Lourens S.C. – Wills and Estates

Risks Associated with Do-It-Yourself Pro Forma Wills

The preparation of a do-it-yourself (DIY) pro forma will may, at first glance, appear straightforward and cost-effective, particularly where inexpensive templates are downloaded from the internet or purchased from stationery retailers. However, the execution of a will without appropriate professional guidance may give rise to significant legal deficiencies, potentially resulting in financial prejudice and emotional distress to surviving heirs. It is imperative that one’s passing does not become an avoidable source of hardship for loved ones merely for the sake of utilising a free or generic template.

In the Republic of South Africa, the Wills Act 7 of 1953 prescribes strict formal requirements for the validity of a will. Many generic or foreign-based templates fail to comply with these statutory provisions. The use of such templates, without proper adaptation to local legislative requirements, may render the document invalid and unenforceable.

D-I-Y wills frequently fail to properly address the appointment of a competent executor. In some instances, they incorrectly nominate a beneficiary as executor without due consideration of potential conflicts of interest or the requisite legal and administrative competence. A qualified advisor can ensure that the appointed executor possesses the necessary capacity and legal standing to administer the estate effectively and in accordance with applicable law.

Similarly, the appointment of guardians for minor children is often inadequately addressed in such templates. A well-drafted will should include a comprehensive guardianship clause that identifies both primary and alternative guardians in case the nominated individual is unable or unwilling to act. Failure to adequately regulate this aspect may result in uncertainty and give rise to disputes among family members concerning the care and welfare of minor children.

A further material shortcoming of template wills lies in their failure to adequately consider the available cash flow of the estate. Estates in South Africa may be subject to estate duty, capital gains tax, executor’s remuneration, and other financial obligations. In the absence of proper planning, insufficient liquidity may compel the executor to dispose of estate assets under unfavourable conditions to meet these liabilities.

D-I-Y Wills seldom cater for more complex familial and legal considerations, including the protection of inheritances from creditors or matrimonial claims, the regulation of simultaneous death scenarios, and the provision of clear and unambiguous testamentary instructions. A simultaneous death clause (or survivorship clause) is essential to determine the order of devolution in circumstances where beneficiaries predecease the testator simultaneously or within a short period thereafter. Failure to address such contingencies may result in unintended consequences, including the vesting of benefits in unintended heirs and the emergence of disputes among surviving family members.

Estate planning is fundamentally concerned with certainty, clarity, and the preservation of one’s legacy. It is therefore imprudent to rely on generic, non-tailored templates. A professionally drafted will ensures that the testator’s intentions are properly recorded, that beneficiaries are adequately protected, and that the administration of the estate proceeds efficiently and in compliance with applicable legal requirements.

While do-it-yourself alternatives may appear financially attractive, the attendant risks may ultimately undermine the integrity of one’s estate plan and give rise to irreparable financial and emotional consequences. It is accordingly advisable to execute a properly drafted will, thereby enabling the appointed executor to administer and finalise the estate expeditiously and in the best interests of the testator’s family and beneficiaries.

Death related expenses

It is very important that you plan for sufficient liquid assets to cover for costs that relate to your death. If there is insufficient liquidity in your estate, the executor may be forced to realise assets intended for your heirs and beneficiaries in order to cover your estate’s obligations.

You must know the following about estate liquidity when you do your estate planning and drafting your will. When married in community of property, only 50% of the joint estate belong to you; When you calculate the estate costs and liabilities, do not forget about SARS as they has the first claim against your estate. No beneficiary or heir may receive their inheritance until SARS has been paid all outstanding taxes.

Furthermore your estate must cover all outstanding pre-death medical expenses, your funeral, burial and tombstone and / or cremation costs. Your estate will be responsible for the executor’s fees, which is currently 3.5% of the value of the estate and a further 6% on all income earned after the date of death. Bank Charges on estate account, transfer and conveyancing costs, bond cancellation fees and estate agency commission when there is a fixed property that needs to be realised, must also be paid from your estate.

