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Thread: Some sage advice on estate planning

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    Site Caretaker Dave A's Avatar
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    Some sage advice on estate planning

    Some really good advice here from Personal Finance on beneficiaries of life assurance products.

    This part in particular struck me:
    The life insurers' life assurance claims departments regularly have to deal with desperate family members who cannot comprehend that they cannot access the proceeds of their breadwinner's life policy.

    Gerhard Joubert, the chief executive of the Life Offices' Association, says this is because the policyholder failed to nominate a beneficiary or reinstate the original beneficiary after the policy had been ceded to cover a loan.

    Joubert says you should check your beneficiary nominations at least once a year to make sure that they are still part of your overall estate plan.

    Another problem area is the cession of policies to provide security for a loan. He says you should know what happens to your beneficiary nomination if you cede the policy as security, for example to a bank for a loan. You should name a beneficiary for any residue of the policy value after the bank has taken its slice and renominate a beneficiary once the loan has been paid.

    You should always name a beneficiary to a life assurance policy, even if it is a trust or your estate.

    This applies both to risk policies that pay out on your death and investment (endowment) policies.

    The advantages of naming a beneficiary are:
    • The money will go directly to the right person or persons that you have nominated. The money is not tied up in the distribution of your estate, which can be subject to lengthy delays. Joubert says it can take six to 24 months to wind up an estate. If you nominate minor children, you may need to name a trust as a beneficiary.
    • No executor fees (normally about 3.5 percent plus VAT) will be deducted from the benefit if it is left to any party, including an individual and a trust, but not to your estate.


    If you want the money to go to your estate to pay for an expense such as estate duty, then you should name your estate as the beneficiary. Executor fees will be payable.


    An insolvent estate may not lay claim against life policy proceeds where there is a beneficiary. Where a policy falls into an insolvent estate, only R50 000 of the value of the policy is protected against creditors.

    You should never:
    • Leave the beneficiary nomination line blank.
    • Allow a financial adviser to complete a proposal form for you.
    The trouble with opportunity is it normally comes dressed up as work.

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    So if we cede a policy as security on an overdraft, if we ever pay it off we have to renominate the original benficiary?

    Maybe I'm being a little thick here, but surely it should revert by default back to the original beneficiary. Otherwise, who gets the change after the amount owing on the overdraft is settled.

    And signing off a form with the benficiary blank seems plain silly.

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    Remember that it is not favourable thing to have beneficiaries placed on all your life assurance policies, even if you do not owe anybody anything. Leave at least enough in your estate to cover at least your liabilities (debt before death (bond, vehicle etc), debt because of death (burial costs, Master's fees, Executor fees)).

    Also remember that any money to be paid to a minor in terms of such a beneficiary clause bypasses the estate (and saves on the 3.5% (maximum) plus VAT Executor's fee), BUT is paid to the legal guardian, who may squander the money. The kids' only recourse to get the money would then be through legal course later in life. If the policy holder is OK with the possible consequences, all should be fine. Personally, I'd rather have a trust drawn up at death (mortis causa) and to have the money paid into it by the executor (or pay into a current trust where the kids alone are capital and income beneficiaries). The small 3.99% fee is more than worth the cost of a handsome stranger wasting their money should mom fall for him. This is not to say that one should try to rule from the grave, eh!

    "Beneficiaries" differ from "nominations" though, where kids may well be named. This term is used on policies (like retirement annuities) where the final say as to where the money goes is in the hands of a board of trustees, who in turn are governed by the Pension Fund Act. "Nominations" normally only act as guidelines to these trustees as to where the policy holder "wishes" the money to go. The proceeds of such policies hardly ever go to estates anyway, whether nominations were placed on them or not, because the trustees are supposed to use the proceeds (and incomes) to pay directly to legal dependants, saving on executor fees anyway.

    Any policy without a beneficiary automatically goes to the estate - one does not need to name the estate as the beneficiary. Should a beneficiary be named for a portion (x or y %) of the proceeds, the balance will also go to the estate.

    Do not simply place beneficiary clauses on policies - this could cause you to die insolvent and even have a court cancel the validity of all or some beneficiary clauses.

    A financial adviser (whether an attorney, auditor or broker/representative) worth his/her salt should know what to do!

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    Silver Member Eugene's Avatar
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    On the beneficiary clauses, I have come across a couple of divorce cases where the beneficiary was still the former spouse. If your divorce decree do not stipulate how policies are dealt with, consider your seriously cheezed off new wife at time of death when all proceeds go to your ex.

    Harry has a very valid point above regarding solvency of deceaced estates - before you draft your will, consult with someone knowledgable recarding estate duties payable.

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    Site Caretaker Dave A's Avatar
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    Personally, I'm relying on trusts to ensure minimal disruption. But for those without trusts, I'd guess the number one concern is getting at least some funds to dependents pretty quickly. This is where having a nominated beneficiary on at least one (unceded) policy should prove useful. Provided, of course, the policy is paid out promptly.
    This is not to say that one should try to rule from the grave, eh!
    About the first thing my trust attorney told me that really stuck in my mind. Wise words indeed, particularly as mentally it's so hard to be thinking about handing over the baton when we're still in the middle of making our way.
    The trouble with opportunity is it normally comes dressed up as work.

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    Estate Planning

    Hi,

    It was in depth post on estate planning.

    Transferring wealth is not just about pinpointing what to give and whom to give. It requires planning to make sure everything is in proper order. Estate planning is the best way to do it. This will guide you in conveying wealth while not suppressing the rules by the government. Since our parents are already old, estate planning advice from experts will be of great help.
    Last edited by Dave A; 11-Jun-09 at 01:32 PM.

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