Episode 24 : A Will is Not Enough

Michael Avery

Most of us would rather plan a holiday, or even a renovation, or maybe even a root canal, than sit down and talk honestly about what happens when we die. And yet I think few conversations are probably more important or more loving, because proper estate planning isn’t really about death, if you think about it. It’s about dignity, it’s about clarity, it’s about leaving the people who you love and are left behind with as little chaos as possible at that precise moment when the people we love are least equipped to deal with it. So I think many people believe that if they’ve signed a will, that’s it. They’re covered. But as today’s guest, Maryanne Leicher, reminds us, the will is only one part of the picture. It doesn’t govern everything and it doesn’t necessarily solve for things like liquidity. It doesn’t automatically deal with retirement funds or living annuities. So there’s a lot that we need to get into. Again, when you’re emotional, the numbers are practical, but a good estate plan needs both the practical side and the emotional side covered. So together today with Kim Potgieter in studio, we’re going to unpack what good estate planning looks like. Kim, great to see you again. You’re looking well travelled and well rested as well. I’ve been travelling way too much. And Maryanne, lovely to meet you. Thanks so much for coming onto the podcast.

Maryanne Leicher

Thank you, Michael.

Michael Avery

Something, and just for listeners, you’re a CA, you’re a CFP, you’re a financial planning specialist. You’ve got a deep interest in estate planning, not just as a technical exercise, but as a way of just bringing this kind of clarity at the right moment. And I was very interested by something that you wrote about in your work with clients that you often begin with, I think it’s quite a confronting but a necessary question. What would happen today if you had passed away last night? And I think it’s a question that really peels back a lot of layers. It forces us to think quite deeply about this. What are the most common blind spots that emerge when you pose that question to your clients?

Maryanne Leicher

Michael, I think very much their response is, “I’ve never really thought about it, but I have a signed will, so I’m sorted.” Case by case, clients are different and family dynamics are different, but very much clients never really give it a lot of thought. I get varying answers. I get, “Well, I’m not here, so it won’t be my problem.” Other answers would be, “You know what, this is actually what keeps me up at night. I was waiting for that question. I was waiting for that step in the process.” So very much, I love to say to clients, let’s have a look at your will, but let’s take a step back. I want to put numbers to it and put it into perspective for you.

Michael Avery

And Kim, this idea, this issue of estate planning just being covered by a will, and then you can move on. How prevalent is that in the meetings that you have when you talk about this aspect of financial planning?

Kim Potgieter

I would say, and I could say 99% of clients that we meet that are new clients coming into our business have never, ever done an estate plan. And it’s often because I ask all new clients who come through the process how they found the process. And people tell me that this is the part of the process that helps them sleep well at night, because they didn’t understand what it is. So it’s again what you didn’t know. But the reason we’ve been doing it and the reason we’ve found it so valuable is because we wind up estates and then we get presented with wills. But when there hasn’t been thought or structure put into the will, we see how many bad decisions are made because of a will that didn’t actually speak to the holistic viewpoint of it. So estate planning has been something that we now do with clients. We won’t write a will for you if you don’t have an estate plan, because what we found is that those wills get us into trouble because we don’t understand the full context of it.

Michael Avery

And I think there’s often a conflation in most people’s minds that a will is an estate plan. And the two are two very different documents, very different processes. So what is the distinction, Mary Ann, from where you sit between a will and an estate plan?

Maryanne Leicher

So for me, Michael, very much, the will is the implementation of the estate plan. So it’s the final step and it’s only one part of the final step. The estate plan is taking a step back and looking at the whole picture, as Kim said, and considering all aspects: emotional, as you mentioned, technical. There’s so much more than just a written will that’s validly signed and in place.

Michael Avery

And you tell the story of your first will, your Jack Russell dachshund, Jerry, and your new Audi, and a few cash bequests, and the fact that nobody asked for your personal balance sheet. What did that experience teach you later, once you became a CFP?

