In this article by Integrity Academy (www.integrityacademy.co.za) we shall briefly look at marketing opportunities, which may arise from consultations with clients concerning their wills.
An excellent approach that could be used by the financial planner, during a telephonic conversation is as follows: Financial Planner: "Good day, mister/misses... I am phoning to establish whether the executability of your will has been tested."
The standard answer usually is as follows: "What do you mean by executability being tested?"
Financial Planner: "This is the very reason why I would like to come and see you. Will an appointment in the morning or afternoon, suite you best? Etc."
The financial planner can now go and see the client, and with the help of a financial analysis program or the will application form, do an analysis for the client.
Asset - (Liabilities + wishes) = deficit or surplus. Provision can now be ensured, where deficits occurred and behold! The will is now executable!
Let us take a closer look at all the opportunities that arise from using the will application as an analysis tool.
1. Bequest sums
Bequest sums could be funded by means of life assurance. If a testator bequeaths his or her fixed property to his son conditional upon him paying his sister a bequest sum of, for example, R1 200 000, assurance for the specific amount can be taken out on the life of the testator. Timely provision for this is important as premiums are more expensive the older a person becomes, and the testator may eventually no longer be assurable.
2. Limited rights
Should a usufruct, for example, yield inadequate income, it can be supplemented by additional assurance. The holder of the bare dominion must realise that the asset concerned will offer his heir no income as long as the usufruct exists. He will therefore have to consider assurance to provide the heir with an income or to supplement the heir's income.
3. Equal inheritance
Should the testator's wish be that his heirs inherit equally cash-wise and there is no cash available, the transaction must be funded by life assurance to prevent the heirs from having to borrow money to pay each other? If it is the testator's wish that the asset be passed to the testatrix first, the testatrix's life can be assured - particularly as it is cheaper, and as the heir must in any case wait until his mother has died.
4. Inheritance problems
The fact that the farmer's farm usually forms the largest single asset in his estate frequently causes problems if the farmer wishes to divide assets equally among all his heirs. The more heirs, the greater the problem, as the Subdivision of Agricultural Land Act No. 70 of 1970 stipulates that agricultural land may not be divided into uneconomical units. In this case assurance must be taken out to allow equal inheritance.
5. Accrual system
If a testator is married out of community of property with inclusion of the accrual system and it is his wish, for example, to bequeath his farm to his child, the surviving spouse could have a claim against his estate in terms of accrual. In this case life assurance will offer the best solution to satisfy the claim. If the wife does not submit her claim for accrual against the estate, it is tantamount to a donation on behalf of the children. Possible donations tax of 20 percent can now be payable and this amount should also be covered by assurance.
6. Marriage in community of property
If the testator and testatrix are married in community of property and if there is no assurance on the testatrix's life, tremendous problems may result if the testatrix is the first-deceased. The executor's fee will be calculated and payable on the full value of the joint estate. In some cases all outstanding amounts can now be claimed from the estate. The testator may now find that, owing to a loss of income, he will no longer be able to afford his monthly liabilities such as installments on his house and car. Bear in mind that the testatrix will still have the same monthly liabilities, except that he has lost part of the joint monthly income.
7. Support of the family
Very few people make provision for maintenance of the family as they take out assurance only to eliminate cash deficits on winding up the estate. If one bears in mind that only eight percent of 45-year old widows remarry, this provision is extremely important. Take an income need of R250 000 p.a. In order to provide sufficient income a capital provision of R 2 272 727 will have to be made (R250 000 ¸ 12%)
8. Handicapped persons
If you have a physical or mental disability which makes you unfit to work for a period of longer than six months, you can apply for a disability grant.
You get a permanent disability grant if your disability will continue for more than a year and a temporary disability grant if your disability will last for a continuous period of not less than six months and not more than 12 months. A permanent disability grant does not mean you will receive the grant for life, but that it will continue for longer than 12 months.
How do you know if you qualify?
To qualify, you must:
- be a South African citizen or permanent resident or refugee and living in South Africa at the time of application;
- be between 18 and 59 years old;
- not be cared for in a state institution;
- have a 13-digit, bar-coded identity document (ID);
- not earn more than R69 000 if you are single or R 138 000 if married;
- not have assets worth more than R990 000 if you are single or R1 980 000 if you are married;
- undergo a medical examination where a doctor appointed by the state will assess the degree of your disability;
- bring along any previous medical records and reports when you make the application and when the assessment is done.
