The devastation being wrought by the coronavirus is within touching distance of us all, a constant reminder of how vulnerable our circle of loved ones is. As such, we need to ensure that our personal affairs are in order should the unthinkable happen.
Not only could you save your loved ones some headaches at a time of heartache, there are also some considerations that could save them quite a lot of money. From a personal finance point of view, there are a number of considerations to focus on:
After someone has passed away, the availability of clear financial records helps enormously in the sorting out of their affairs. The obvious include your final Will as well as details about bank accounts, insurance policies and investments, including a pension fund and/or retirement annuity. Contact details for people or firms that must be advised of the death can provide a good starting point.
Make sure that your Will is accurate and up-to-date and that those closest to you know where the original document is kept. If the original cannot be found, your wishes will not necessarily be carried out.
You would be well advised to check that the nominated beneficiaries on your investments and retirement savings are up to date. If you haven’t named beneficiaries on some of these it’s a good time to have a look at this since the proceeds from your retirement savings policies do not automatically form part of your estate in the event of our death.
In the case of a living annuity, the nominated beneficiary you have named will receive the funds. That might not be the case with your savings in a pension fund, provident fund, preservation fund or retirement annuity. In these funds, the nominated beneficiary’s right to the funds will be as per Section 37C of the Pension Funds Act, meaning that the trustees of the fund must determine who your financial dependents are and who should receive the benefit.
“You definitely should include the beneficiaries to whom you would like to bequeath the capital you have saved in products like a pension fund, a retirement annuity and living annuity,” explains Andre Tuck, Senior Investment Consultant at 10X Investments. He confirms that if you do not name a beneficiary, the funds will probably be paid into your estate, which would mean the executor of the estate would be entitled to charge an administration fee.
This can be quite a significant amount that would otherwise go to your nominated beneficiaries. As Tuck explains: “It could cost the estate many thousands of rand in executor’s fees on that capital, which would have been avoided had you nominated a beneficiary.”
Review your financial products
This is probably a good time to take a good look at your existing retirement and investment products. Many of us sign up for things at one point and never check again to see if they are still the best options for us. Sometimes we even forget about or duplicate policies, such as life insurance.
If you are close to or at retirement age, from age of 55 onwards, you should start considering transferring your retirement savings from a retirement annuity into a living annuity if there is a need for income. This is also an option for the proceeds of your company pension fund once you have retired.
Saving on duties and fees
“The living annuity offers a number of benefits,” Tuck explains, “including the fact that the capital invested is not subject to Estate Duty. Since a living annuity is likely to contain the bulk of a retired person’s capital, the saving in Estate Duty can be very significant.”
If the funds are housed in a living annuity rather than in something like unit trusts or shares, the saving in Estate Duty can be a very large sum of money. In addition, if a beneficiary was nominated on the living annuity, the funds would bypass your estate altogether.
“The remaining investment amount at the time of your death would be transferred to the beneficiary without going through the estate, meaning a saving on executor’s fees,” adds Tuck.
No one wants to imagine a world without them in it, but getting your affairs in order can make a huge difference to your family’s wellbeing when that day comes.