180 - Reasons why the setting up of a will is crucial

Question

A lot of companies are offering free wills at the moment. What is the catch and is a will really necessary?

Answer

Take a look at who is offering the free wills and their motivation for doing so.  It may be part of an altruistic national initiative to educate and improve your financial wellness. On the other hand, there may be a business motive (which is not necessarily bad). Companies that offer free wills are typically looking for one of two things: 

• They would like to become the executor of your estate when you pass away and receive the executor fees
• They want to use this as an opportunity to check that you are adequately insured so that your family will not have to sell any major assets to pay your final expenses and taxes.

Coming to your question as to whether a will is really necessary - South Africa has rules (called the rules of intestate succession) on how your assets should be disposed of should you pass away. So, in theory, you do not actually need a will.

However, in South Africa we also have freedom of testation.  This allows us to overrule the intestate succession rules through the use of a will.  This is a wonderful benefit and you would be foolish not to make use of it.

Not all countries offer this benefit so you would have to comply with their laws of forced heirship.  As a rule of thumb, if a British flag has flown over a particular country then you will have freedom of testation.  (As a side note, I have seen many people buying property in countries with forced heirship in order to get a golden visa. I would urge you just to check the inheritance rules around these properties and ensure that your will takes this into account.)

If you are happy with the rules of Interstate succession then it's not actually necessary to have a will.  However, there are a couple of really good reasons why you should have one: 

• If you are married, you can bequeath all your assets to your spouse.  This will result in estate duty and capital gains tax only being paid upon the second death.  If you did not have a will, your spouse would inherit half your assets while your children would inherit the other half.  The children's half would trigger the immediate payment of capital gains tax and estate duty.  This could result in your family having to sell assets like your family home in order to pay these taxes.  This is not an ideal situation.
• If you have a minor child and do not make provision for the establishment of a testamentary trust in your will, the assets that would go to the minor child would be invested in the guardian’s fund where the returns are only 5.4%.  Again, this is not an ideal situation

As you can see, there are significant benefits to having a will.

Insider tips 

• The masters office will only work off an original wall so you need to ensure that your will is stored safely and that a number of people know where it is. If the will cannot be found, then the rules of Interstate succession will apply. As you can see, those rules may not give your family the best possible solution.

• Many life insurance salesman will try and scare you into taking out significant amounts of life insurance in order to pay for your final costs and estate duties.  I prefer to go the route where we restructure your assets in such a way that executor fees, capital gains tax and the estate duty is minimized.  By making a series of small changes every year, you can end up with a situation where you did not need massive amounts of life insurance in order to cover the estate liquidity issues.

Kenny Meiring MBA CFP ® is an independent financial adviser who helps people put investment and risk structures in place to live wonderful lives.  You can contact him on 082 856 0348 or at Financialwellnesscoach.co.za. Please send your questions to kenny.meiring@sfpwealth.co.za