A beneficiary in terms of a will can be a natural person, trust, legal person or institution. The same applies to donations. We will focus mainly on bequests to inter vivos trusts and discuss a few aspects regarding bequests to existing testamentary trusts.
Bequests to an inter vivos trust
Bequests to an inter vivos (family) trust means the bequests are made to a trust already registered at the time a will is drawn up. The trust is named as beneficiary. In the absence of such a trust at the death of the testator, the bequest will lapse or devolve upon another nominated substitute beneficiary.
Bequests may also be made to a family trust to be created after the death of the testator. In this case the beneficiaries and trustees must be named in the will, and the will must also stipulate that if the trust is not registered within a certain period of time (usually two to three months after the appointment of the executor, otherwise the winding up of the estate could be delayed), the bequest will lapse.
Bequests to children, for example, may be made subject to the proviso, or voluntary choice by them, that they create a trust within a specified period of time after the death of the testator and that the trust to be created will become the beneficiary in their stead.
The testator or donor cannot be prescriptive and impose changes on an inter vivos deed of trust and must accept the provisions thereof. The trustees must be able to receive the bequest.
However, as the creator of an inter vivos trust the testator may nominate a trustee in his place or trust beneficiaries in his will, on condition that such powers are bestowed in the deed of trust.
Unconditional bequests are transferred and handed to the trustees by the executor and are administered in accordance with the provisions of the deed of trust. If the bequests are subject to, for example, the payment of a bequest price, the trustees will be given possession of the bequests once that price has been paid.
If, for example, the bequest is subject to a usufruct by the testator’s surviving spouse, the wording of the will is very important. Examples of two types of wording and the implications of the respective bequests are briefly discussed below.
1. “I bequeath my estate to the trustees of the ABC FAMILY TRUST (no. T123/2009) subject to the life usufruct by my said spouse, who will be exempt from furnishing any surety.”
As there is no stipulation that the inheritance must be placed under the control of the trustees, the fixed property (with registered or recorded usufruct) will, as in the case of an “ordinary” usufruct, be transferred in the name of the trust, and other assets such as shares and investments will be transferred in the name of the usufructuary and cash will be paid out to her.
She may occupy the property or let it and all income is payable to her direct. She is responsible for the payment of expenses such as rates and taxes, utility accounts and ordinary maintenance, but not for larger expenses in respect of damage not caused by her or for wear and tear. The latter costs are be payable by the trust as the bare owner. The trust is also responsible for the payment of short-term insurance premiums if not taken out voluntarily and maintained by the usufructuary.
The trustees therefore has control over only the fixed property, as well as any other trust assets not passed by inheritance, and will only gain full control of the rest of the usufruct assets once the usufruct has ended.
Should the trust be terminated before the usufruct ends, the capital beneficiaries will be replaced as bare owners.
2. “I bequeath my estate to the trustees of the ABC FAMILY TRUST (no. T123/2009) who are to administer it to the benefit of the beneficiaries in terms of the deed of trust, subject to the life usufruct by my said spouse, who will be exempt from furnishing any surety. I stipulate explicitly that this inheritance will vest in the trustees and be administered by them.”
This provision makes it very clear that the trustees will be in full control of all usufruct assets, including other trust assets. In this case not only the fixed property but also all other estate assets will be transferred in the name of the trust and cash will be paid to the trust. The trustees will be responsible for the letting of the fixed property, expenses, insurance and maintenance of assets and investments.
The usufructuary will still be able to occupy the dwelling and enjoy the right of use of movable property such as furniture and vehicles. The trustees will have to administer the assets inherited from the estate separately from the other trust assets, for various reasons. One of these is that only the spouse as usufructuary is to receive all net income from the usufruct assets, and other income beneficiaries of the trust cannot share in this.
Income cannot be paid to her at the discretion of the trustees and she is not entitled to part of the capital as stipulated in the deed of trust. However, she may also be an income beneficiary in respect of the other trust assets. Therefore there must also be a separate income and expenditure account.
It is also important that when the usufruct ends, the usufruct assets can be identified easily for the calculation of estate duty and capital gains tax. After that they can become mixed up with the other trusts assets and only one income and expenditure account will be required.
If the trust is terminated before the usufruct ends, the capital beneficiaries will also be replaced as bare owners.
