Article 3 in a series of 5 written by Gareth Stokes for the Financial Planning Institute of Southern Africa. With thanks to Mark MacSymon CFP®, winner of the 2017 FPI Financial Planner of the Year competition and a wealth manager at Private Client Holdings.
If you die without a valid Will in place the assets in your estate are distributed as stipulated in the Intestate Succession Act. This can cause unnecessary trauma, costs and delays for the family you leave behind and may prevent your final wishes from being carried out. Having a Will is also an imperative for life partners who, except in the case of same sex partners, are not currently recognised by the Act.
You should also be aware that your ability to bequeath certain assets is limited due to the legal requirements that apply to so-called ‘compulsory’ assets. Your interest in retirement annuities, pension funds, provident funds and living annuities is dealt with in terms of your elected beneficiary nomination as stipulated for each of these instruments. There are many negative consequences to dying without a Will; yet many South Africans seem uncomfortable with contemplating their mortality.
Mark MacSymon, CERTIFIED FINANCAL PLANNER® professional and proud winner of the 2017 Financial Planning Institute’s Financial Planner of the Year award warns against a DIY approach to Wills. He says that any failure in complying with the technical requirements of a valid Will can lead to punitive costs and burdensome administration, ultimately born by your heirs. He recommends that you turn to a CERTIFIED FINANCAL PLANNER® /CFP® profesional who can assist you with a range of estate planning processes, including identifying an appropriate fiduciary expert and guiding you through the process of drawing up a Will.
“Estate planning is an important component of the financial planning process which ensures that a client’s spouse, children and future generations receive the intended benefit from his or her estate in the event of death,” says MacSymon. He adds that the initial estate planning discussion should take place during the first meeting between the planner and client from which point the necessary arrangements can be made.
There are many overlaps between financial planning and estate planning that require close communication between financial planners and other planning professionals. “Your financial planner has a professional responsibility to identify and inform you of the risks and unintended consequences of dying without a valid Will,” he says. “We must also ensure that the beneficiary nominations on your ‘compulsory’ assets are reviewed periodically, with due consideration to the fact that trustees of funds are required to direct proceeds to the income dependants of a policyholder”.
Your financial planner can also assist by compiling an estate plan that shows you how your estate will be divided upon your death, based on your existing Will. This assessment will provide clarity on expected estate duty, capital gains tax, executor’s fees and how your estate will be distributed to your heirs. It will also highlight potential issues such as liquidity shortfalls which could force your heirs to sell the assets that you have bequeathed them.
The CFP® certification provides your financial planner with the foundation from which to identify the need for estate planning solutions and seek appropriate professional assistance in implementing these. “The activity of drafting Wills and Trusts is best undertaken by a recognised fiduciary practitioner or similarly qualified specialist, because incorrectly drafting a Will or Trust Deed – or providing advice upon the basis of an estate plan which may be flawed – will pose a risk to both the client and the financial planner,” says MacSymon. It is considered good practice for your financial planner, if not also a recognised fiduciary practitioner, to outsource the drafting of Wills and Trusts to a fiduciary specialist.
One way in which this requirement is met is by inviting a fiduciary specialist to attend client meetings, thus ensuring that the estate planning element of the financial plan is both appropriate and aligned with the client’s objectives. Once your Will and other estate planning instruments are in place, your financial planner takes responsibility for the estate planning role within the greater construct of your comprehensive financial plan.
“By incorporating your estate plan in your financial plan, you automatically create a framework for an all-important annual review,” concludes MacSymon. “You must insist on estate planning as a cornerstone of your financial plan – it is important in ensuring that your beneficiaries are cared for upon your death and facilitates wealth preservation from one generation to the next”.