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Inclusive financial planning – involve your life partner

It is your responsibility to keep your life partner informed of what their financial lives are going to be like should you pass on tomorrow.

I understand the importance of being independent. I also understand the importance of being in control. I however do not understand how anyone can exclude their life partners/spouses from their financial planning…

Here I am going to be critical to mainly our male population. Although we have encountered a trend of excluding partners/spouses among our female clients as well, it is not nearly as prominent as among male planners.

The unpleasant part of our work is to assist grieving partners/spouses and family after the passing of their loved ones. It is unpleasant but rewarding at the same time, especially if they were in touch with the financial affairs of their deceased loved one and we can assure them of financial stability and structure in the future. Where loved ones are left in the lurch of unplanned, uninvolved chaos, it reminds me of the aftermath of a wartime air attack. The uncertainty, feeling of abandonment and all the chaos surrounding them because they have no clue what was, and what may be, often leads to despair and emotional breakdown.

Please embark on a journey of inclusive financial planning with your loved one…

When I say “inclusive financial planning” I do not mean that every detail in rands and cents needs to be discussed. It will be nice, but I am realistic, and I do understand that often planners’ financial affairs do require some privacy especially where the planner and their  partner are on the opposite ends of financial sophistication and risk barriers. In these circumstances more often than not, the less sophisticated partner has no interest in financial affairs or money matters in general. Often this is because they feel inadequate or “stupid” and don’t feel they belong in the company of individuals who are talking the “high talk” of the financial world as often happens between a planner and their financial advisor. Make an effort and get them involved, even if it is at a very basic level to start with.

It is your responsibility to keep your life partner informed of what their financial lives are going to be like should you pass on tomorrow. It is your financial advisor’s (or the person who fulfils the role of an advisor (you?)) responsibility to explain it to your life partner in a manner that they understand it and understand it properly.

If your surviving partner is going to be fine, they should know it and they should know why you say so. Explain to them:

  • What financial succession plan you have structured to ensure their financial wellbeing?
  • Who is your executor?
  • Is there a trust involved and who are the trustees? Explain the trustees’ responsibilities.
  • Will your partner have usufructuary rights on property or business rights? What does this mean?
  • Are there divorce settlements that still need to be honoured after your death?
  • What happens to debt after your death?
  • What are the steps they should follow in the event of your death?
  • Who must they contact to assist them?
  • The list goes on….

If your surviving partner is not going to be fine, they also need to know. Especially if they have not worked for several years… In this scenario you must also elaborate on:

  • Why this is the case?
  • How bad is it going to be?
  • What can they expect?
  • How much is going to be bequeathed to them?
  • How long is that going to last?
  • What are the options that they will have to consider?
  • What do you suggest they do?

Irrespective of how dire their financial position is going to be if you pass away, don’t let them find out only after your death. Keep them informed.

In order to explain either of the above scenarios to your life partner, it is important to understand the structure of your estate and how the assets are going to be distributed according to your will.

This article is not meant to prompt you to draft a will, it assumes that you have an up-to-date valid will…

If your assets are held in a trust, then the explanation is fairly simple, and the trustees are there to assist family members who are left behind on your passing. Distributions will be made according to the mandate of the trust, and it is pretty cut and dry. If any of your loved ones are not mentioned as beneficiaries of the trust, then it may be a good idea to tell them.

The big question is, should you die, do you know exactly how much is going to be available to be distributed and to who?

When assets are distributed by way of your wishes contained in your will, available capital may be less than you intended it to be. To determine an accurate distributable estate, I suggest that you familiarise yourself with the following and make sure your life partner/spouse understands it as well:

  • The extent of CGT. Bequests to spouses have the benefit that CGT can roll over to the last dying’s estate. Where children and other beneficiaries are in line to inherit, CGT plays a much larger role and the bigger the bequeathment is, the larger the impact of CGT will be. In 2001 when CGT was introduced in SA, I commented about the potential impact future CGT will have on planners and their estates. The impact on residential properties is huge, even on a primary residence if it was owned for extended periods. I recently dealt with an estate analysis where the primary residence capital gain inclusion was R8.8 million. Considering his wishes in his will, the amount of distributable assets was reduced by R5.8 million due to CGT and estate duty on distributions to a non-spouse. This was not taken into account in his estate planning.
  • Be mindful of bequeathing a fixed amount to a non-spouse. The executor will not reduce the fixed amount by the amount of estate duty payable. If your will stipulates that your spouse will receive the residue of your estate after distributions to other beneficiaries, it means the residue after all distributions, payment of creditors, fees and taxes i.e. executor fees, estate duty, personal tax and CGT which will lead to a lesser amount than intended. You and your life partner need to understand exactly how much will be distributable and to whom.

A further complication may be with funds that are governed by the Pension Funds Act. Where investments are held in pension funds, provident funds, preservation funds and retirement annuities, the proceeds will be distributed according to the instructions of the trustees of the respective funds. Your nomination of beneficiaries may be considered, but the trustees have the final say. Distributions will be made according to a determination of financial dependents and may include a spouse, a life partner, children, ex-spouses and even mistresses (or misters(?), doesn’t’ sound right …what is a male mistress? Lol perhaps a kept man sounds more appropriate…)

The same applies to group risk benefits. If your employer group risk cover is “approved” the same applies as above. If benefits are “unapproved” the proceeds will pay out according to your beneficiary nomination. In this scenario make sure you nominate beneficiaries or else it will pay out to your estate and be subject to executor fees.

  • Estate duty payable. Both you and your spouse/life partner need to know exactly what the estate duty implication is going to be. If you don’t know, simply take 80% of your estate value as the “planning amount” as far as the distributable estate is concerned. If you don’t know what the CGT impact is going to be either, take 70% of your estate value as the “planning amount”. This will not be accurate but much closer than accepting 100% as distributable!
  • Understand what assets will attract estate duty. Understand the term “deemed asset” and understand when life assurance will form part of your estate and when not. The same applies to executor fees.
  • Executors fees payable. These fees can be negotiated. If they are not mentioned in your will make sure that your spouse/partner knows what the agreed amount is. The best is to get it in writing in your will.
  • Have an accurate estate liquidity analysis conducted. Contract a qualified financial planner, preferably an accredited CFP® or an accountant who is familiar with estate analysis to assist you with this important task.

Can we please agree that we are going to involve our spouses/life partners in our future financial planning discussions if they are not involved yet? If they don’t want to be involved, then please paint them a picture of what life will be like without you. Don’t make this a guilt trip to get them to appreciate you more…Show them the reality of their financial position after your death.

Please don’t let your loved one be one of those who we often encounter who is lost, bewildered and without direction after your death because they led a life of exclusion and non-involvement while you were alive.

You are welcome to contact us if you need any assistance with an estate liquidity analysis or a chat in general.

Stay safe and keep everyone informed.

ADVISOR PROFILE

Marius Fenwick

WealthUp (Pty) Ltd

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