Although disheartening, planning for death is a crucial step in one’s financial planning process, which includes drafting a will.
Here are a few pitfalls to avoid when drafting your will:
1. Succession clause
Should any of your nominated heirs pass away before you do, and you pass away shortly thereafter, it will be of paramount importance to have nominated substitute heirs. For example: if your son or daughter passes away before you do and they don’t have descendants, if you haven’t nominated substitutes for the bequests to them, these bequests could devolve in terms of our intestate succession laws.
2. Loans owing by a trust
If you have loan amounts owing to you from a trust, you should consider bequeathing the loans in your will to your surviving spouse or another trust beneficiary, or to the trustees of the trust. If you don’t, the executor may instruct the trustees to repay the loan to your estate. This can have negative consequences for both your estate and the trust. The trust might not have the available liquidity to repay the loan and will then have to sell trust assets in order to repay the loan, which could result in a capital gain in the trust. The executor of the estate will not be able to finalise the estate of the deceased until the loan has been repaid.
3. Is enough liquidity available?
It’s important that enough liquidity (cash or cash assets) is available to settle claims against your estate and liabilities at death. If enough cash isn’t available the executor of the estate might have to sell some assets to make cash available in order to settle any claims and liabilities, or the family members might have to source the necessary cash to settle the claims and liabilities.
4. The location of your will
Sometimes the latest will is not enacted because the executor or family members don’t know where their loved one kept his or her last will. If it cannot be found and there’s no previously signed valid will, the deceased will die intestate. This can result in assets being left to unintended beneficiaries, cause delays and give rise to practical problems and unnecessary frustration for your loved ones. Make sure your loved ones know where your last will is kept.
5. Business ownership
If you’re a shareholder, business partner or a sole proprietor it’s important to consider whether a buy-and-sell agreement, key person insurance or other form of business assurance is needed and in place. These arrangements may provide the liquidity for your business partner(s) or co-shareholder to buy your shares in the business upon your death. As the value of the business increases, the business partners should agree on adjusted values from time to time and adjust the policy values accordingly. The agreements and policies must be correctly structured to fall outside the net estate duty.
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