The doctor will complete a medical report and will forward the report to South African Social Security Agency (SASSA).
The report is valid for three months from the date you are assessed.
Note: If you are under 18 and need permanent care due to your disability, your primary caregiver can apply for a Care Dependency Grant. If you don’t have an ID, you will be required to complete an affidavit and provide proof of having applied for the document from the Department of Home Affairs. If you have not applied for an ID, you must do so within three months of applying for the grant.
How much will you get?
The maximum is R1 500 per month.
How will you be paid?
A grant will be paid to you through one of the following methods:
- cash at a specific pay point on a particular day;
- electronic deposit into your bank account, including Postbank (the bank may charge you for the service);
- an institution not funded by the State – e.g. home for people with disabilities.
When may your grant be suspended?
The following may result in the suspension of your grant:
- when your circumstances change;
- the outcome of a review;
- if you fail to co-operate when your grant is reviewed;
- when you commit fraud or misrepresent yourself;
- if there was a mistake when your grant was approved.
When may your grant lapse?
The grant will lapse when you:
- pass away;
- are admitted to a state institution;
- do not claim for three consecutive months;
- are absent from the country.
Please note: If you are admitted to an institution that has a contract with the state to care for you, the grant is reduced to 25% of the maximum amount of the grant. That will be done with effect from the 4th month following your admission to that institution. The reduced grant is re-instated immediately from the date you are discharged from the institution.
What you should do
- Complete a disability grant application form at your nearest South African Social Security Agency (SASSA) office in the presence of a SASSA officer.
- Submit the following:
- Your 13-digit bar-coded identity document (ID). If you don't have an ID:
- You must complete an affidavit on a standard SASSA format in the presence of a Commissioner of Oaths who is not a SASSA official;
- You must bring a sworn statement signed by a reputable person (like a councillor, traditional leader, social worker, minister of religion or school principal) who can verify your name and age;
- The SASSA official will take your fingerprints;
- You will be referred to the Department of Home Affairs to apply for the ID while your application is processed. If you don’t get an ID, your grant will be suspended.
- A medical report and functional assessment report confirming your disability.
- Proof of marital status (if applicable);
- Proof of residence;
- Proof of income or dividends (if any);
- Proof of assets, including the municipal value of your property;
- Proof of private pension (if any);
- Your bank statements for the past three months;
- Refugee status permit and 13-digit refugee ID;
- Unemployment Insurance Fund (UIF) document ('blue book') or discharge certificate from your previous employer if you were employed;
- A copy of the will and the first and final liquidation and distribution accounts, if your spouse died within the last five years.
- Your 13-digit bar-coded identity document (ID). If you don't have an ID:
- After submitting your application you will be given a receipt to keep as proof of application.
What if your application is not approved?
- The social security office will inform you in writing whether or not your application was successful;
- If your grant is not approved, the social security office will state the reasons why your application was unsuccessful. You can then appeal to the Minister of Social Development in writing, explaining why you disagree;
- Appeal within 90 days of receiving notification about the outcome of your application.
How long does it take?
- It may take up to three months to process your application;
- If your grant is approved, you will be paid from the day you applied.
How much does it cost?
The service is free.
Forms to complete
Application forms are not available online, but you can get them from your nearest (SASSA) office.
If the parents can afford it, this amount should be spent on a premium on the father's life to make money available to care for his child life-long. Any amounts available at the death of the handicapped person can be bequeathed to the organisation or institution, which cared for the child.
University expenses increase annually. It is therefore essential to make provision for this in good time.
10. Maintenance Claims
If a person pays maintenance to an ex-wife on behalf of minor children, additional provision should be made, as the person's maintenance duty does not cease at death. The same rule also applies in the case of a father of an illegitimate child. If the testator therefore dies under these circumstances, the claim is calculated actuarially and instituted against the deceased's estate. Such a claim can result in little, if any, money being available for the second wife on behalf of minor children of the second marriage.
