RETIRE IN STYLE: Making sure that where there is a will, there is clarity, not chaos

When we pass away, our loved ones can do without the confusion or acrimony that can arise from dying intestate or leaving an unclear will

In South Africa, if you die without a valid will, the law decides who inherits your assets. In other words, everyone has an estate plan – the question is whether it is your plan or the state’s.

A properly drafted will allows you to decide who inherits, and when and how they inherit. These decisions can also have important tax implications, as who inherits which assets can affect estate duty, capital gains tax and the overall cost of winding up your estate.

Your will is therefore more than a document saying who gets what. It is an important part of your financial plan and should be professionally drafted with both the legal and financial consequences in mind. I do not recommend that you do this yourself.

Consider Kate and Kyle, who have two adult children. Their plan was that if Kyle died first, half of his investments would go to the children and the other half to Kate.

It sounds reasonable, but it can have tax consequences. Assets left to a surviving spouse can generally pass without estate duty or capital gains tax being triggered at that stage. The tax is in effect deferred until the surviving spouse dies.

Any assets left directly to the children may trigger tax immediately. If the estate does not have enough cash to pay these costs, investments or property may have to be sold.

So, the question is not simply who should inherit, but whether the children should inherit on the first death or only after the surviving spouse dies.

Families can behave very differently after somebody dies. Old sibling rivalries reappear. One child believes another received more financial help while the parent was still alive. A relative who has hardly been seen in years suddenly takes a keen interest in the estate.

I have seen otherwise functional families become deeply divided over an inheritance. Your will therefore needs to be clear enough to survive not only legal scrutiny, but also the family dynamics.

This is particularly important with ­second marriages, children from different relationships, businesses, offshore assets or unequal inheritances. In these cases, I would rather pay for a properly drafted will now than leave my family paying lawyers later to interpret what I meant.

Banks have established estate departments, systems and continuity. The downside is that your estate may be one of many being handled at the same time. An independent professional executor may offer a more personal service.

Whoever manages your estate should work closely with your financial planner, who may already understand your family, investments and financial plan.

I often see life insurance taken out specifically to provide cash for estate duty, executor fees and other costs. Sometimes this is exactly what is needed. An estate requires liquidity. But before buying insurance to pay the bill, first check whether the bill can be reduced by asking the following questions: