What if I just don’t bother with a will – what happens?
How often are we told “You need to make a will!” And how often do we superstitiously tell ourselves that somehow the act of doing so might well become the catalyst for the event. Perhaps a better way to ask the question is “What happens if I just don’t bother?”
Dying without a will means that you die ‘intestate’. The Master of the High Court will become the key decision-maker, ‘the executor’ of your estate and will distribute your belongings according to the law, the Administration of Estates Act, which may not align to your wishes. This process can take an extremely long time to complete. The primary criterion the law uses is that assets follow the bloodlines – favouring wife and children first. One of the unintended consequences of this is that the family may not have access to the deceased’s money to survive while this process is underway. If the estate at death is less than R125 000 a representative from the Master of the High Court will automatically administer the estate.
A will does more than say how your belongings should be distributed. An effective will can unlock any number of obstacles that a family faces when their breadwinner dies. At its most basic, wills can indicate who should get what. But the important function of a will is to ensure that there is a comprehensive tally of every asset an individual may possess and where it can be found. Wills should capture details of assets and debt obligations, pension fund assets, life cover policies and how the individual wishes their estate to be distributed after paying off debt. The act of creating a will with a financial planner provides an important opportunity to consider how an individual could structure their estate in the most taxefficient manner possible.
Who needs a will?
Having a will is not just for people who are considered wealthy in the traditional sense. In the appendix to the will you can specify anything from artworks, jewellery and even livestock – pretty much anything of reasonable value. It’s often the case that the most contentious assets in a will are not the most valuable, but the ones that have the greatest sentiment or emotion attached to them. Putting these items in the appendix can help to avoid any discord among beneficiaries after the person’s death.
One of the most important functions of a will is that it allows a person to state who will be guardians for their minor children.
But having a will may not be good enough. You have to update your will at least once a year and after any major change in assets, liabilities or family structure.
WHAT ELSE HAVEN’T WE THOUGHT ABOUT THAT CAN PROVIDE SOME PROTECTION AT DEATH?
Employer benefits
For most employed people, there will be policies that an individual may not previously have considered. This could include death benefits (typically in a lump-sum form), disability benefits (either as a lump-sum or an income stream), and funeral cover. Accumulated retirement benefits may also be available to the dependants.
These benefits could be offered on an approved or an unapproved basis. If on an approved basis, then the benefits will be taxed on pay-out. This may rely on the individual having nominated beneficiaries for their policies. If these benefits are through the retirement fund, any payout will go through the trustees. Even if there is a nomination form on file, distribution of benefits is at the discretion of trustees, based on determinations of financial and legal dependencies. They could ignore the content of the nomination form and qualify why they have done so in the resolution to effect payment.
Unconventional benefits
Sometimes we have benefits available from unconventional places. One example of this is where the individual has a credit card that offers a small funeral benefit or death benefit. The amount is normally capped but is intended to be used towards repaying the balance on the account. Although a benefit of R5 000 may not make a difference for a higher-income earner, it can have a huge impact on the family of a low-income earner who can use this money for many purposes.
State-provided benefits
If the individual cannot afford any benefits, does not have any employer-provided benefits or simply chooses not to take out cover then it doesn’t mean that they are left without cover. Depending on the circumstances in which they die, the following State-provided benefits may come to their rescue:
- Workman’s compensation
If the client passes away in a work related activity the dependants can claim certain benefits. The size and structure of the benefit that the family is entitled to depend on the composition of the family (spouse and child benefits). The person who incurs funeral expenses will also be entitled to claim within certain limits.
- UIF death benefit
If the person was a contributing member to the Unemployment Insurance Fund (UIF), their dependants may claim death benefits from the fund. The size of the benefit will be affected by the length of time they have been contributing to the fund. Their spouse and any minor children must apply for these benefits within six months after their death. The death benefit they receive will be the amount that they could have claimed if the deceased had become unemployed.
- Road Accident Fund (RAF)
If the breadwinner of the family is killed in a motor vehicle accident, their dependants may claim from the RAF for the loss of support. The RAF’s liability to compensate the loss is limited to a prescribed cap. The RAF will also assist in the compensation for your funeral expenses if you are killed in a motor vehicle accident. The RAF’s liability to compensate the funeral costs is limited to the necessary actual costs to cremate or bury you.
The State has proposed the introduction of a social security scheme, and if successful, such a scheme will offer a death benefit (in addition to retirement benefits) to citizens that contribute to the scheme6.
Taking care of the admin around your death
Some of the softer issues that the family of the deceased need to consider are: what life cover policies exist so that they can submit claims; details of any medical aid policies in place; debit orders that they may have to switch; details of bank accounts; and so on. If families are not prepared, frozen bank accounts can make life very difficult for them.
In addition, are there any outstanding claims on insurance policies? If a claim on a dread disease, disability policy or some other policy has not been paid out before the individual’s death, their family needs to be informed.
Accessing such key pieces of information as passwords for computers or special accounts, the location of keys or strongboxes, important communications for loved ones, and who to contact for what, like the cancellation of services that may no longer be needed, is vital.
For many people, the benefit paid out on the death of a family member will be the most money they have ever had access to at a single point. For this money to be used responsibly, they have to have proper planning in place for the use of the funds. An adviser or financial planner may have to sit with the family and discuss both their current income needs and their future aspirations. The money can then be invested in such a way that it meets their requirements.
The final checklist
The final step in protecting your financial well-being is to make sure you have all your important financial documents together, and that your family knows where they are:
- Marriage certificate, divorce or maintenance contracts – If married with an antenuptial contract, a copy of this as well
- Certified copies of IDs, birth certificates, passports, driver’s licences (also try to keep the actual documents where your family can find them)
- Updated copies of insurance policies and schedules
- Car registration documents
- Latest copy of your will
- Details of bank accounts and banker
- Latest copies of policies for investment products and details of contact person
- Details of all consumer accounts (retail store accounts, TV subscriptions)
- Details of business entities
- Title deeds for properties
- Rates and taxes accounts or details of the body corporate or managing agents
- Details of your retirement fund
- Name, membership number and address of your medical aid
- Income tax reference number and office of registration