Friday, May 28, 2021 is a day that will be forever etched in my memory. It was the day my mother died – another number for the Covid-19 statistics.
This was before the start of the third wave as we could have 100 people in attendance at her funeral. The third wave would prove more brutal than the first two in terms of infections and deaths as the Delta variant ran rampant across the country.
The week of July 11 saw over 21 000 deaths, almost double the upper prediction bound of 11 401 deaths expected.
The lagging effects of dealing with death in South Africa has been complicated by the fact that the Master’s Office has been overwhelmed by much higher deaths than expected, compounded by a cyber attack on the Department of Justice on September 5.
The Master’s Office is a division of the Department of Justice. Officers in the Master’s division are charged with controlling and supervising the administration of deceased estates, the estates of persons under curatorship, and the estates of insolvent persons, among other responsibilities.
While my mother was very diligent about her responsibilities at church, she completely ignored our pleas to finalise her will and other personal administration.
Her usual refrain was that she had nothing, so what’s the fuss?
She was married in community of property and her sole asset was an old council house built in the 1970s.
So we started the process of winding up her estate according to the requirements of the Intestate Succession Act, in June.
We have a fiduciary services division in our company, and my brothers and I had all agreed to renounce any claim we had in terms of the act. Thus my expectation was that we’d be able to wind up the estate quickly.
Alas, the letter of executorship took much longer than expected.
Our fiduciary services business has noticed a significant increase in the time it takes to get documents such as letters of executorship and those related to a change of trustees from the Master’s Office.
The Fiduciary Institute of Southern Africa has publicly bemoaned the pace at which it takes the Master’s Office to expedite applications.
In our financial planning business we have noted an increase in the number of requests for assistance with matters pertaining to the Master’s Office, be it changing of trustees, letters of executorship and so on.
A recent call from the child of a late client brought home the impact of the delays caused by the Master’s Office on the lives of beneficiaries and heirs.
Investment products and the Master’s Office
Discretionary investments (such as share portfolios and unit trust funds) are dealt with in terms of a client’s will. If a person wants to leave such an investment to a specific beneficiary, they need to state this clearly in their will. It may be possible though that the executor of the estate uses these investments for liquidity requirements in winding up the estate.
Retirement products (retirement annuities, preservation funds and so on) fall outside the ambit of the Master’s Office unless fund members have not submitted beneficiary details.
If no beneficiaries have been nominated the assets in these products are eventually paid into the member’s estate, potentially delaying the process of winding up the estate.
Life-wrapped investment products (such as endowments and sinking funds) allow investors to nominate beneficiaries. In the event that the investor passes on, beneficiaries can approach the life company to start the process to access those funds. Beneficiaries therefore have access to cash while they are waiting for the estate to be wound up.
Ideally the investor would have life cover, which will likely pay out faster.
Life-wrapped investments have other benefits such as lower tax rates for high income earners, creditor protection if the investment has been in place long enough, no executors’ fees, and capital gains tax is not triggered on death as is the case with flexible and other investments.
There are however some liquidity constraints, but these can be overcome with a bit of structuring.
With sinking funds in particular, the initial lock-in period vests on death, so the beneficiary has some much-needed flexibility to organise their affairs. Beneficiaries may also need to pay towards a portion of the estate duty for the funds they receive. In South Africa now, the biggest advantage is that the Master’s Office does not get involved in the process of releasing funds.
The initial impact of Covid-19 on personal finances centred on the importance of emergency savings, portfolio diversification, proper risk cover, and staying the course with one’s investment strategy.
As the crisis has unfolded other issues have appeared that investors need to be aware of so they can adjust course where necessary. This reinforces the need for proper financial planning and regular reviews.
We finally received the letter of executorship, and can now continue with the process to wind up mom’s estate. This requires additional interaction with the Master’s Office so I expect it will take a lot longer than it did to get to this point.
Craig Gradidge CFP® is an investment and retirement planning specialist at Gradidge-Mahura Investments.