The Will to Live:
Most of us spend the greater part of our lives working, and then retire at a pre-determined date or age. During this phase of our lives, we have enough time to plan for, and make adjustments to, our finances, housing, and so on. But, when it comes to that most important planning instrument, the Will, we have very little idea when we are going to need it most.
For this reason it is important that through-out our adult lives, our Wills remain up to date and attuned to our changing circumstances. It is one thing to simply have a valid Will; what’s really important is an effective Will. This article is intended to provide you with tips to ensure you put in place a practical and effective Will.
What is a Will?
A Will is a set of unilateral, written instructions, which dictates precisely what should be done with your assets after your death. It is one of the most important documents you can ever sign. It determines the fate of all your possessions. If you are married and have a family, it is not an exaggeration to say that their futures can be enhanced or impaired by your will.
What is an effective Will?
Practically speaking, your Will should meet not only your wishes but also your heirs’ needs. As far as possible, it should:
• be legally binding, valid and practical
• provide your surviving spouse with sufficient income for the rest of his/her life, making due provision for the effect of inflation on the purchasing power of money
• distribute your assets fairly – this does not necessarily mean an exactly equal distribution; on the other hand, a grossly unequal division of your assets could cause ill-feeling amongst your heirs after you are gone
• be planned in such a way as to avoid tax traps, and reduce your heirs’ exposure to estate duty and capital gains tax
• enable you to retain control over your own assets until your death, and not put your security at risk, if your spouse should die before you.
• maintain the continuity or success of an existing business or professional practice for as long as is necessary
• not cause delays, nor result in high costs, when the administration of your estate commences
• be simple and easy to understand, and not contain intricacies or ambiguities which could lead to litigation
• above all, always remain up to date.
Plan for the present
When planning your Will, it is essential that you take your present situation into account. What should happen if you die immediately, after signing the document? Don’t try to make provision for the distribution of your assets in five or ten years’ time. Think in terms of the here and now, of what you know about present circumstances and legislation.
Test the numbers
How can you ensure that your Will does not create problems for your heirs and that it meets all the above requirements? The answer lies in a proper, arithmetical analysis of the terms. In this way, you and your spouse can determine the exact net value of each heir’s inheritance, the estate expenses involved, how the residue is calculated, what assets it consists of, and how it is to be distributed amongst your heirs. It is imperative that you seek advice from a financial planner to test your Will against an analysis.
Provision for your surviving spouse
If you are married, your first priority is probably to provide adequately for your surviving spouse. Assume that you will die first, and, if you can, set aside sufficient means to maintain your spouse’s independence. You may not yet possess sufficient means to make independent provision for your surviving spouse. If not, you should ensure you have sufficient life cover on your life to provide the capital needed. You can nominate your spouse as the beneficiary of your life cover in which case, on your death, the proceeds are paid directly to your spouse and are there-fore not frozen with your other assets until the administration of your estate has been completed. This has the added effect of reducing the overall costs of the process of administration.
Bequests
A bequest (or legacy) is an instruction in your Will to award a named person a specific item, asset or sum of money. Bequests rank ahead of the award of the leftover bulk of an estate, called “the residue”. The persons left the residue of an estate are called the “heirs”. It may be prudent to make regular adjustments to the size of cash bequests because their “real” value is constantly being eroded inflation. Alternatively, you can add an escalation clause, which provides that the bequest will automatically increase by a named percentage per year as from the date of execution of the Will.
Minors, trusts, and guardians
If you have minor children, to whom the bulk of your estate is likely to pass (either because you have made sufficient provision for your spouse, or for some other reason, such as the simultaneous death of you and your spouse), it is advisable to create a will, or “testamentary” trust for the children. The main purpose of this type of trust is to ensure that responsible people (your spouse, trusted family members or friends, and/or professionals such as your attorney or accountant) invest and administer the trust assets until the children are old and mature enough to take care of their own finances (twenty-five is a commonly stipulated age). Where your children are still minors (under 18 years) you should appoint a guardian to look after their personal needs in case you and your spouse die simultaneously, or shortly after one another. Choose as guardian someone who would be well-suited to the task. In other words, a close relative or friend who shares your values and principles, attitudes to life, and who belongs more or less to the same age group and economic standing in the community as yourself. Even though he or she can never replace you, the guardian may be called upon to act in your place as substitute parent to your beloved children. And remember, guardianship can be an onerous task – don’t expect the guardian to bear the financial burden of your children’s upbringing, and do obtain his or her consent before you nominate the guardian in your Will.
Business continuity
If you have a business or professional practice, you should, as far as possible, take into account the continuity of the concern when planning your Will. This is particularly important to your business partners or other interested parties, such as fellow shareholders or members of the firm, because it can help to ensure smooth succession, or at the least, transition, if you unexpectedly die.
Business owners are advised to conclude a “buy-and-sell” agreement in terms of which the surviving parties are obliged to acquire a de-ceased party’s business interests from his or her estate at a predetermined price, on previously agreed conditions, and thus continue with the business.
Keep it simple
Ensure your Will is short, clear and unambiguous. Unnecessary repetitions, wordiness and ambiguity should be avoided. A bequest worded as follows: “To my son and daughters in equal shares…” can be interpreted in two ways – either your son is to receive half the assets and each of your two daughters, one quarter, or else each of the three children receives a one-third share of the assets. Be specific in the wording of your will. Neither should your will be written in complicated legalese; it should be written in such simple language that the proverbial “man in the street” will have no difficulty understanding.
Ruling from the grave
Do not place too many restrictions and conditions in your Will and in this way try to “rule from the grave”. You cannot impose a so-called “nude prohibition” on a beneficiary. A typical example of this would be a bequest, say, of your beach cottage to your daughter “on condition that she shall not sell it.” To round off this clause, and make it binding, you must stipulate what is to happen if she tries to breach your prohibition. Perhaps all you wanted to ensure was that your property would remain in the family for your grand-children’s benefit? Why not provide that your daughter may not dispose of the cottage, but, on the contrary, when she dies, it must pass to her children? Better still, leave the cottage to your trustees, with instructions as to the ultimate disposal of the capital.
Obtain expert advice
Planning and drawing up a Will is a specialised matter which can have far-reaching financial and tax implications in the long run for both your estate and your family. It is therefore in your and your family’s interests to obtain the advice of experts in the field when you plan your Will and then draft it. Pro forma documents are a recipe for disaster. Although your Will represents your wishes, it won’t impact you at all but rather the people you hold dearest to you. Let your adviser be guided by your wishes as far as possible, but remember that the best results are usually obtained after thorough planning with your advisors.
Update your will regularly
Since your personal circumstances, the value of your assets and liabilities, and legislation affecting your Will, all change continuously, it is essential that you revise your will regularly, and, if necessary, bring it up to date. You should maintain close contact with your financial adviser and the person who advises you on the planning of your Will. At any time when your circumstances change, ask them how this may affect your estate, and whether or not to effect changes to the document.
Keep your Will in a safe place
Keep your Will and other important papers such as title deeds, policy documents, investment statements in a secure place to which only your close family have easy access. Try keeping a specific file for this purpose. If possible, lock the file away in a safe. Keeping a systematic file of important papers saves your family and executors endless trouble, time and money after your death.