Why you need to financially prepare for death
09 November 2016
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On mobile, on digital, on demand, this is Old Mutual Live, Money Coach. Hello and welcome, my name is Chris Gibbons. There are very few things, at least in theory, that we all have in common. In fact, it’s said that there are really only two, death and taxation. Your tax situation may be quite different from mine, so that really only leaves death as something we all have to face sooner or later.
From a financial point of view though, what do we need to think about as we contemplate this inevitable event? We’re joined now by Jillian Howard, author of The Best Pocket Guide Ever for Family Finances. Jillian, greetings to you, welcome once again. Death is something that many people shy away from, try to ignore. When it happens, if you haven’t planned properly, it can create all manner of difficulty. What are the basics, where should I start my planning?
The importance of having a will
Jillian Howard: The first thing you need to do is make sure that you have a will in place. Because if you don’t there are so many things that could go wrong with the winding up of your estate. The second thing would be to make sure that if you die prematurely, that you’ve got life cover in place for the people that you’re leaving behind. So that they can pay for not only your estate costs, but also for raising children or dependents, looking after dependents.
CG: Do you always need legal advice to draw up a will?
JH: It’s best if you do, especially if it’s complicated because there are so many requirements. Like who signs the will, who witnesses the will, where do you sign, how do you sign. That if you do anything wrong, it’s an invalid will once it gets to the masters’ office. Then it’s the same as not writing a will, so it’s probably best to always consult.
CG: What happens if you die without a will?
JH: If you die without a will, it depends on whether you’re married or single. A married person, it generally would go to the wife first of all and if there’s any children, then it would go to the wife and the children equally. If there’s no wife, it will quite often go, if you don’t have any children from a previous marriage, it would go to your parents. If they’re not alive, then to your siblings.
CG: Is it always straight forward if there is a will?
JH: If there is a will no, not always. Like I said, if you haven’t legally and properly drawn up your will there may be some problems. For example, if a witness signed it who inherits in the will, a family member and they stand to inherit, if they’ve signed as a witness to your will, they can no longer legally inherit. That could cause problems.
The high cost of death
CG: There are also a fair number of costs associated with death that people are not aware of.
JH: That’s correct. Lots of people think of the funeral and people don’t even know how much a funeral costs until somebody close to them has died. But above and beyond the funeral there would be estate duty costs. 3.99% of the whole value of the estate and if you’re married in community of property, that’s the joint estate, the whole estate. On a million it’s nearly R40 000, just on executor’s fees. Then there is transfer fees of any property that isn’t transferred to a spouse as well as if your joint estate is over R7 million. You’ve got estate duty as well, which is 20% of everything over R7 million. There are huge costs if you’re not prepared for it.
CG: Does capital gains tax come into play?
JH: Yes, capital gains tax on any assets that are disposed, as long as they’re not transferred to the spouse.
CG: So this again is something you perhaps need to consult a financial planner about?
JH: You would, or an attorney, yes, definitely.
CG: You’re listening to Old Mutual Live, the Money Coach edition, on demand, visit dogreatthings.co.za. Jillian, a final question, can you recover financially from the death of a spouse?
JH: Yes you can. It always depends on how much money there is, like life cover or assets that have been built up over a lifetime. You need to actually plan, you need to know what your costs are going to be and if they’re going to decimate your estate or not.
Both spouses should take out life cover to carry them forward. If you’re talking premature death, in other words, death before retirement, then there’s going to be salaries that were coming in every month that’s gone missing. Ideally that should be replaced with some sort of life insurance.
CG: And there we’ll leave it. This has been another edition of Old Mutual Live Money Coach, my name is Chris Gibbons. I’ve been talking to Jillian Howard, author of The Best Pocket Guide Ever for Family Finances. Jillian, I know your book’s available in all good book stores, but can I also get hold of a copy online?
JH: Yes, you can, takealot.com and internationally on Amazon as well.
CG: Excellent, remember, please feel free to get in touch any time if you have any questions for me or topics you’d like covered on Old Mutual Live Money Coach. Just send them direct to me at firstname.lastname@example.org, I’d be delighted to hear from you. Until the next time, thank you for listening, Old Mutual Live, on mobile, on digital, on demand.