Maryanne Leicher

Looking back, as I said, I was quite perturbed that they didn’t actually put Jerry in my will. He’s still going, by the way. He’s 16 years old. But the cash bequest relating to him, it actually should have been in the will. And I was quite perturbed that I wasn’t ever asked, what actually do you have to fund these cash bequests? It was very will-specific. I had just started my new job, so I was contributing to a retirement fund, but beneficiary nominations on that retirement fund didn’t even come up in the conversation.

Michael Avery

Wow. And I mean, that’s one of the first things you actually should be thinking about is who are those people who are left behind? What am I leaving to them? What do I not want to leave to them? I mean, it seems rather obvious though, if you think about what kind of do I want a living annuity or a life annuity, because those products also have different outcomes depending on what your estate plan looks like. So it really is quite holistic. The one speaks to the other.

Maryanne Leicher

Very much so. We always say to clients, we’ve got a blank canvas, let’s do your estate plan, let’s write your will and let’s together determine your beneficiary nominations. But it doesn’t stop there. As life happens, we look at it every year and it goes in tandem, you know, beneficiary nominations and the will to talk to one another. Very different implications, Michael. If you’d like me to unpack those, I can.

Michael Avery

Yeah, we will. But I think maybe just before we unpack some of that detail, Maryanne. I think there’s again a common misconception that we only need to have wills and estate plans much later on in life. And on Life Chapters Money Choices, Kim, you and I, we’ve spoken about various transitions, financial, emotional, that we have in life, and they start very early on, very young. Is there a rule of thumb as to when you should really realistically start thinking about having an estate plan? Because I think a lot of our financial planning, if started incorrectly, impacts that estate plan later on in life, doesn’t it?

Kim Potgieter

So I would, and I always say to people who ask me that question, if you have assets, you should have an estate plan. If you have dependants, you should have an estate plan. So dependants, obviously, are one that comes later in life and then it’s even more important. But when you have assets, you should have this estate plan. But just also to bring it into context, an estate plan has to be seen in the context of a whole financial plan. So many people will come in and say, well, just do an estate plan for me. But that’s when we start actually investing in the wrong products and the wrong advice comes in. So importantly, and that’s what we discuss often, you first start with the life plan. What does my life look like and what do I want it to look like? Then you can go into that scenario plan and work out all the different investment choices that you will have in order to give you this life you want. And only then do we come to the estate planning. Clients often try and make us go first to the estate plan and then come back to the life plan. But we’ve seen it and we’ve worked this way for over 20 years. It’s important to do the process in stages because we learn so much about a person in their life plan that they wouldn’t necessarily think to tell us in their estate plan. And that’s when we hear about the people that are important to them, the dependants, the dynamics in families, because there are always dynamics in families. And that always needs to be taken into account in estate planning. That’s where we can really give advice and really be worth something to our clients, because we’re taking this holistic viewpoint and making sure that we’re not just giving this one part of advice. Because every time we do it, we see how much is missing. And when things are missing, it’s hard to come back. Then you must change it all. So very important here is to follow this process. And when you come to the estate planning, you’re now ready for it because we’ve set the scene. We’ve unpacked, we always call it the puzzle of their life. We’ve unpacked all these pieces. And for us, the estate planning is then the closing of it all. It’s the final piece so that we can make sure that all aspects have been taken care of.

Michael Avery

So that then brings us into the situation where now we want to sit down and we want to have a proper estate planning conversation, Mary Ann. What should a conversation include that a basic will drafting exercise often misses when we’re talking about a proper estate plan?

Maryanne Leicher

So Michael, sorry, just to Kim’s point, before preparing for that estate plan, I go back to the life plan and I read it. I concentrate on really listening to the client, what came through for me, their values, what really keeps them up at night. For example, if there are three children, two have done well and one hasn’t, I take that really deeply with me in my conversation as I enter that estate planning meeting, to tell the client that I’ve heard them. And it’s not just about numbers and the taxes and the liquidity and the technical aspects. It’s very much the full puzzle-box picture. So for me, I think the conversation is, I’ve heard you, we’ve built this relationship through this journey so far. The life planning report is golden for estate planning, I feel. And I want to show the client that I am hearing them on what’s keeping them up at night and my solutions for that.

