Understanding the laws of estate planning - Part II

When personal circumstances change, what's the legal impact on an estate plan?

That's a key issue. Ideally, clients should revisit their will every year, but at the very least, after every life-changing event. The whole estate plan should be looked at, as any major change can have a very big impact on how the estate is wound up.

There's a well-known trust case where the trust deed stated: "The beneficiaries will all be my blood relatives." When this individual died, the assets in the estate went to a trust for his children and their children. But one of the third generation was a child who was adopted. No one had thought to change the deed. The debate was then whether the adopted child could actually qualify as a beneficiary. The case went to court and it was eventually decided that, because the will had stipulated "blood relatives", the child couldn't qualify as a beneficiary. This has only recently been overruled by the Constitutional Court.

A small thing like that can change everything. One can easily and unintentionally make a mistake or forget to change things like this. So, it's very important to encourage clients to review their will and change estate plans as their circumstances change.

One of the services we're aiming to offer is a notification we'll send to the client every year to remind them to update their will and make necessary changes.

What should married couples take into consideration for their estate plans?

Before getting married, it's important for a couple to decide whether they want to be married in community of property or out of community. Around 95% of people want to be "out of community" - for good reason. With "in community", couples share assets and debt. So, both individuals are responsible for each other's debts.

Then there's the question of whether they want the accrual system or not. The accrual system can be quite complicated, but it basically means the couple shares what they've earned during the marriage, and not before. They also only share this accrual after the marriage ends. So, the accrual system is a much better way of creating some kind of equity than being married in community of property.

It's important to discuss these things before the marriage. The couple needs to agree on what things to include and exclude, what their starting values are and other bits and pieces that will be drafted in the antenuptial contract.

It's also important to remember that an antenuptial contract can't be changed later on. So, it should never be done at the last minute, just before the wedding.

What options can families consider when naming a beneficiary who is a minor?

If a parent nominates a minor chid as an heir in the estate to receive cash, that becomes problematic. In terms of the Administration of Estates Act, a minor can't get paid cash out of an estate. Instead, it ends up going to the Guardian's Fund, which falls under the administration of the Master of the High Court. There are many cases where children have difficulty getting capital paid out to them.

Setting up a trust is a better way to go, because the money for the child goes into a trust and is looked after by a professional who ensures the child receives the money at the appropriate time.

There are two choices involving different kinds of trust: an inter-vivos trust - Latin for "while you're alive" - or a testamentary trust (a will trust).

Inter-vivos trust (living trust)
Here's an example to explain the first option: If a father wants to make his minor son a beneficiary on a policy he holds, he can set up an inter-vivos trust now - this costs about R6 000. The trust gets registered and receives a trust number. Once the trust is up and running, the father can name this trust as the beneficiary (the trust must be the owner or beneficiary, not the minor). That's the neatest solution because when dad dies, the money is paid directly into the trust, which manages the money for the child until he's old enough to receive it.

Testamentary trusty (will trust)
A testamentary trust only gets set up after a client dies, in terms of the will. If your client has the Discovery Estate Preserver, it will pay for their professional trustee to manage the trust for up to ten years.

The thing to remember is that with this option is that the trust isn't set up until after the client passes away. Clients can create this testamentary trust in their will. The estate will pay for setting up the trust, which is done once the will has been read and the executor appointed - which can take about three months. So, clients would have at least a three-month delay before the policy could pay out into that trust.

In Understanding the laws of estate planning - Part III, Harry shares a few things to keep in mind when it comes to offshore assets and discusses the basics of probate law and how it works.

Speak to your client's about holistic estate planning today