Your will, an essential responsibility…
Introduction
Thinking about your Will and estate planning is never more important than when you are having a new baby. You are your best investment for your child. Get your affairs in order to ensure that you can give this little life the best start.
The aim of these blog posts are to provide you with the tools to make an educated decision about the interests of your child after your passing. I hope that you will take the information presented here and relook at your existing Wills, or those that are still to be drafted, with well-informed eyes. It is not only important to know how to put a good Will together, but also to know exactly how your wishes will be given effect to upon your passing. I hope that these blog posts will assist you to make these important decisions for your family.
I must add that the topic is extremely broad and there is a lot to speak about. The discussion for the purpose of this blog post relates specifically to your decisions in your estate regarding your children. Any aspect over and above this, or which can’t be linked to the topic of children, should be discussed further with your attorney, with appropriate knowledge and experience, who is the best person to assist you in the drafting your Will.
A respected colleague of mine and mentor, Ceris Field, succinctly describes it as taking your car to your hair dresser for a service when you take the drafting of your Will anywhere else other than to your attorney. Each Will is specific and your attorney needs to know about your life and your relationships in order to properly draft the Will for your needs. Don’t let anyone draft your Will for you who says, “just email me what you want and I will put your Will together for you”. Your Will, next to your ante nuptial contract, is the most important document that you will sign in your life, so make sure it is exactly what you want.
So, let’s begin by setting the stage for the two contrasting situations and their effects on your children: Passing away with a Will, and passing away without a Will.
Having a (good) Will allows you the choice to decide how your family will be cared for with the assets that you have left behind. Passing without a Will places the decision in someone else’s hands through the mechanisms of the law to determine how your family will be cared for and who inherits.
The Executor
The first decision that you Will have to make when drafting a Will is who your Executor Will be. This is a decision that should not be made sentimentally as the responsibility and burden is great, especially for someone who has no knowledge or experience on the administration of estates. The Executor will ensure the smooth administration of your wishes in terms of your Will and the final winding up of your estate so that your family can continue with their lives. Their function only exists between the time of your passing and the final administration of your estate. The successful administration of your estate is completely dependent upon the competency of your Executor. Naturally, if you do not have a Will where you choose an Executor, one will be appointed for you, and that could be truly anyone!
You must be informed of the Executor’s role and how to make this decision when you draft your Will. For the purpose of this discussion, one of the functions that you can task the Executor with in your Will is to have regard to the maintenance and upkeep of your children from the time of your passing to the date of the final administration of your estate. Without this clause in your Will, ensuring that your children are cared for during this time before everyone receives their inheritance is quite challenging for the children and the appointed Guardians. You can further specifically provide that a set amount of maintenance is allocated to your Guardians for your children each month during this time. All of this is to ensure the smooth administration of your estate and that your loved ones are looked after properly, with minimal disruption to their lives, which is what you want after your passing.
Adding to these additional clauses which one will not find in a store bought Will are a number of others that protect your interests and the interests of your family, which your attorneys can advise you on further.
Your Bequests
The bequests section of a Will (or “legacies” where you leave a specific item to a specific person – bequests are more general in nature, but your attorney can assist with the wording here), is the place that we are all familiar with, and where most believe their decisions and role in the drafting of their Will ends. There is a myriad of choices that you can make regarding your children when leaving your estate to them, in its entirety, in portions, in assets or otherwise. When you have more than one child that you wish to leave your estate to, always remember to specify the portion, for example, equal portions.
Here you must also mention where you want any child who received more than the other during your life time to now receive less in order to equal out the inheritance at your passing. This is called “collation”. Most choose not to, and are happy to leave an equal split, but some do, especially where assets are of great value have been given to certain children during their life time, like cars and houses etc. Then it is only fair, to avoid arguments between your children upon your passing, to level the inheritance out.
Bequests can be subject to a variety of conditions, and you can discuss the possibility of this with your attorney who will advise how to word these properly so as to be able to give effect to your wishes when it counts. What must be mentioned here is that you remember why you are leaving anything to your children, which is to care for them. Do not get lost in the loop of conditions and “only if’s” if your real intention is to ensure that your baby is cared for and happy after your passing, because some conditions can be more of a burden than a blessing, which may result in your child rather giving up their inheritance.
Again, if there is no Will, you do not have a choice, and other than your child receiving their inheritance when they are of age, 18 years old, no conditions are imposed by law.
Your Testamentary Trust
This brings me to the next very important point under the heading of bequests that where your children are not of age, 18 years old, it is critical that you create a testamentary trust in your Will for their upkeep and maintenance, and the administration of the inheritance that you have left them after the final administration of your estate, and when the Executor steps away. Creating this document in your Will is the best and most practical place.