Michael Avery

Yeah, and we’ve got to, you know, we put numbers to your wishes as you put it. Let’s take that example. So I come to you and we’ve done the financial planning work with Chartered. We then think about how do we fold this into a proper estate plan? And you do have three children, two have done fairly well, the one perhaps hasn’t done as well. And part of you thinks, oh, should I just leave a third, a third, a third? Or do I approach this from a position of love and bring the family in and say, as much as I’d like to, I think it’s only right that I give a little bit more to the struggling sibling. It’s a difficult conversation to have. Where does one begin with that conversation, Mary Ann?

Maryanne Leicher

So I think it’s unpacking the family dynamics. In those cases, what I’ve seen, Michael, is parents who are clients have already financially assisted that one child, for example. I’ve had practical experience in how do we equate that in the will? You don’t want to really disadvantage your other two children for doing well in life. So in that way, I think family dynamics is number one. Are you a family who can openly speak about money, openly speak about when mom and dad are no longer here, what actually will we be left with? How close are the siblings, never mind their status in life? In one aspect, some clients say, I just want to keep it equal even though I know my one child is struggling. In another aspect, clients, it’s a family, they can talk about money openly and they say, you know what, my other two that are perhaps overseas or have done really well, they’ll be fine with leaving their brother or sister a little bit more. So it’s just for me asking the right questions to see how the family deals with those conversations.

Michael Avery

Yeah, and sometimes it’s not even about money at all. It’s just about that family painting on the lounge wall or a scarf that was maybe quite precious to someone. I mean, so these things can run quite deep, Kim, from an emotional perspective, psychological perspective as well.

Kim Potgieter

Again, for that, and it’s part of this whole estate plan, we would get a letter of wishes from our clients. So there are many assets that you can put into a letter of wishes. In that letter of wishes, we will state those paintings, those different things, and rather have worked it out before they pass away instead of leaving the children to work it all out. So that’s the level of detail that goes into an estate plan, where we do a letter of wishes and those are the discussions we have. And we like to bring the families in. So this is a different thing. We’re used to the movies where, when somebody passes away, they get called in and they read this will for the first time. Part of the estate planning process that we encourage is, if you’ve got adult children, that they’re part of the process, that they’re in these discussions. So we will facilitate them coming in so there’s no surprise. I think death is hard enough that when you’ve got to deal with death, you should be using all your energy to grieve and not to, for the first time, hear what’s going to happen. Then all of the family dynamics can come out and some of those family dynamics can’t be sorted out because the person they want to ask the questions to is no longer there. So our first choice is that families do get involved in it.

Michael Avery

I’ve always wondered where that social convention comes from. apart from maybe good Agatha Christie novels or whodunits where everyone gets together and, oh, there’s a big world reading and surprise. Why? What purpose did that ever serve? It was just the movies. It’s very curious to me because I would imagine your root and your preferred manner of approaching this openly, transparently is a much better way to ensure that you have alignment, agreement, less of a shock and surprise. And if there are any wrinkles or creases that maybe you can iron them out ahead of time and not leave that as kind of a ticking time bomb for someone else to deal with when you’re gone.

Kim Potgieter

It’s our first choice, but we still do have it a lot where people keep what they’ve got as their assets close to themselves. And they’ve been taught all the years that these conversations around money are taboo and they don’t want to have them. So it’s still a process for some people, Michael, they just won’t do it. For other clients, they’re open to doing it, but it very much comes back to the first part of what is your relationship like with money. I mean, when we’re very young, we’ve already got a relationship with money and we’ve still got a relationship with money when we’re in our death time. So it’s all to do with that relationship they have with money.

Michael Avery

And you know, Kim, this is really where money and meaning meet. I remember one of our first conversations around launching this podcast was to incorporate that why, almost Simon Sinek kind of thing. How important is it for families to talk about the why behind the wishes? Not just the numbers, not just the technical distribution of the assets, but this is actually why I’m doing what I’m doing or making the decision that I make.

Kim Potgieter

That helps for happy, healthy family dynamics. But like we all know, we are complicated beings. Our relationship with money is complicated. Often our relationship with our family members is complicated. So it’s easier said than done. The most valuable contribution that we make to families is when they’re open to this and we can facilitate all of it. Instead of leaving the dynamics, they can carry on for generations to come And I mean it. It’s for generations to come. If you find out that your parents have left you out because they’re upset with you or they’re cross with you and they passed away, you can never fix that because they’re already gone. And that’s why these brave, courageous conversations happen in the estate planning. And that’s why The will is such a small aspect to this all.

And we’re just talking about your typical nuclear family. Now we’re not even getting into the weeds of divorced families with ex-wives, different children and expectations around that, and what happens to retirement funds and annuities. Let’s move it maybe into the realm of practical advice around will assets versus non-will assets, Maryanne. And I think one of the most important points is that not all assets are governed by your will, and I’m not sure many people will be 100% aware of that. Let’s just unpack that carefully. What are will assets?

And we’re just talking about your typical nuclear family. Now we’re not even getting into the weeds of divorced families with ex-wives, different children and expectations around that and what happens to retirement funds and annuities. Let’s move it maybe into the realm of practical advice around will assets versus non-will assets, Mary Ann. And I think one of the most important points is that not all assets are governed And I’m not sure many people will be 100% aware of that. Let’s just unpack that carefully. What are will assets?

Maryanne Leicher

So Michael, will assets, and you’re quite right, a lot of people think their will governs everything. Will assets would be more like your lifestyle assets, so your home, your holiday homes, cars, bank accounts, timeshare, things like that, share portfolios and a number of liquid investments. Anything in your name that is actually not beneficiary nominated is what your will governs and you’ve got freedom of testation in South Africa. So you can leave whomever, whatever you like. There’s no limitation as a common law country versus other civil law countries where that’s limited or there’s no freedom of testation. But very much will assets are governed by your will and that’s when we unpack liquidity and taxes and that’s where we actually manage.

Michael Avery

Not the dog.

Maryanne Leicher

There we go. Exactly. We unpack. Basically, the Master’s Office takes what, 18 months minimum for a simple estate. Those will assets are frozen, but not necessarily still invested in the market. So there’s a lot of education around will assets, how they’re governed by the will. In contrast to that, beneficiary-nominated assets, we term them at Chartered non-will assets. As long as you’ve nominated a beneficiary, the will has no say over those assets. And a lot of people don’t realise that. So it’s so important to keep those beneficiary nominations in check when you look at your will as well. Very much, if there’s no beneficiary nomination, that could be a problem. And that could be circumvented with just a little bit of education on this estate planning journey with a client.

Michael Avery

What happens if you haven’t nominated a beneficiary? Does that then fall under the purview of the master’s office to decide?

Maryanne Leicher

So basically it would head to your estate and automatically become a will asset, and there are a lot of taxes to be paid that could have been avoided and a lot of delay in your heirs and beneficiaries receiving that. So just small practical tips: always have a nomination unless it’s your intention for it to go to the estate.

Michael Avery

When an estate is frozen, and I think that’s another important issue to consider here, is there are still costs that need to be paid and that are incurred through the process. What does that actually mean for the surviving family?

Maryanne Leicher

So that’s where I like to link estate planning with our financial planning and scenario planning. Partners, spouses, they must really have liquidity in each of their names. We do something called a dependency plan. So very much, let’s say in the olden days, husband was the breadwinner, wife was stay at home, she had nothing in her name. Now imagine there’s no beneficiary-nominated assets, she’d wait a minimum of 18 months to actually just carry on living. So I know life has evolved since then, but very much when we do financial planning, advice before we even get to the estate planning is to have assets in both spouses’ names and to make sure life unfortunately does have to carry on. Bills still need to be paid irrespective of the winding up of the estate.

Michael Avery

And there’s some practical things to consider here because you may have maybe a separate account for a liquidity event, but to access that account today on a phone where everything is biometrically authorized and two-factor authentication, what happens then if your account is frozen and whatever bank says, no, we can’t allow you access to this? So what are some practical tips to ensure that there is liquidity and you don’t encounter any issues with accessing those funds as a surviving family member.

Maryanne Leicher

So very much having bank accounts in your own names. I know in South Africa we don’t have a joint bank account, but having bank accounts in your own names and, while that person’s still with you, special power of attorney at a bank is quite good to put in place in terms of being allowed to access that person’s account. When they’re no longer with you, unfortunately, I would say tell the banks last, to be honest, so that those accounts aren’t frozen. But at the same time, leave cash in there for liquidity for the estate. And again, that’s being guided through the estate planning process.

Kim Potgieter

Maybe just to add there, as part of the whole estate planning process is also to have a digital estate. We don’t understand all these passwords. You say, but people haven’t actually documented the different passwords. So you can’t even get off your Facebook if you don’t know how to log into somebody’s Facebook. It’s something that, for many people, stays around for months afterwards. So we always get everybody to document all of these passwords. Obviously, they have to be put in a very safe place. Because that also allows for these kinds of things not to happen. Life insurance also comes in here. And that’s why you can’t do estate planning without the financial planning. Because for many people, they’ll say, well, I have life insurance. But what they haven’t taken into account are all the costs of, unfortunately, winding up an estate. So we have estate duty, which we can go into, but we also have other taxes, taxes that haven’t been paid. So these life insurance policies become very important. But again, two ways. We see some people are way overinsured, but they’ve never actually done the estate plan to do what Maryanne does with them, which is this allocation of where all the different assets are going to go. Many times, the life insurance policy gets paid a lot quicker if the beneficiary is nominated. So the other part of the family can live on that while they’re waiting for the estate to be wound up. So it’s lots of nuances and levels to this all in order to unpack it properly. I mean, Maryanne can maybe go through a little bit more of those non-will assets, because those non-will assets are very helpful because they come a lot earlier than the will assets.

Michael Avery

So what are we talking about there? Is that retirement funds, living annuities, life insurance, that kind? What are non-wool assets, Marianne?

Maryanne Leicher

Exactly that, Michael. So included in that would be offshore wrappers. You’ve heard the term offshore wrappers that are beneficiary nominated. So non-will assets, very much as Kim said, and quite rightly so, are paid quite quickly, which can provide that liquidity for a surviving partner or surviving spouse. A little distinction that’s very important actually between retirement funds and living annuities, that a lot of people also are not aware of, is retirement funds are bound by the Pension Funds Act, so the trustees have a duty to search for financial dependants, rightly so. So yes, you can keep your beneficiary nominations up to date, but it does take a lot longer for those trustees to release the funds because they’ve got to do this financial dependant investigation. And they may identify dependants that are mirrored on your beneficiary nomination, and then that’s fine. But things like your pension fund, provident fund, when you’ve left a job and you’ve preserved those funds, if you’ve got your own retirement annuity, they all fall under the ambit of trustees doing that investigation. What we practically do sometimes, and again it’s a letter of wishes, but it could provide context, is warn our clients about that and say, look, these are my only financial dependants, ID numbers, full names, and they’re mirrored on my beneficiary nomination. The trustees still have to do the investigations, but it could provide context.

Michael Avery

How long does that process typically take?

Maryanne Leicher

I’ve heard in practice, the worst case I’ve heard is about a year, which is quite tough. And I think it’s provider dependent. But it’s always good to be aware of that, particularly with minor children. And I think that’s where, as Kim mentioned, the life cover comes into play. So with a pension, with a living annuity, and with life cover, they fall under a different act. And luckily, there’s no trustee discretion. So whoever you nominate as your beneficiary, that moves a lot quicker, which is awesome in terms of liquidity, guided by us for the beneficiaries.

