Old Mutual 00:00
Welcome to the Family Finance Show with Diana Granoux, proudly brought to you by Old Mutual. This podcast is your weekly guide to effective budgeting, planning, and future proofing of your family's finances. Because money matters to every family and every family matters at Old Mutual. Enjoy the show.
Diana Granoux 00:20
My name is Diana, and this is the Family Finance Show, the podcast to help you manage your family's finances better. Every week we share an episode on topics relating to increasing your family's income and managing expenses, controlling your debt, and investing for the future.
Diana Granoux 00:40
Welcome to the Family Finance Show, and thanks so much for listening. Here on the show, our mission is to help families like yours or mine make better financial decisions. And one of the easiest good decisions to make is to have a will. Today, my guest is advocate Monica Moodley from Old Mutual, and we're going to talk about the nuts and bolts of creating wills. Welcome to the show, Monica.
Monica Moodley 01:04
Thank you for having me, Diana.
Diana Granoux 01:07
So, let's start with the basics, Monica. What is a will? And what happens if you die without a will?
Monica Moodley 01:13
Let's look at what is a will. A will is a legal document in which a person generally known as a testator or testatrix, expresses their wishes as to how their property is to be distributed following their death. You know, in this document, it also allows them the option to nominate an executor, who will manage the estate until its final distribution.
And the question that you've asked, what happens if you die without a will. You know, we must understand that in South Africa, we do have freedom of testation. If, for any reason, a person dies without having a valid world drafted, then that person is deemed to have died intestate. And that estate will devolve according to the Intestate Succession Act. Dying without a will means that the master of the high court will now have to appoint an executor to wind up that estate. The first task of that executor is to try and locate a will by checking with various institutions. If no will can be traced, then the estate will be wound up as an intestate estate.
You know, Diana, it is important to note that this can take months or even years to wind up, which can be detrimental to your family and the intended beneficiaries.
Diana Granoux 02:44
Yeah, indeed, actually, it's one of the things that my parents always impressed on me is that I should always have a will. So, even from my early 20s, when I had no real assets to speak of, I had a will. When I was in my early 20s, I just got a will from, I think it was CNA back then, just one of those standard wills. I filled it in, my parents were the beneficiary of my will. And it was super simple. I guess I didn't have anything complicated.
Now my will is a bit different because I've got two young children, and I feel it's really important to take care of them if anything happens to me.
But how do I know if my will is valid? That will that I created in my 20s, that will that I got from CNA. How do I know if it's valid or not?
Monica Moodley 03:30
The Wills Act actually prescribes a number of necessary formalities for a will to be valid in South Africa, such as:
- A will must be signed at the end by the testator.
- The signature must be in the presence of two or more competent witnesses present at the same time.
- The witness must attest and sign the will in the presence of the testator.
So, these are just some of the important requirements. There are also some other points that should be considered, even though it may not necessarily affect the validity of the world per se, such as:
- The will should be dated.
- It should be clear and readable.
- Pages should be numbered, etc.
So, in effect, the validity of a will is governed by the Wills Act.
Diana Granoux 04:19
Okay, and how easy is it to write up your own will? And in what circumstances should you consider getting advice?
Monica Moodley 04:28
As you have just said, Diana, you know, you actually drew up your own will. And so just like yourself, many people choose to write their own wills and do-it-yourself wills, you know, using a template. It has its advantages, but it also has its disadvantages. Drafting your own will is a low-cost option, but one that can carry considerable risk. Sometimes a will is not valid, because the person who drafts it does not have the necessary skills, knowledge, or expertise to ensure that all the legal requirements of the Wills Act is met.
So, you know, I always say since a will is a legal document, it’s always advisable that you should get assistance and advice from a professional, especially when you have a complicated estate.
Diana Granoux 05:20
Yeah, and especially if you have children as well, I suppose. And on that subject, if you do have children, what should you include in your will in order to provide for them?
Monica Moodley 05:31
You know, when we look at children, especially if there are minor children involved, it is of utmost importance to nominate a legal guardian for them in the will. The legal guardian will then take custody of the children and would be legally entitled to take care of them until they can take care of themselves.
It’s also important to make provision for perhaps a testamentary trust in a will, especially if there is a concern that the spouse may remarry. The assets bequeathed to the children now will be kept in the trust and managed by the appointed trustees, thereby protecting their interest. You know, it must also be borne in mind, Diana, if there is no will, the assets that devolve to those minor children will be administered by the guardian fund, which is run by the master of the High Court.
And in terms of adult children, provision can also be made for them where you could state in the will that the assets that you leave to them will not form part of their marital estate.
Diana Granoux 06:40
And I suppose your marriage regime also has a significant impact on your will and your estate, Monica. If you're married in community of property, or an antenuptial contract with or without accrual, what do you need to consider in your will?
Monica Moodley 06:55
You're absolutely right, your marital regime can have far reaching consequences. Therefore, when you're drafting a will, it is important to understand the effect your marital regime has on your bequest. For example, a marriage in community of property means that you and your spouse co-own all of the assets. Only one half of the estate actually belongs to the deceased and is available for distribution amongst the beneficiaries.
So, if you are married out of community of property, you do have freedom of testation to distribute your assets as you deem fit. You can also disinherit a person from benefiting, subject to certain exceptions. But however, you know, cognizance must be taken of the maintenance of surviving spouses in this regard.
Diana Granoux 07:48
Monica, another thing to consider is retirement funds. So, they are treated differently from your estate, and you cannot necessarily leave them to your selected beneficiary.
