Buy online
It's September and that means Wills Week, an ideal time to ensure your clients review and update their wills. But a will alone is not enough cautions Kobus Wentzel, Executive Head of Sales and Distribution at 1Life Insurance. “A will details how your assets will be distributed, but without an estate plan that takes care of the complexities and costs of winding up an estate the value of those assets could be substantially reduced.”
Massive need and opportunity
On average between 500 000 and 550 000 people die in South Africa each year*. Reports suggest an estimated 70% pass away without a will, although the number could be as high as 80%. This leaves families no choice but to negotiate the laws of intestate succession, a far longer process of asset distribution than when there is a valid will in place. Even the most conservative estimates suggest the need for a will in South Africa with many also in need of an estate plan. This represents a significant opportunity for financial advisers to connect with new and existing clients.
Better together: A will and an estate plan
We need to change the belief that everyone needs a will but only the super wealthy need an estate plan. For the smooth handover of assets and to keep a financial legacy intact, both are necessary.
“A will is a legal document detailing who inherits what. It is one component of an estate plan, which is a comprehensive strategy for dealing with the additional complexities that arise when you pass, such as providing for specific taxes, the payment of liabilities, the costs of winding up an estate, as well as ensuring assets are distributed to heirs at full value and that loved ones are provided for from the date of death. An estate plan can also detail what happens if a person becomes incapacitated before death and how their affairs should be managed,” says 1Life Insurance Head of Distribution Sales and Retentions, Barry Shrosbree.
The saying “The only things certain in life are death and taxes,” could well be adapted to “The only things certain in life are death and taxes, and taxes and costs after death!” Dying costs money, executing a will costs money, winding up an estate costs money. If these costs have not been provided for in an estate plan, the assets in the estate might have to be liquidated.
Estate planning is especially relevant for estates that are valued around the average South African estate value of around R1.8 to R2 million. A R2 million estate can easily be reduced in value after costs and debts, as well as any personal taxes or CGT due, especially if the bulk of the estate is in immoveable assets such as property. For example, let’s look at an estate valued at R2 million, made up of property valued at R1.7 million and investments of R300 000. If there are debts of say R450 000, estate costs of R100 000 and taxes of R50 000, this estate needs cash on hand of R600 000, which it doesn’t have. This leaves the only assets being the property, which then needs to be sold, so the estate expenses can be paid.
There are many more reasons why your clients and their families need an estate plan as well as a will. These include:
Caring for minors and dependants: While guardians are often named in the will, there is no financial plan detailing how they can care for dependants and minors, which should form part of an estate plan.
Income for families during the winding up process: Estates in South African can take anything from six months to four years, occasionally longer, to wind up. Some families may have access to funds during this time, but many don’t. An estate plan can provide for these, such as by having liquid assets on hand, or ensuring there is life insurance that is paid directly to a beneficiary.
The bottom line is that all your clients may need an estate plan, not only super wealthy and wealthy clients. Any client with dependants and assets, especially immoveable ones such as property, needs an estate plan.
With help from 1Life Wills & Estate Plan you don't need to be an estate planning expert
Wills are technical in nature and have to meet certain requirements, estate plans require calculations of all the costs of death and taxes for each client. This requires a knowledge of taxes and the law, including trusts, financial planning and more. Not all financial advisers have these skills or experience. However, products such as the 1Life Wills and Estate Plan provide the necessary expertise, with programmes and tools developed and backed by industry leaders, Fairheads and CliqTech.
“The 1Life Wills and Estate Plan helps advisers provide a personalised wills and estate planning service,” says Shrosbree. “Estate plans can be complicated. With the 1Life Wills and Estate Plan, advisers and clients follow a step-by-step process so that the client has a valid will and estate plan, unique to their needs. An added benefit is that the adviser has an opportunity to get further insight into their client during this process, potentially opening up new opportunities for future business.”
Key features that benefit advisers and their clients include:
Fiduciary expertise: Each will is checked by a fiduciary expert to ensure it is valid and can be implemented, before the client signs. Expert partner Fairheads can also advise on any additional needs such as testamentary trusts.
Wills and Estate Smart Calculator: This works out the exact rand amounts for each client's taxes due, the costs of death, and the amount of cover needed for liabilities and other expenses.
Cover for living expenses after death: The 1Life Wills and Estate Plan includes a Liquidity benefit of up to R50 000 to assist families with immediate expenses, and an Income benefit of 3, 6, 9 or 12 months cover for living expenses.
Payment of costs paid directly to the estate accounts: Preventing a scenario where amounts intended for estate costs are paid to a beneficiary and spent on other items.
Department of home Affairs interface: The systems behind the 1Life Wills and Estate Plan receive information of deaths from the Department of Home Affairs monthly. This ensures that if a person has passed, the beneficiary(ies) can be notified, preventing a situation where the family doesn’t know about the will or estate plan and doesn’t claim.
Flat executive fee sharing structure: The fee sharing structure is not dependant on the value of the estate. Upfront commission is available for advisers.
Favourable estate duty and conveyancing fees: These are often the highest estate costs, reducing them ensures inheritances remain intact.
Ask your broker consultant for more information on the 1Life Wills and Estate Plan.
A final word: keep the human touch
Death is an emotional and traumatic time. Advisers can help clients and their families plan ahead with a will and estate plan. They can also offer invaluable support when a family member dies by guiding loved ones through the process of winding up an estate. They can also help them deal with paperwork as well as gather and submit the required documents. Being there for your clients and families in tough times will build relationships that last generations.
*We excluded 2021 and 2022 death stats as these are inflated with the higher number of deaths in the COVID-19 pandemic years.