Michael Avery

It’s also why I think living annuities are so popular. I don’t want to go down the rabbit hole. I think the ACISA numbers show that given that we’re not saving enough for retirement, I think there is some degree of overselling of living annuities. I’m not sure it’s the right product for everyone. And I think that we toggle too much and we draw down too quickly without having sufficient funds and you can end up in a lot of trouble. I like the hybrid option of maybe blending a living with a guaranteed. Again, don’t want to go too much down a rabbit hole here, but what would you say is the key distinction between a living annuity and having a pension or retirement fund when it comes to your estate planning?

Maryanne Leicher

I would say flexibility and liquidity, immediate liquidity. It probably would take about a month to move that living annuity to the beneficiary’s name, which is a lot better than 18 months or two years. And it also gives flexibility. Why I say flexibility and liquidity is that beneficiary, through our guidance, could take part of that as a cash lump sum. There are some tax implications. If they don’t need the liquidity, they can actually just carry on with that annuity. So, as I say, life carries on, bills still need to be paid, but we facilitate that, being one of the biggest or most powerful non-will assets that we actually facilitate. The executor doesn’t get involved in that.

Michael Avery

And so from a tax perspective, what are the estate duty implications?

Maryanne Leicher

Luckily, estate duty free, both on living annuities and retirement funds. So that’s also a nice tax structuring avenue.

Michael Avery

Yes, of course. Anything that can reduce what I’m going to be paying over to the receiver. I’ve paid enough during my living years. Thank you very much. Come at me, SARS. Now, what happens if the nominated beneficiary elects to not take the cash, but maybe keep the living annuity going? Can they do that?

Maryanne Leicher

They can definitely do that. So that transfers tax free into their name. They become the owner of the living annuity. They can decide on the drawdown that they need. And that’s where we unpack that dependency plan for them. We draw a scenario for them based on the living costs. And the tax implications, they get taxed in their personal capacity. So marginal tax rates, it’s seen as taxable income.

Kim Potgieter

Right. And Michael, that’s why it’s also very valuable getting your beneficiaries involved in this process of estate planning. Because for many, inheritance is like the Lotto. When you win it, you don’t know what to do with it. And you can make bad decisions with the money because you just don’t understand these things, that you could leave the money in a living annuity and you would be paying less tax. So very importantly, when they’re involved in this process, they all of a sudden also know how to look after that money in a responsible way when they get it, because they’ve had the education, they’ve had the conversations. And for many people, when they’re the patriarch of the family, they’ve taken care of all the stuff and it hasn’t necessarily transferred the knowledge down to the different generations. Now they leave this and then the people don’t know what to do with it. It’s like the Lotto. You get the money, you don’t know what to do with it. So that’s why the levels of involvement are so much more valuable when you’re having these kinds of discussions. It’s the same. And we go back to, maybe, the spouse who hasn’t worked, hasn’t been involved in all of this, and she’ll say, well, I don’t do all this stuff. I don’t want to be involved in it. But then when they inherit all of this, and I’m sorry I’m saying she, but those are more the cases that we see, they don’t understand all the decisions and it becomes so overwhelming at that time when they’re stressed and emotional.

Michael Avery

Clogs to clogs in three generations because there hasn’t been that knowledge transfer. It’s such a critical point for, and for women in particular, we have to be mindful that is a lived reality, but also for any financially dependent partner. How do you talk to couples about financial agency and that empowerment and access also without making it feel threatening?

Kim Potgieter

And it is that because often when they come in, they think that I’m pointing out that their partner isn’t doing a good job. But their partner is really doing the best that they can, but it needs to be a shared responsibility. I share stories. And I think that is the way. I got a call the other day. Obviously, I get calls from people who’ve listened to the podcast or read my books. And she was in a relationship with her partner who had a lot of money, but he’s passed away now. He’s left her a lot, but he had never had an estate plan. So there’s absolutely no liquidity for her to be living today. So what Maryanne is talking about is looking at maybe getting this money in a year’s time, but how does she live until that year is made up? This person had all the best intentions. She’s in the will to get it. She doesn’t have any access to cash right now. And it’s heartbreaking because that’s not what that person meant to happen to this woman.

Clogs to clogs in three generations because there hasn’t been that knowledge transfer. It’s such a critical point, and for women in particular, we have to be mindful that it is a lived reality, but also for any financially dependent partner. How do you talk to couples about financial agency and that empowerment and access also without making it feel threatening?

