01 March 2017
Geordi McIntosh, Old Mutual Wealth
Benjamin Franklin said that the only two things certain in life were death and taxes. Prepared or not, each of us will ultimately become the subject of a deceased estate. This is according to Francois le Roux, Financial Planner at Old Mutual Private Wealth Management and runner up in the 2016 Financial Planner of the year competition, who says it is pointless to build an estate over a lifetime, without having a formal plan in place for the effective transfer of assets at death.
Geordi McIntosh, Head of Fiduciary at Old Mutual Wealth, echoes le Roux’s sentiment. “Like the two sides of a coin, a financial plan should work in tandem with a will, to meet the family’s financial goals should they no longer be in the picture. A financial planner who is already familiar with the individual’s goals and objectives is in the best position to do a financial needs analysis, helping to ensure that all dependents receive adequate income to cover their needs, for as long as necessary.”
Planning to provide for your loved ones should you, as the breadwinner, pass on starts with determining the current and future needs of the beneficiaries of your estate, say McIntosh. “Minor children, an aging family, or family with disabilities require different degrees of care and support,” says McIntosh. “Their level of financial literacy, or their need for life-long assistance with their financial affairs, among other factors, will ultimately determine the legal structure of the estate.”
Le Roux believes it is important at this point to establish what each dependent would need in the form of capital and a monthly income – for now, as well as in the future. “It becomes a question of matching all identified liabilities with available assets, and, on top of that, ensuring capital adequacy to provide the identified income over a required period,” explains le Roux. “It’s on this assessment that you’re in a better position to draft a will. At this point you can start looking at what percentage of the estate to allocate to each beneficiary, or perhaps what percentage needs to be put into a Trust, should you have beneficiaries that require additional or specialised care.”
Once you have defined your goals with the help of a financial planner, nominated your beneficiaries and what you hope to leave to each of them, you can start looking at the detail, says McIntosh. “It’s at this point you need to consider the tax implications for your loved ones, such as capital gains tax or estate duty, should you pass away. For example, if, after calculations, you realise you’re going to owe the Receiver of Revenue R500 000 in duties, part of the role of the financial planner is to ensure that there is adequate liquidity in the deceased estate to pay these bills.”
“In a bid to raise sufficient capital, the family of the deceased are often forced to bond their home. With the assistance of a Financial Planner, it’s possible to mitigate this risk, and avoid putting your loved ones in a tight financial position, simply by restructuring your assets, or taking out sufficient life cover that pays out immediately on the death of the breadwinner,” says le Roux.
Once you have gone through the process of setting up a will, le Roux advises to go back every year and revise your original objectives. “Ask yourself: ‘Does my financial plan still meet my needs, and the needs of my family? Have I updated the beneficiaries on my life policies, endowments, retirement annuities, retirement funds, and living annuities?’”
In addition, le Roux believes it’s a good idea to keep records of all documents relating to your financial affairs accessible. “This includes collateral such as title deeds to fixed properties, if bonded, the loan account number, name and address of the bondholder, motor vehicle registration certificates, short-term insurance details, details of shareholdings, details of all bank accounts and investments etc.”
“Estate planning is an important component of any financial plan and it is crucial to speak to your financial planner about your options,” concludes McIntosh. “By preparing for possible scenarios after death, you are ensuring peace of mind for your loved ones.”