And just to illustrate this point, I just want to tell a quick story that made a huge impact on me. When I was working for a corporate, we had a big corporate pension fund and every employee contributed to that. And a colleague of mine, she was pregnant at the time with her partner's child, she and her partner both worked for the same big corporate. Tragically, one evening, some intruders broke into their house, and her partner was shot and killed. And there was - because he was so young, actually, I don't know exactly how young he was, but I would say late 20s. So, no one in the late 20s expects to die. And he didn't have a will. And there was quite a big fight amongst the family about the pension fund that was managed by the corporate that we all worked for, whether the proceeds from this pension fund should go to his unborn son, or whether they should go to his surviving relatives, his mom and his sister, I think.
So, this was such a tragic thing for everyone involved. And when there's money involved, obviously, fights start happening. And the last thing you want to do on your death is to have fights amongst your family. So, in this situation, or maybe you can just speak generally, actually, because you don't really know the situation.
But how does it work with retirement funds and wills?
Monica Moodley 09:34
Diana, that is indeed tragic. And just like your colleague, you know, many other people actually face the similar challenge and they don't understand how is it that our retirement funds actually work when it comes upon death. And you know, we must understand that proceeds from retirement funds is distributed by the trustees of the fund in terms of Section 37C of the Pension Funds Act.
So, in determining who should benefit, the trustees will take into consideration all the beneficiaries nominated, as well as those that are financially dependent on the deceased. So, even if a beneficiary is selected, it is now at the total discretion of the trustees whether they should inherit or not.
Diana Granoux 10:20
Interesting, and that's definitely something to bear in mind if you work for a big corporate and are contributing to a pension fund with trustees. Another story that I have from my personal circle of friends, is how long it can take for an estate to be wound up and how to choose a good executor. So, some other friends of mine, their father passed away about five years ago. And he sadly had cancer, so there was a lead up until his death, and they were able to prepare all of the documents that were required.
So, the will was done properly, an executor was chosen, everything was very well prepared. Nevertheless, it's taken, I suppose because there were some complicated things in his estate, but nevertheless, it took almost five years to wind up the estate. And in that time, sadly, their mother also passed away. And so, for those years between when her husband died and where she died, she wasn't able to access this money. Luckily, the children were able to support the mother and it didn't have a massive impact, but it could have had a huge impact.
So, why does it sometimes take a long time to wind up an estate? How can you choose a good executor?
Monica Moodley 11:53
I can totally understand what you're saying. You know, as soon as the person dies, the deceased's estate now becomes into existence, regardless of whether there was a will or not. Winding up an estate is such a complex and lengthy process, that it can take a few months, up to a few years to finalise, you know.
So, it's so important that when you're actually nominating an executor, it has to be a person that is experienced, and who is familiar with the procedures of winding up a deceased estate. And you know, their skill, knowledge, and expertise would be vital in order to expediate the process. So, I think that is very important when you're actually drafting a will to actually take this into consideration.
Diana Granoux 12:41
And what happens to your estate if you die with debt?
Monica Moodley 12:46
Making provision for debt is an important and integral part of estate planning. If someone dies owing debt, that debt does not just go away, the deceased person's estate is responsible to pay those debts. There is somehow a misconception that when you die, your debts disappear. That actually is not so.
If it is no liquidity in the state, then assets intended to go to beneficiaries may need to be sold to pay off the debt. It is important to know that beneficiaries will not receive any inheritances until all the debt in the estate is settled. So, it is of vital importance that liquidity should be created in the estate to make sure that there is enough to settle those debts.
Diana Granoux 13:36
Actually, in a previous episode, I spoke to one of your colleagues, Priya Naicker from Old Mutual, and she was speaking about life insurance. And she said when you're trying to calculate the amount of life insurance cover, you should take - one of those things you should look at is debt, because you want to obviously clear your debt and not leave your family with a huge debt burden. So, it just reinforces what you're saying there about wills. And then -
Monica Moodley 14:03
Sorry. And then also, you know, when we're looking at the executor, Diana, you know, it's so important that you should nominate somebody who has a legal knowledge but as you've just mentioned now, the tax knowledge. Because when they are actually being appointed, it is so important that the executor needs to have widespread skill and acumen to fulfill their responsibilities effectively.
And they would need tax knowledge, so they can calculate the various taxes, such as your capital gains tax, such as your estate duty, executor's fees, all of which is classified as death in the estate.
Diana Granoux 14:45
Good point. And what about living wills, Monica. What is a living will, and how does it work?
Monica Moodley 14:52
A living will is a legal document that stipulates what your personal choices are about medical treatments you would or would not want to be used to keep you alive, as well as your preferences for other medical decisions, such as pain management, etc.
You know, the basic difference between a will and a living will is the time that it is executed. A will takes effect upon death. And a living will, on the other hand, gives instructions to your family, and medical staff as well, about medical treatments you do and don't wish to have should you become incapacitated.
Diana Granoux 15:35
Interesting. It's an important distinction to have in one's mind then, the difference between a living will and just an ordinary will. Thank you so much for your time today here on the Family Finance Show, Monica, and sharing all your expertise around wills.
Monica Moodley 15:50
Thank you again for having me.
Diana Granoux 16:01
Thank you for listening. I hope you enjoyed this episode. Make sure you subscribe to the podcast to stay on the journey to improving your family's financial wellbeing.
Old Mutual 16:20
Thank you for listening to the Family Finance Show with Diana Granoux, proudly brought to you by Old Mutual. The time is now to own your financial future. Visit oldmutual.co.za today for more great advice articles, free budgeting tools and calculators, or to find a financial adviser. We'll be back next week.