March 6, 2010
 By Bruce Cameron
This week we deal extensively with the problems of cessions of life assurance policies to provide security for loans. It is a complex issue and one that can become a great deal more complex if you do not have a will.
And the chances are that many of you or your relatives do not have wills. The Fiduciary Institute of South Africa (Fisa) estimates that only 10 percent of the South African population has a will.
According to Fisa executive member Graham McPherson there are currently fewer than five million wills registered in South Africa. The number of valid wills may be even lower because many people have more than one will in circulation.
McPherson says this is bad news because it leaves the dependants of many people at risk. Die without a will and your assets get distributed according to a set formula. Your money will not go only to your spouse and children.
You may be under the impression that the balance of a ceded policy left after the payment of the debt to your bank will go to your dependants on your death. This will not be the case if you have no valid will and the balance of the proceeds of the policy goes into your estate.
You will have died intestate (without a will) and this means all your money (your estate) is distributed according to a formula to relatives nearest and dearest as well as to those not so near and not so dear.
Your nearest and dearest will lose out.
And this does not only apply to ceded insurance policies. All your assets left in your estate, be it your family home, including the furnishings and fittings, your motor vehicle and even the dog kennel, will have to be divided according to the intestate structure if you do not have a will.
This could see your home and other assets being sold to enable the required division of assets.
So if you do not have a will, get organised today. If you have relatives who do not have wills, tell them about the dangers. Spread the word!
Not only do you need a will but McPherson also says you need to update it on a regular basis, because your personal circumstances change, the law changes, and there are tax changes. All these changes could impact on your estate planning and therefore your will.
And remember, drawing up a will may not be a simple matter. Wills can be very complex. For example, if you list assets to go to certain people - say, R100 000 to aunt Jemima and R100 000 to the retirement home for honest politicians - these amounts will be attributed first, without the deduction of estate duty or capital gains tax. Any tax owing will be paid by the residual heirs, who are likely to be your dependants.
So the best thing is to get expert advice. But, in getting advice, be wary whom you go to, particularly if you need to set up what are known as testamentary trusts to ensure that children or any incapacitated dependant has proper financial protection. Remember that both parents can die simultaneously.
Responsible executor
Currently, I am dealing with two obnoxious cases, one involving the estate department of a bank and another a firm of Cape Town attorneys who, to put it bluntly, have plundered the trusts they were charged with administering.
McPherson says wills are one aspect of estate planning and administration. You also need to ensure that you appoint a responsible executor of your estate to ensure your wishes are met.
He says that, with all this complexity, Fisa has a broad mandate within the fiduciary industry in South Africa to raise standards and protect the public. Its members include any practitioner with a fiduciary responsibility, such as lawyers and accountants active in estate planning, and taxation and financial advisers looking after clients' assets.
This is a good thing, because there are a lot of rackets going on. Some professional executors see estates as an easy source of income. A normal fee paid to a professional executor is 3.5 percent plus VAT, but they also charge for things such as the collection of income, which can be as high as seven percent. This will include a cut on interest from bank accounts and investments. And there are others who have found even more creative ways of stinging estates and trusts.
You need to negotiate all fees when you draw up a will. A professional must inform you of all potential costs.
It is incumbent on the person drawing up the will to name an executor or executors. This also means you should consider what will happen in the event of the death of an executor, particularly if a testamentary trust is involved.
There are a number of options for the appointment of an executor and/or trust administrators and trustees. These include:
A trusted family member, who can appoint a professional to do the actual work;
A trusted family member and a professional; or
One or more professionals, such as a lawyer or account or trust company (banks and life assurance companies).
One last warning. Life assurance companies, which have a reputation of putting advisers' interests before yours, have not banned the disgraceful practice of allowing advisers to name themselves as beneficiaries of life assurance policies.
Apart from this being a dreadful conflict of interest, it also opens the way to serious fraud. You need to ensure that you have confir-mation in writing, on all your policies from your life assurance company, that your dependants are the named beneficiaries. This applies to both risk and investment policies.
Do this directly with the life company and not through your financial adviser, even if you have absolute faith in the honesty of your adviser. The problem is that too many people have had absolute faith in their advisers, who have been found wanting.
By naming dependants as beneficiaries, the money will go directly to them and not via your estate, meaning no executor fees will be charged on the amount.
  
 
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