11. Buy-and-sell assurance
Where the testator is a partner, co-shareholder or member in a partnership, company or close corporation, buy-and-sell assurance can be taken out to enable one person to buy the interest of the deceased from his estate at his death.
12. Key-person assurance
The employer can take out assurance on the employee's life. The premiums can be fully taxable income of the employer. Key person assurance can offer benefits at death, disability, and retirement and is aimed solely at compensating the employer for any possible loss incurred as a result of the employee's death or disability. If benefits are paid at retirement as well, the employer and the employee can enter into a service contract by which the employer undertakes to pay the employee a certain amount in the form of a gratuity at termination of service.
13. Loan accounts
If a company's loan account is in debit, the testator should consider assuring his life as the company will have a claim against the estate. If the loan account is in credit, the company can consider assuring the testator's life as the estate of the testator will have a claim against the company.
14. Bank overdrafts
Adequate provision should be made for bank overdrafts by funding the transaction with life assurance.
The outstanding amounts owed to creditors must also be taken into account on calculating the need for life assurance.
Assurance can be taken out to make provision for redeeming the mortgage at the testator's death.
If the testator stood surety for somebody, the creditor must protect his interests at the death of the testator and a claim must be instituted against the estate for the full outstanding amount. If an alternative sponsor is not found, the estate now has recourse against the principal debtor who finds himself in an untenable position. However, the problem can be solved if the principal debtor assures the surety's life. Should the surety die, the principal debtor's liabilities will be redeemed and the estate has no further obligations.
18. Group Life Assurance
If the testator is a businessman, group life schemes can also be taken out for his staff.
19. Provident funds and pension funds
If a need arises, a presentation may be made to the owner of an enterprise. On concluding such a transaction, attention can also be given to the position of all individual employees.
20. Medical schemes
A medical scheme can also be presented to major businessmen should there be such a need.
21. The working woman
If the testator's wife works and pays tax separately, he can be informed of what tax saving his wife can enjoy, for example, by taking out an annuity.
Appointed guardians could face the dilemma of having insufficient accommodation space or the lack of proper facilities for the children. Providing sufficient life cover can prevent this problem. The value of the life cover can then be bequeathed to the guardians in the will.
23. ANC Donations
It is important to make sure of any donations made in the Antenuptial Contract. Many times, fixed or movable assets are donated; even a policy could form part of such donations. Often these policies have lapsed, are cancelled or surrendered.
24. Cash Investments
When drafting a will, cash investments will be revealed. These investments aren't necessarily invested in a tax-efficient way or even according to the client's investment profile. Your valuable advice may be most welcomed.
25. Executors Fees
The one item most clients do not take into account is the impact of executors fees on the executability of the estate. If you make use of a trust or a bank, the executors fees amounts to 3.5% plus 14% VAT or 3.99% in total. If the total assets amounts to say R2 000 000, then 3.99% = R79 800. In order to ensure that the cover of the policy is sufficient you cannot just provide an additional R79 800 life cover, as this amount will again cause a shortage in the estate. You therefore need to establish the factor as follows: 100 – 3.99 = 96.01. You now divide the R79 800 by .9601. R79 800 ÷ .9601 = R83 116. If you now multiply this figure by 3.99% = R3 316. R83 116 – R3 316 = R79 800.
26. Estate duty
The last item we need to address is the cost of Estate Duty. If the one spouse dies and leave the estate to the other spouse, besides the 4A abatement of R3 500 000, it will roll-over to the other spouse, totaling to a R7 000 000 abatement. However if both spouses died simultaneously the heirs would be liable for the Estate Duty at a rate of 20%. If we assume that the dutiable estate amounts to R2 000 000 the Estate Duty will amount to R400 000. Again we cannot just provide R400 000 life cover as this will increase the dutiable amount in the estate. Therefore we will need to establish the factor as follows: 100 – 20% = 80. Therefore R400 000 ÷ .80 = R500 000.
Just remember that the additional R500 000 will in turn increase the total assets in the estate, which in turn increases the executor fees.
Take a blank will application and mark all the assurance possibilities with the relevant numbers as indicated above, as if the testator's analysis is done and appropriate advice is given.
From the above listed reasons, it is clear that there are various assurance possibilities if the testator's affairs are analysed carefully and recommendations are made accordingly.