s legal guardian until they are old enough to inherit. The most practical way to deal with inheritance intended for minor children is to make provision for a testamentary trust in terms of your Will with your children as the nominated beneficiaries.
- Dealing with insurance policies and retirement funds in your will: Remember, the proceeds of your life insurance policies where you have nominated beneficiaries as well as your retirement benefits are assets that fall outside of your deceased estate and, to avoid confusion, it is advisable to make no mention of them in your Will. In the event of your passing, the proceeds of your life policies will be paid directly to your nominated heirs. Similarly, your retirement fund benefits will be distributed to your financial dependants in terms of Section 37C of the Pension Funds Act. As such, any mention of these assets in your Will and/or who should benefit from them will only serve to create confusion and frustration for your loved ones.
- Getting a beneficiary to witness your Will: A common mistake made by those drafting their Will is to get their beneficiaries – often a spouse or adult child – to witness their Will, which amounts to a fundamental estate planning error. Remember, anyone who stands to benefit from your Will and who also signs as a witness can be disqualified from inheriting in terms of your Will. This includes beneficiaries, legatees, your executor, administrator, guardian, and trustees.
- Not updating your will after your divorce: Divorce can be an enormously traumatic process and it’s only understandable for a person to forget to update their Will after the divorce order has been granted. While Section 2B of the Wills Act effectively provides a three-month window period for divorcees to update their Wills, our advice is to update your Will as soon as your divorce order is granted as failure to do so can result in your ex-spouse inadvertently inheriting from your estate. This is because if you do not update your Will within three months of divorce, the Will that you drafted before your divorce will be deemed to be your last wishes.
- Not dating your Will: Although dating your Will is not a requirement for validity, the consequences of not dating your Will can be detrimental to your overall estate plan. Dating your Will means that your executor and heirs will have no doubt as to which version of your Will is your latest, especially if you have not destroyed all copies of a previous Will or where a previous, undated Will is found.
- Getting your beneficiary nomination wrong: Correctly nominating your beneficiaries in your life policies is important to give full effect to your estate plan, especially where you intend using life policies to create liquidity in your estate. In such circumstances, it is usually appropriate to nominate your estate as the beneficiary to the policy so that the proceeds are paid directly into your deceased estate. This will ensure that the executor will have access to sufficient cash to meet your estate’s liabilities and costs. Remember, where you nominate someone other than your estate as beneficiary to the policy, the proceeds will be paid directly to that person in the event of your death, and this can leave a liquidity shortfall in your estate.
- Nominating a minor child as beneficiary to a life policy after divorce: Following a divorce, you may decide to remove your ex-spouse as the beneficiary to your life policies and to name your minor child instead. However, give careful consideration to the consequences of doing this. Remember, as per point 2 above, your minor children are not capable of inheriting and, in the event of your passing, your ex-spouse – being your child’s surviving legal guardian – may be tasked with managing the funds until your child reaches the age of majority.
- Not providing for the bequests made in your Will: Before making financial bequests in your Will, it is important to understand how the laws of succession operate. Once your executor has paid all the costs and debts in your estate, his next job is to pay out any bequests made in terms of your Will, which means that your heirs only inherit what is left after your legatees (those to whom a bequest has been made) have been paid. When drafting your Will, it is therefore essential that your calculations are accurate in that any bequests to your legatees can be honoured while at the same time not reducing any financial legacy intended for your heirs.
- Leaving fixed property to multiple heirs: Bequeathing immoveable property to multiple heirs may seem like a good idea, but the practical implications are often far from ideal. For instance, you may bequeath the family holiday home to your three children in equal, undivided shares with the intention that they continue to make use of the property into the future. The reality, however, is that everyone’s circumstances are different, people emigrate, face financial difficulty, or have different goals when it comes to vacation. While one child wants to hold onto the property, another may want to realise the proceeds, while the other may have plans to emigrate and therefore have no use for a local holiday home. If you intend to bequeath fixed property for future use by multiple generations, it may be more appropriate to move the asset into a living trust with your intended heirs named as beneficiaries to the trust.
- Having conflicting wording in your codicil: If, for whatever reason, you intend to add a codicil to your existing Will, be very careful that the wording of your intentions in the codicil is fully aligned with the intentions set out in your Will. Any conflicted wording can create confusion, delays, and stress for your loved ones. Remember, your codicil is subject to the same requirements as your Will in terms of witnesses, although it is not a requirement that the same people who witnessed your Will also witness your codicil.
- Not providing for the residue of your estate: Failure to include what is known as a ‘left-overs clause’ can negatively affect your estate planning. The residue of your estate is everything leftover once all legacies have been honoured, and you must deal with these specifically in your Will. If you fail to deal with the residue of your estate, you will effectively die partly intestate and the residue of your estate will be distributed amongst your intestate heirs.
- Not keeping your tax affairs up-to-date: One of your executor’s first jobs is to report your deceased estate to SARS, keeping in mind that the taxman has the first claim to your estate. If your tax affairs are not in order with SARS, your executor will first need to bring all outstanding tax years up-to-date before he can begin preparing the pre-date of death assessment, and this can cause unnecessary delays in the winding up of your deceased estate.
- Not having a Will for your foreign assets: Whether or not you require an offshore Will is dependent on several factors, including the type of asset, in which jurisdiction it is held and its value. Generally speaking, if you own immoveable property in a foreign jurisdiction, you should have a foreign Will prepared to deal with the property in the event of your death. However, there are distinct advantages and disadvantages of having a foreign Will, so it is always advisable to consult with a fiduciary expert. There’s no doubt that having an offshore Will can ensure that your foreign assets are administered efficiently and concurrently with your South African assets, and can speed up the process of obtaining a grant of probate. Having your foreign Will drafted by an expert in the jurisdiction where your asset is held also means that it will be drafted in the language and within the legal framework of that region. For instance, some foreign jurisdictions do not recognise trusts as an entity and this can cause complications where a testator bequeaths foreign fixed property to a local testamentary trust.
As mentioned above, estate planning can be highly complex and we strongly advise that you seek the advice of an estate planning expert when navigating this area of financial planning.
Have a great day.
Subscribe via Email
- Long-term insurance policies and estate duty: Here’s what to know
- A special trust for your special needs child
- Section 37C of the Pension Funds Act: The allocation of your death benefits
- Uncovering the latest Ponzi scheme: The sad effects of greed and wilful ignorance
- Know what happens to the debt in your deceased estate