Bequests to an existing testamentary trust
This is when testator A bequeaths some or all of his estate assets to the testamentary trust of the late B, who is already deceased when A’s will is drawn up.
The testamentary trust of the late B must therefore already be active and in operation when testator A dies, otherwise no vesting can occur at the death of testator A. The bequest will then lapse or devolve upon another substitute (nominated) beneficiary.
Testator A (or a donor) can also not be prescriptive and impose changes on an existing and active testamentary trust of the late B and must accept the provisions thereof. It is also important that the trustees have the right to accept and receive the bequest.
Unconditional bequests are transferred and handed to the trustees of testator B’s testamentary trust by the executor of testator A and are administered in accordance with the provisions of the will of that trust. If the bequests are subject to, for example, the payment of a bequest price, the trustees will be given possession of the bequests once that price has been paid.
There may be more than one active trust in terms of the same will of the late B, with different provisions and beneficiaries. Testator A must therefore stipulate very clearly to which existing active trust of the late B such bequest is to be made.
The same principles as in 1 and 2 above can be applied to a bequest to an existing testamentary trust of the late B subject to a limited right, such as a usufruct in favour of the surviving spouse of testator A. If the trust of the late B is terminated prior to the termination of the usufruct, the capital beneficiaries will also be replaced as the bare owners.
General comments
As far as bequests to existing testamentary trusts (“the late B”) are concerned, it is recommended that the testator (“A”) should rather have the bequest held in trust and administered by the trust created in his own will.
A trust may not be misused to temporarily keep other assets and funds in it for other purposes, with own fixed rules.
Source: Sanlam Trust, No 3/2009- Nov 2009
Monday, December 13, 2010
Thursday, November 25, 2010
Financial Mistakes People Make- Not reading loan agreements carefully
Although the NCA protects you to some extent from exploitation, many conditions that are camouflaged in the fine print of a loan agreement could come back to haunt you.
In terms of the Act, you must be informed in clear language of all the issues that affect your debt. This puts the onus on you to read all the documents before you sign anything. And you must understand the implications of what you are signing.
Nowadays, most businesses that sell goods on credit are more akin to financial services companies than traditional retailers. The financial products that are sold around the product are where the profits lie for the retailer. And the consequence is that you could pay 10 times more for an item than you would have paid if you had used cash. The retailer will:
· Either earn interest on the loan itself or in effect receive a kickback or commission from the financial institution that provides the credit.
· Earn commission on the life assurance it will insist you take out to cover the debt. But remember that you cannot be forced to purchase assurance from the retailer or from a company of the retailer’s choice. Credit life assurance is the biggest money-spinner in the life assurance industry. Life assurance bought directly from a life assurer is likely to be far cheaper. Here are a few rules to avoid needless payments:
* Never take out credit life assurance for a period longer than the period over which you must repay the debt.
* Never take out credit life assurance for an amount greater than the debt.
* Preferably take out credit life assurance where the value of the benefit declines in tandem with the outstanding debt.
* Always insist on getting quotes via a financial adviser who is independent of the retailer.
* Remember that the commission paid on credit life assurance is calculated by multiplying the premium and the term of the assurance by a certain factor. So the bigger the premium and the longer you pay, the greater the commission.
* Always pay the premiums on the life assurance separately from the principal debt on the product. Most times the premium is added to the principal debt, and you pay interest on the larger debt.
· Earn a commission of up to 22.5 percent on short-term insurance. You will be required to take out short-term insurance, but again you can choose the product provider. And again, beware of premiums being added to the principal debt, which will result in your interest bill climbing.
· Make a profit by selling you extended guarantees and service plans. In many cases, you do not need an extended guarantee.
· Apply other charges, such as administration and penalty charges – even if you pay back the debt early.
Source: Sanlam
In terms of the Act, you must be informed in clear language of all the issues that affect your debt. This puts the onus on you to read all the documents before you sign anything. And you must understand the implications of what you are signing.
Nowadays, most businesses that sell goods on credit are more akin to financial services companies than traditional retailers. The financial products that are sold around the product are where the profits lie for the retailer. And the consequence is that you could pay 10 times more for an item than you would have paid if you had used cash. The retailer will:
· Either earn interest on the loan itself or in effect receive a kickback or commission from the financial institution that provides the credit.