In a situation like that, are you able to approach a bank and like apply for a mezzanine loan or bridging finance?

Kim Potgieter

That was all that I could give her in my conversation: to take the will and go there. But she’s got no credit record. She hasn’t been active in all of this. So she’s on the back foot. And to be in that situation and to be on the back foot when you are grieving. And so those are the stories that I tell. You say to me, how do I get a couple involved in it? They’re real stories and not made-up stories. They’re stories that I just share so that even though the one person thinks that they are so kind in taking all the responsibility, they’re not so kind because of the repercussions if something happens to them. Most times, those kinds of conversations are actually the aha moment for them both to realise that they both need to have equal responsibility in estate planning. And that’s our goal, to get them into that place where they go, okay, I’m open to this. Because some people are so closed, they don’t want to discuss it. If I discuss my partner’s passing, then maybe I’m bringing it on. Maybe that’s going to cause them to die. Or if I discuss it with my family, then maybe my children are going to want me to pass on. So there are many emotional levels to getting a person to comprehend the value of an estate plan.

Michael Avery

Or they can just listen to Life Chapters, Money Choices, which is a podcast of aha moments. Maryanne, I want to move it on to death and taxes. And it’s something we just avoid like the plague. We don’t like talking about it, but we need to understand. I mean, how does estate duty work in broad terms? There’s an abatement, I think it’s currently, what, three and a half million rand. How does it work in broad terms before we get into some of the detail?

Maryanne Leicher

Okay, so Michael, death and taxes, what do we say? The only two certainties in life. I like to explain estate duty as bringing those two realities together. So very much estate duty, it’s a wealth tax in South Africa. And it’s basically levied on anything over three and a half million of your net estate, calculated at 20%. And it’s owed. Your estate legally has to pay SARS that before any beneficiary can inherit, before the estate is wound up. So I mean, it’s prevalent for the high-net-worth individual, as I say, a wealth tax, and tax compliance at SARS has become so onerous that also causes delays in winding up an estate.

Michael Avery

We’ve already paid so much tax through our lifetime. It really is one of those things that I find particularly galling. But you also warn that SARS may simply collect later when the surviving spouse dies. So I mean, because I think a common planning tool is to leave everything to a spouse because then the estate duty rolls over. But that may sometimes just be kicking the can down the road. What is the timing problem here?

Maryanne Leicher

So the timing very much is on first passing spouse. That’s great. You’ve dodged the bullet. As you say, you’ve kicked the can down the road. Say the surviving spouse passes away 10 years later, that’s 10 years’ worth of investment growth, property growth. And then SARS is rubbing their hands together saying, great, I’ll get more of the piece of a bigger pie. So what we could maybe look at doing, and what we sometimes do if there’s a local trust involved, is leaving your abatement to the trust, even though your spouse survives you, is kind of shielding that three and a half million of your dutiable estate so that it grows further on in a trust. And your spouse can do the same and then leave everything else to your spouse. So effectively, three and a half million to a local trust that perhaps is in the family already, and the rest to your spouse means no estate duty and you’ve kind of shielded 3.5 million on your passing from future estate duty.

Michael Avery

That’s very interesting. I know there’s a lot of suspicion around trusts nowadays, but that is an example of where they are still quite useful. Donations tax, I’ve heard, can be another useful structuring tool that is in our toolbox.

Maryanne Leicher

Very much so. I always like to explain to my clients that donations tax is also a wealth tax. The way I look at donations tax is an early collection of estate duty because it’s pretty much the same rate at 20% below 30 million. So what we could do, and it’s all financial plan scenario dependent, but if a client, let’s say, has more than enough for him and his wife, or her and her husband in their lifetime, they’re living according to their values, they’re getting a return on life and not just investment, but there’s a lot of surplus assets. And those surplus assets, their children could actually do with now, paying private school fees, paying off bonds, for example. There are two ways to do it. One way is, yes, you’re going to suffer donations tax now, but you could donate some of your will assets to help them out. We like to term it giving with a warm hand. So while you’re still here, and seeing them benefit from it and create memories with them, for example. But that removes that will asset, that dutiable asset from your estate. Yes, you’re going to pay donations tax of 20% above 150,000, but that’s then out of your name. And it perhaps goes towards their bond or goes towards school fees. And that thing’s removed from your estate versus bequeathing it to them in your will, letting it grow for the next however many years and paying more estate duty on that same will asset. And executor fees. Very important.