As with all the topics discussed here, there is a great deal more that can be said on each, and in the case of testamentary trusts, only a brief introduction will be given for the purpose of this discussion, as they are very tailored to your needs and the needs of your children. This is again a discussion that you can have with your attorney when drafting your Will for advice in your particular circumstances.
The trust will set out who the trust is set up for, your beneficiaries. You can even allocate different beneficiaries to the capital of the trust and the interest earned in the trust. The trust must be managed by Trustees. My suggestion is to have three Trustees at any given time, to avoid a deadlock in decision making for your child and to further make one of those Trustees and independent, knowledgeable person, like an attorney. I will not deny my bias towards the appointment of attorneys in this capacity, and even in the capacity as Executor, where they are bound by the rules set out on the Administration of Estates Act as Executors, and the Trust Property Control Act where appointed as Trustees. They also have a responsibility to the Law Society in their professional capacity as attorneys, where ignorance of the law is no excuse, further ensuring for a smoother administration of your estate.
As with the additional powers allocated to the Executor outside of the standard administrative function required by law, you can (and in my professional opinion, must!) give the Trustees more powers than what is needed. It is better to have these additional powers and not need to rely on them, then need these clauses and not have them! We, attorneys, add these additional clauses that are not prescribed by law because these very instances have been problems in previous cases where we can learn from them to improve the content and administration of our client’s estates. This is another reason why not anyone should be allowed to draft your Will. The drafter should always be familiar with the changing and most recent case law regarding Wills and Estates.
For example, including the clause in your Will to allow your children, the beneficiaries, to have sight of the accounting records of the trust held by the Trustees is a lesson that was learned from this very dispute being raised in court.
A decision will also need to be made in your testamentary trust deed regarding the date of termination of the trust for your children. Will it be the age of majority, or will it continue to look after them until their death, or until they get their law degree, or stop smoking etc? The provision in your testamentary trust must also not contradict what you already specified under your bequests section, or legacy section.
A good testamentary trust should also allow for the payment of the capital and interest prior to the date of termination of the trust. This is useful in the circumstances where, for example, your child is involved in a car accident and he or she needs the funds for their medical expenses. A good trust deed will also provide for the situation where the payment may be delayed, in the discretion of the Trustees, in the event that your child is not ready to receive a lump sum, for example, where your child is a drug addict.
A good testamentary trust can also provide for the substitution of beneficiaries, should your first choice pass away or reject the benefit during the existence of the trust or before vesting of the inheritance etc.
An aside, where ever you mention a person by name, a beneficiary, an Executor, a Trustee, a Guardian, always list an alternative should the first not be available. Do not take it for granted that a large institution will be there for you when you need them most. It is your responsibility to make sure that you will be protected.
Speaking of protection, my advice is to also not allow anyone who drafts a “standard” or “simple Will” (there is no such thing) for you, to include a breakdown of their fees in your Will, or to get you to agree to the fees that they will make on being your Executor or Trustee. The Executor’s fees are determined by the Administration of Estates Act and left open in the Trust Property Control Act. This is the best approach for any of my clients, and I will tell you the same, because the fee will be determined by the work done by the Executor and Trustees. If the Executors do not do much work, they cannot ask for their 3.5%, similarly regarding Trustees, the fees are fairly determined for them, according to the work that they do. I have experience in protecting vulnerable beneficiaries against these large corporations. It is very important that your estate is not treated as a “number” in their file cabinet. This is not what you expect after taking the time to thoughtfully draft your Will.
The reality is that without creating a trust the inheritance for your child goes to the Guardian’s Fund, where it is administered to your appointed Guardian for your child. The process to access funds from the Guardian’s Fund is also extremely difficult and burdensome. Sometimes your funds cannot even be located within the Guardian Fund!
I speak from experience as a child where my parents both passed away did not leave a Will. Guardian can abuse the funds that you do not leave in trust and the horror stories in this regard are endless. Such was my own story, and although terrible, my childhood circumstances have equipped me to present to you the tools for you to do the right thing for your children. You have the choice and chance now to get your affairs in order to avoid this disastrous eventuality. It is advisable to specifically state in your Will that no inheritance for any minor shall be paid to the Guardian’s Fund.
As advised, this is the tip of the iceberg of what can be addressed in a trust, and it is advisable to have this discussion with your attorney so that he or she can tailor a testamentary trust your specific needs and circumstances.
If you have any questions you are welcome to contact the writer, Jayde Fryer, on 079 877 7137 or electronically on jayde@jjfryer.co.za or www.jjfryer.co.za