· Earn commission on the life assurance it will insist you take out to cover the debt. But remember that you cannot be forced to purchase assurance from the retailer or from a company of the retailer’s choice. Credit life assurance is the biggest money-spinner in the life assurance industry. Life assurance bought directly from a life assurer is likely to be far cheaper. Here are a few rules to avoid needless payments:
* Never take out credit life assurance for a period longer than the period over which you must repay the debt.
* Never take out credit life assurance for an amount greater than the debt.
* Preferably take out credit life assurance where the value of the benefit declines in tandem with the outstanding debt.
* Always insist on getting quotes via a financial adviser who is independent of the retailer.
* Remember that the commission paid on credit life assurance is calculated by multiplying the premium and the term of the assurance by a certain factor. So the bigger the premium and the longer you pay, the greater the commission.
* Always pay the premiums on the life assurance separately from the principal debt on the product. Most times the premium is added to the principal debt, and you pay interest on the larger debt.
· Earn a commission of up to 22.5 percent on short-term insurance. You will be required to take out short-term insurance, but again you can choose the product provider. And again, beware of premiums being added to the principal debt, which will result in your interest bill climbing.
· Make a profit by selling you extended guarantees and service plans. In many cases, you do not need an extended guarantee.
· Apply other charges, such as administration and penalty charges – even if you pay back the debt early.
Source: Sanlam
Thursday, November 18, 2010
Financial mistakes people make
Most South Africans simply do not save. According to the Reserve Bank’s December 2009 quarterly report, gross savings by households as a percentage of gross domestic product increased marginally from 1.4 percent in the second quarter of last year to a still pathetically low 1.5 percent in the last quarter.
The Reserve Bank says the increase was not because people suddenly discovered the need to save but was a consequence of “tight economic conditions and stricter lending criteria on the part of banks”. And if it were not for compulsory savings, such as contributions to occupational retirement funds, the figure would probably be negative.
It is important to have savings to meet your:
· Short-term needs, such as to pay school fees or to replace a stove that has packed up. You should also aim to build up an emergency fund equal to about three times your monthly disposable (after-tax) income so that you have a financial cushion in a crisis, such as writing off your car or losing your job.
· Medium-term needs, such as a new vehicle or to put down a deposit on a home. You should aim to save a specific amount of money within a fixed period. Use any windfall, such as bonuses or tax refunds, to top up your savings.
· Long-term needs, which essentially mean retirement – without a doubt your biggest single savings requirement. As with risk life assurance, as a rough rule of thumb you should aim to have saved between 15 and 20 times your annual salary at retirement, depending on your age and number of dependants. For most people, this means you will have to save for at least 40 years, from your first pay cheque.
It is a long-term slog to achieve financial security in retirement and not many people attain it, because they do not stick to the basic rules.
The question arises why most people reach retirement with a net replacement ratio of only 28 percent. The main reasons are that people:
· Are not forced to save for retirement. Many employers do not have occupational retirement funds, and many contract workers, part-time workers, domestic workers, seasonal workers and self-employed people do not save for retirement through formal retirement-funding vehicles.
One of the aims of the government’s retirement reforms is to force every person in formal employment to save enough to provide a net replacement ratio of at least 40 percent.
· Save too little. Alexander Forbes says 17 percent of members of occupational retirement funds have contributions (employee and employer) of less than 10 percent of their pensionable income, while 40 percent have contributions lower than the 12 percent sought by the government in its reform proposals.
· Start saving too late, losing the advantages of compounded investment growth. Research by Alexander Forbes shows that most fund members retire with as few as five to 10 years of pensionable service; 12 percent retire with between 10 and 15 years; 14 percent with between 15 and 20 years; and only seven percent with between 35 and 40 years of pensionable service. On average, pensionable service of the last fund prior to retirement is 19.5 years for men and 15.8 years for woman.
If you leave a job and opt to take the savings you have accumulated in your employer’s occupational retirement scheme, you need to reinvest your savings to ensure you will be financially secure in retirement.
Source: Sanlam
The Reserve Bank says the increase was not because people suddenly discovered the need to save but was a consequence of “tight economic conditions and stricter lending criteria on the part of banks”. And if it were not for compulsory savings, such as contributions to occupational retirement funds, the figure would probably be negative.
It is important to have savings to meet your:
· Short-term needs, such as to pay school fees or to replace a stove that has packed up. You should also aim to build up an emergency fund equal to about three times your monthly disposable (after-tax) income so that you have a financial cushion in a crisis, such as writing off your car or losing your job.