Michael Avery

What is the rule of thumb, speaking of executors? Often families just think, we should make it the oldest surviving sibling, or it’s a whole long spiel. When my dad died, it’s not fun. It’s not a job that you really want to be going and doing and spending time at the Master’s Office and that kind of thing. But then I also think there’s a lot of distrust about, who do we make our executor? What are the ins and outs of executorship?

Kim Potgieter

Yes, I can come in here because I’m very passionate on it. Again, you just said it, you choose one of your children to be this executor or your surviving spouse and you give them this job. The amount of families we have seen where it causes the biggest heartache because the other children suspect that child now, that’s doing the actual executorship, is doing things that they shouldn’t be doing. It is way better to use a neutral professional, and I say a neutral professional because it must be a professional business. That’s what their job is, winding up estates. Yes, you have to pay. It’s 3.5% plus VAT. That’s the maximum you pay. You know what the maximum is. But you can negotiate that with these professionals if you come with all your documentation. So what Maryanne is talking about, having ID numbers, having all these documents, if you’ve got all of it ready, many of these professional companies will then negotiate the discount with you, which becomes significant when we are talking about a lot of assets. And it takes out the emotional stress that you put onto families by choosing one and not the other. Because also it’s a message. Why would you choose one child? Is it because they’re cleverer with money? Is it because they’re more astute? What are you saying? What is that saying about your other child? We used to, as a business, always just say, put somebody as your family member as your executor. We don’t anymore because we’ve seen in the practice of winding up estates how many families that didn’t work for. So now we say, use a professional executor and nominate them in your will when you do it.

Michael Avery

It’s not fun. There’s so much more to discuss in this. It’s actually a very interesting area of financial planning. So Maryanne, we’re going to have to have you back on. But I think let’s wrap it up there. If there’s one kind of mind shift that you would like listeners to take from this conversation today. What is it?

Maryanne Leicher

I would say, Michael, thank you for having me first of all, and I’ve really enjoyed it and I’m happy to come back. But for me, it would be don’t be afraid to have the conversation. I come from a family that doesn’t like to talk about money and, very much, it would have helped if we did, looking back. And I think that’s my passion for financial and estate planning. So don’t be afraid to have a conversation. Don’t put it off. We’ve got time. We’ve got time. Let’s be brave together and walk this journey together.

Michael Avery

Well, you’re talking about two things we hate talking about. We hate talking about death, we hate talking about money, and we’re bringing them into one pot. And that’s exactly why we’re having these courageous conversations here on Life Chapters, Money Choices. So Maryanne Leicher, thank you very much. It’s been great having you on the podcast. And Kim, as always, for bringing such humanity and warmth and insight to the conversation. Thank you. Thanks so much for your time. And I think the big thing is that for me, yes, a signed will matters, but it’s certainly not enough. And the deeper question isn’t simply who gets what. It’s what happens next. Who has access to cash? Which assets are frozen? Which assets bypass the estate? Who’s the nominated beneficiary? What tax is paid? What does the surviving spouse live on? There are so many questions and I think we’ve just touched the surface. So that’s why Maryanne’s phrase is so powerful. Put numbers to your wishes, because wishes without numbers can create a lot of confusion, but wishes backed by proper planning can become one final act of love and clarity and protection. This has been Life Chapters, Money Choices. I’m Michael Avery with Kim Potgieter and our guest Maryanne Leicher. Thanks so much for listening and remember to like, subscribe and share wide amongst your networks. The podcast is certainly growing and getting out there. We’re loving your feedback. Take care.