Further costs are the valuation and the appraisal fees and the advertising costs of the estate in the newspaper and government gazette. If your estate is liable for estate duty, this must also be covered. This is currently 20% when your estate exceeds R3.5 million up to R30 million. When making bequests in your will, the value of the assets or bequests made to legatees are included when you do your calculations for estate duty. The estate duty get paid from the residue of your estate, which mean after the legatees also received their bequests, the inheritance to your heirs is getting less. What is important to remember, is that complex estates can take up to two years to finalize the process. In the meanwhile your family must continue paying the bond, rates and taxes.

As it is clear from above, there are many expenses with any death and the administration of the estate, so when drafting your will or doing estate planning, ensure that there will be sufficient liquid assets. Many companies sell you a policy to cover these fees, with which they benefit in receiving the monthly premiums and the final policy amount that get paid out on your death, they will use to cover their executor fees and costs mention above. If not sufficient, they will pay the excess from your estate. (We are not selling policies)

Please ensure you do proper estate planning and that your loved ones are well looked after and that your executor can finalize the administration of your estate as quick as possible.

REGULAR REVIEW YOUR WILL

One of the most important documents you will ever sign is your will and will need your regular attention.

Any change in your personal circumstances can necessitate a review of your will, specifically a change to your marital status. When you divorce your spouse, you must update your will.

In terms of Section 2B of the Wills Act, you are provided with a period of three months from the date of your divorce to update your will. Should you pass away after three months of your divorce without updating your will, it will be assumed that you intended your ex-spouse to inherit as per the dictates of your will.

Same with your child’s guardian, who will exercise full parental rights and responsibilities and will be required to administer any property inherited by your minor child until they reach age 18. The guardian will be required to make all decisions regarding your child’s schooling, extra-mural activities, religious instruction, and assist or represent your minor child in contractual and/or legal matters until they reach maturity. Some parents nominate the grand parents as guardians of their minor children. You must regular assess their current health and whether they are physically capable of taking care of your children should you pass away. You may consider to nominate an alternative guardian in your will to provide for the eventuality that your parents are not capable to act as guardians. Same when you nominated family who emigrated to another country and therefore cannot take up the role as guardian. When you have minor children, this is very important to take into account when you review your will.

When it comes to your executor, make sure the firm or company you nominated still exist. This can become a problem if your family are unable to identify or locate your executor. If you have nominated a family member as executor, make sure that there is still a good bond between you and whether they are still the appropriate person to act as executor. When your nominated beneficiaries die, it is essential to review your will. As per the stirpes clause, when a beneficiary dies before you, that beneficiary’s share of the inheritance will pass to their heirs.

Relationships change over time and the effects of the per stirpes clause may not be in line with your intentions. If you have made special bequests in your will, it may be worth reviewing them. You may have bequeathed a fixed amount to a specific legatee, which is now outdated in relation to your current financial position.

Also make sure that your legatees are still alive and that there are not any other person to whom you would like to make a special bequest. VERY IMPORTANT is that your estate is sufficiently liquid to honour your bequests, as it will have an impact on your heirs’ inheritance.

AN IMPORTANT REQUIREMENT IS THAT YOUR WILL MUST BE VALID. Your executor must obtain an original signed copy of your will. If you only have a copy, consider drafting a new will. Ensure that your original will is stored in a safe place and that your executor know where to find your original will.

INTESTATE SUCCESSION

If you die without leaving a valid will, your estate will devolve in terms of the rules of intestate succession, as stipulated in the provisions of the Intestate Succession Act, (Act 81 of 1987).

In case of a marriage in community of property, one half of the estate belongs to the surviving spouse and, although it forms part of the joint estate, will not devolve according to the rules of intestate succession. If the deceased leaves behind a spouse and children (including adopted children), then both spouse and children will inherit a portion, known as a child's share. In terms of the relevant Act, the surviving spouse is entitled to receive R250 000 or a child’s share, whichever is the higher.

To calculate the child’s share, one must divide the value of the deceased estate by the number of children plus one (the surviving spouse). For example, the value of the deceased wife's estate is R3 million and she leaves behind a husband and two children. The estate would therefore need to be divided by three, and each heir would therefore receive R1 million (being greater than the R250 000 child’s share).

If the parties were married in community of property and their combined estate is valued at R1.4 million. On the wife's passing, she leaves behind her husband and 3 children. As they are married in community of property, the surviving spouse will first receive his half-share of the estate, being R700 000. The remaining R700 000 would then be divided by 4 (Surviving spouse plus 3 children), being R175 000. Being the greater amount, the surviving spouse is entitled to the child’s share of R250 000, while her 3 children will each receive R150 000.

