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How will my family receive the assets from my estate?

It all starts with the will.

If you have your ducks in a row, you hopefully have your will up to date and you’ve made sure that all your investment and insurance products have beneficiary nominations in place. But how will they actually receive all the assets in your estate?

In this article, we are going to look at how the various items in your estate will be distributed to your family.

It is important to understand that the best-laid plans can go haywire if there is not enough liquidity in your estate. So, when you are contemplating your will, also speak to a financial advisor (and possibly a lawyer as well if your situation is more complex) to make sure that there is enough cash in your estate. Remember that debt needs to be settled when you pass away and there will be several estate expenses (funeral costs, death bed expenses, executor’s fees, tax) that need to be paid in cash.

If there is not enough cash in your estate, the executor will have to make the difficult decision of which assets they need to sell to provide for these expenses. So even if you intended to leave the house to your surviving spouse, they may still be left in a tight spot if the house needs to be sold to generate cash for expenses.

If you don’t hold enough cash on hand, life insurance is the easiest way to ensure that there is enough liquidity in your estate. An advisor will be able to help you with a calculation of how much you need, and you can then take out a life insurance policy to ensure that expenses are covered upon your death.

Next, we are going to look at which assets/investments do not form part of your estate and how they will get distributed to your beneficiaries.

Following your death, it can take several months or even years for your estate to be wound up. Luckily, there are some assets that are not dealt with by the executor of your estate but are distributed to your beneficiaries directly. Please remember that we are not talking about whether an asset is part of your estate for tax (estate duty) purposes – that is a whole discussion on its own. We are just talking about how the assets practically reach your family after your death.

The first proceeds that they are likely to receive, will be funeral policies and life insurance, including your living annuity. Funeral policies usually pay out within 24-48 hours after the claim is submitted and provided there is no investigation into the circumstances of death, life insurance policies can pay out in a matter of weeks. These products will pay out to the person or persons that you nominated with no questions asked. Your will does not govern the funds and the executor of the estate is not involved in the payment of the money. That is why it is so important to check your beneficiary nominations from time to time to make sure they are still up to date. If you don’t, the benefit can be caught up in the lengthy estate process, which can have a huge impact on your family’s cash flow after your death.

Depending on the complexity of your estate, the next distribution to your family is likely to be the discretionary assets. This includes fixed property, investment products, art, jewellery, etc. Once again, remember that these assets will only reach your family as you intended if there was enough liquidity in the estate to settle any debts and costs.

Fixed property will have to be transferred to the new legal owner. This involves a process similar to when a property is bought/sold while you are alive. There may be legal costs and, in some cases, transfer duties that need to be settled by the executor of the estate.

Investments (for example unit trusts) can either be transferred to the beneficiary “in specie” meaning in investment form or as cash. This will usually be done according to the recipient’s wishes as far as possible.

In practice, personal items like art/jewellery etc. are usually just handed over to the recipient. Depending on the asset, some items may need to be re-registered (e.g. cars) in the name of the new owner.

Retirement funds are interesting, because they are not governed by your will and your beneficiary nomination can be overruled by the trustees of the investment. In terms of the Pension Funds Act, the trustees have an obligation to ensure that your “dependants” receive your benefit. The definition of a dependant is very wide and can include anyone that can prove that they were receiving a form of regular financial support from you.

While you complete a beneficiary nomination form, this is purely a guide to the trustees. They also have full discretion about the percentage of the benefit that they will allocate to each dependant. Some trustees take the beneficiary nomination form and some very basic declarations from the direct family at face value and the benefit is distributed quite quickly, but in some cases, they may launch a comprehensive investigation to ensure there are no dependants that can come forward down the line. They have 12 months to conclude the process, so it could take as long as that before your family will get their benefits.

What if I forget to list an asset in my will?

Luckily you don’t need to list each and every item you own or investment you have in your will. You may get quite specific listing your assets in detail, but this can get messy. If you bequeath an asset in your will, but then sell the asset after drafting the will, you may have a scenario where a beneficiary is left out in the cold unintentionally. You will need to discuss this with the lawyer or advisor who assists you to draft your will.

Each will has a catch-all clause at the end to avoid a scenario where there are assets that cannot be distributed because they were not specified. This is done by bequeathing the “residual” of your estate to a beneficiary. Anything not covered in detail in the will itself will be left to that person so that the executor can wind up the estate.

It all starts with the will. Get yours up to date today!

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Michael Haldane

Global & Local The Investment Experts


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