As a business owner or senior executive, you certainly have much to show for your hard work and efforts – properties, investment cars, potentially a business and a stock market portfolio that is the envy of your peers. But what will happen to the legacy you have worked so hard to build should you pass away unexpectedly?
“None of us like to consider the likelihood of our own untimely death, but life can be unexpected and I’m often surprised by how many high net worth individuals manage extremely complex businesses and investment portfolios, yet haven’t checked that they have an up-to-date, valid Will or optimal estate planning in place,” says CEO of Capital Legacy, Alex Simeonides, adding that despite being financially astute, senior executives can also be unaware of how much their death can end up costing their families, with a string of administrative and legal costs impacting their estate.
“Being unprepared leaves families having to cover these legal and administrative costs at a time when they are already dealing with the loss of a loved one and potentially their main source of income,” says Simeonides. “These are over and above the costs of a funeral.”
As a business owner or senior executive, you certainly have much to show for your hard work and efforts – properties, investment cars, potentially a business and a stock market portfolio that is the envy of your peers. But what will happen to the legacy you have worked so hard to build should you pass away unexpectedly?
Even if you have sufficient life insurance, policies can take anywhere from a few weeks to a few months to pay out depending on whether it was a natural death or not. In the meantime, your family will not only need to cover day-to-day living expenses, but additional fees as well as taxes that need to be paid to wind up your deceased estate. Some families are even forced to take on debt to cover ever-increasing costs.
By understanding and adequately planning for these costs you can protect your loved ones and your legacy. Taking out insurance cover for them, for example, can help you prepare ahead of time. Appointing a professional service provider, who specialises in winding up estates quickly and efficiently, can ensure your beneficiaries aren’t laboured with an unnecessarily lengthy administration process.
Executor’s fees
When an estate is being wound up after death, the executor may charge up to 3.5% plus VAT of the gross value of the estate, a rate governed by legislation. On an estate worth R9.7 million, this amounts to approximately R323 047.
Conveyance fees
Conveyance fees are applicable when transferring a property into the name of a beneficiary. The conveyancing attorney is separate to the executor and the fees are charged according to a sliding scale and is based on the value of the property. On properties of R8 million, the conveyance fees would be approximately R70,392.
Trust fees
If you give instruction to set up a Trust to protect and manage your children’s inheritances, it incurs fees to both set it up and to maintain it for as long as it is needed. This is applicable to whether you set up an inter vivos Trust or a testamentary Trust. The annual fees may differ, but the concept remains: Would the trust have enough financial liquidity if you were no longer around to manage it?
For a child who is 10 years old and for whom a testamentary Trust continues until they turn 25 years old, the fees are approximately R241,800 if the capital is valued at R2 million.
Other fees associated with winding up an estate
Other fees that may apply are deathbed and funeral expenses, doctors’ fees, burial or cremation costs, as well as death notice advertisements that are required by law. The Master of the High Court that oversees the winding up of estates also charges a fee and so does anyone who assists your loved ones with the administration involved in paying out policies, referred to as non-estate assets.
Taxes
When you die, your personal taxes and that of your estate need to be paid. These include any amounts outstanding on your personal income tax returns, as well as estate duty, capital gains and income tax of your estate, if they are relevant.
Planning ahead
“It’s never easy talking about death, but understanding what fees are relevant at the time of death and how you can cover them in advance can alleviate the burden on your loved ones and protect your legacy for generations to come,” says Simeonides.
Is your Will up to date?
Lockdown was like New Year’s Eve all over again. We made resolutions and decided to be positive. Everyone was optimistic – we thought it would only be three weeks – and decided to learn a language, take up yoga or start baking. And like some of our New Year’s resolutions, we perhaps managed to do a few yoga classes and ended up eating far too much banana bread.
For some, making a Will, metaphorically, is a bit like a resolution: you make it, file it away, and then forget about it. But the original reason you made the Will was that a Last Will and Testament is the cornerstone of all estate planning.
Your life is dynamic – despite Covid-19 – and your circumstances will always change. For better or worse, the fact remains that not only is your Will crucial, but an outdated one can cause severe financial (and emotional) complications.
Capital Legacy’s CEO, Alex Simeonides, said he could understand how a Will ends up being at the bottom of the agenda and why updating it is probably not even on the agenda. “Many high net worth individuals, C-suite executives, and entrepreneurial businesspeople are juggling complex portfolios, managing complicated business deals, or getting their start-ups over the first cash-burning hurdle,” he said. “Almost all of them, you can be sure, have a Will on file. But, is it up to date?”
There are many moments in our lives when the event is so amazing that we forget about the backstory that needs filling in. The birth of a baby is one. There is so much to be done in just enjoying this new presence in your life that digging out your Will is the last thing you want to think about. We also often ignore health issues (especially men). You need to make amendments to your Will if you have recently experienced a major life-threatening illness or have acquired a chronic medical condition. Maybe you’ve decided to pop the question, and you and your significant other are getting married. Do you want to start thinking about your Will at this exciting time? Probably not.
“The truth is,” said Simeonides, “these significant events should prompt us to review our Wills to make sure they are valid and up to date. It’s not a resolution you can tell yourself you will make next year. The thing about life is that it happens, with us or without us. All we can do is plan to make sure life continues smoothly for those we love and care for when we depart.”
Buying a new home is always a paperwork nightmare, but part of that dream is to ensure it is a protected legacy. Or it may be a simple shift, such as one of your children celebrating a birthday, which happens to move him from being a minor to becoming an adult. If he or she is in your Will, you need to recognise that. You also need to ensure your Will keeps track with any changes in the laws around estate duty or inheritance tax, or regulations regarding trusts, or any other issues that may affect your Will.
So, don’t fret if you didn’t learn a new language during the lockdown. Just make sure the language of your Will reflects your current situation.
Author: Benita Bohnen