Therefore it is very important to have a valid Will.

EXECUTOR VAT

If the will does not explicitly specify the executor's remuneration, it will be calculated according to a prescribed tariff, currently 3.5% of the gross value of the assets subject to a minimum remuneration of R350.

The executor is also entitled to a fee on all income earned after the date of death, currently 6%. Regarding VAT claimed at 15% by the Executor / Agent : Chief Masters Directive 3 of 2009 give you the answer - If an Agent or Executor is register for VAT, the VAT charged by the agent is therefore an expense incurred by the executor in the performance of his duties.

The Master therefore must allow VAT charged by the agent as additional remuneration in terms of section 51(3)(a) of the Administration of Estates Act, 66 of 1965. Meaning that the executor will claim 3,5% + VAT on this amount from the estate.

The estate in question had total assets of R1 020 726,44 : On this amount a registered VAT Agent / Executor can claim 3,5% - R35 725,43 plus 15% Vat on this amount of R5358,81 (Executor's fee will be a total of R41 084,24)

WHAT HAPPEN TO MY BITCOIN WHEN I DIE ?

Bitcoin is essentially a digital payment network where Bitcoin currency is stored and transferred.

A Bitcoin is a form of digital token that you can send or receive electronically and the value of a Bitcoin also changes in much the same way that the value of stocks change based on bidding. Bitcoins are protected by powerful cryptography which makes it a secure way to store your wealth, but it also creates the risk that when you die, it will be out of reach for your heirs. Bitcoins are stored in a virtual wallet which uses a string of random characters called a “public key”. The public key is visible to anyone as an address for sending and receiving the cryptocurrency. A separate “private key” however allows the owner access to the wallet’s contents.

This means that when you die, your heirs may discover your Bitcoin wallet, but will be unable to gain access thereto without the private key. The easiest way to ensure that your Bitcoins can be transferred to your heirs is to ensure that someone has a copy of the private key by writing it down, storing it on a memory drive or entrusting it with a company or a trusted financial advisor or attorney who can give it to your family after your death. It is also a good idea to bequeath your Bitcoins formally in your will and identify who has a copy of the private key.

Although it won’t form part of the physical assets of your estate to be administered, this will help ensure that there is no uncertainty as to whom you wanted to gain access to your wallet after your death.

GUARDIAN FOR MINORS

If you have minor children, it is important that you nominate a guardian for them in terms of your will, keeping in mind that the guardian will be responsible for caring for your child should you pass away. If you and the child’s other parent are still alive, your child has two natural guardians, and your legal guardian would only assume responsibility if you and your spouse (or the other parent) were to die simultaneously. On the other hand, if you are the child’s sole guardian, the legal guardian that you appoint in terms of your will would assume responsibility for your child in the event of your death. According the Children’s Act, (38 of 2005) you are able to nominate a legal guardian for your child in your will and, if the guardian accepts the position, they will acquire full parental rights and responsibilities. It is important to give careful consideration as to who would be best to care for your child, taking into account their cultural background, value system, religious beliefs, their location, and financial stability. The legal guardian is required to administer any property inherited by your minor child until they reach age 18 and will be required to make all decisions regarding your child’s schooling, extra-mural activities, and vocational guidance. The guardian will also be responsible for assisting or representing your minor child in administrative, contractual and/or legal matters until they reach maturity. Consider appointing an alternative guardian in your will in the event that the primary nomination is unavailable or unwilling to assume the appointment at the time.

Children under the age of 18 do not have contractual capacity and are not capable of inheriting. If you bequeath cash to a minor child, these funds will be administered by the Guardian Fund on the child’s behalf until they reach the age of majority. Where assets such as fixed property are bequeathed to a minor child, it is likely that their legal guardian will be responsible to administering the asset on the child’s behalf until they reach age 18. But there is an alternative, namely creating a testamentary trust to circumvent these situations. By setting up a testamentary trust in your will and nominating the trust as the beneficiary of those assets intended for the benefit of minor children, you can ensure that these assets will be transferred directly to the trust in the event of your passing.