· Medium-term needs, such as a new vehicle or to put down a deposit on a home. You should aim to save a specific amount of money within a fixed period. Use any windfall, such as bonuses or tax refunds, to top up your savings.
· Long-term needs, which essentially mean retirement – without a doubt your biggest single savings requirement. As with risk life assurance, as a rough rule of thumb you should aim to have saved between 15 and 20 times your annual salary at retirement, depending on your age and number of dependants. For most people, this means you will have to save for at least 40 years, from your first pay cheque.
It is a long-term slog to achieve financial security in retirement and not many people attain it, because they do not stick to the basic rules.
The question arises why most people reach retirement with a net replacement ratio of only 28 percent. The main reasons are that people:
· Are not forced to save for retirement. Many employers do not have occupational retirement funds, and many contract workers, part-time workers, domestic workers, seasonal workers and self-employed people do not save for retirement through formal retirement-funding vehicles.
One of the aims of the government’s retirement reforms is to force every person in formal employment to save enough to provide a net replacement ratio of at least 40 percent.
· Save too little. Alexander Forbes says 17 percent of members of occupational retirement funds have contributions (employee and employer) of less than 10 percent of their pensionable income, while 40 percent have contributions lower than the 12 percent sought by the government in its reform proposals.
· Start saving too late, losing the advantages of compounded investment growth. Research by Alexander Forbes shows that most fund members retire with as few as five to 10 years of pensionable service; 12 percent retire with between 10 and 15 years; 14 percent with between 15 and 20 years; and only seven percent with between 35 and 40 years of pensionable service. On average, pensionable service of the last fund prior to retirement is 19.5 years for men and 15.8 years for woman.
If you leave a job and opt to take the savings you have accumulated in your employer’s occupational retirement scheme, you need to reinvest your savings to ensure you will be financially secure in retirement.
Source: Sanlam
Thursday, October 21, 2010
10 Questions to ask your financial advisor
Good financial advisors will encourage their clients to ask questions. An advisor would rather have a satisfied client who understands his or her financial needs than an unhappy client who is disillusioned about the service they received.
Can I see your lisence?
Financial advisors in South Africa must be lisenced to with the Financial Services Board (FSB)
Are you qualified?
Many advisors are certified financial planners (CFP), but experience can also be a form of qualification. Any advisor representing Liberty, for instance, will meet the requirements set out by the Financial Advisory and Intermediary Services Act (FAIS).
Do you have references?
A referral from a satisfied client is one way to select a good advisor. However, find out first why the client is satisfied. Is it because the advisor doubled their money in a month or because they have a long term financial strategy that they are happy with? Short- term gains can be reversed, but a long- term financial plan creates long- term wealth.
Do you follow the six- step process?
Most leading financial planners follow the internationally recognised Financial Planner Institutes sis- step process for identifying a client's current financial knowledge and experience, and current financial situation. The gap between the current situation and desired outcome helps to create the financial plan.
How often will I meet you?
Financial reviews are critical to any successful plan and one should meet with an adviser at least once a year. At this time changes to personal circumstances can be discussed as well as taking stock of whether or not you are on track with your plan.
Do you have someone who can step into your shoes?
It is preferable to deal with a financial adviser that is part of a company so if something does happen to the adviser there is someone else who can take over the relationship.
Which companies do you deal with?
Make sure your adviser has contracts with reputable service and product providers.
What do you charge and what will you provide for this fee?
It is important to understand how the adviser earns an income. Some are paid commission by the product providers they represent and others an advisory fee from their clients. You need to understand what services this include and whether you feel that you are getting value for money. Clients can stop their ongoing advisory fee on investment products if they feel their advisor is not providing a service. Changes to legislation also allow clients to now redirect and ongoing commission on their investments products to a new advisor if they change advisers.
What are the costs of this product and what is your commission?
Costs matter, especially on investment products where they can affect total returns.A good advisor will offer you various choices where you can decide on the relative costs and benefits of the products on offer.
Why is the product right for me?
The product must meet your needs, not that of the adviser, so make sure that you understand the product benefits, terms and any restrictions on claims or withdrawals.
(Article by Liberty)
Can I see your lisence?
Financial advisors in South Africa must be lisenced to with the Financial Services Board (FSB)
Are you qualified?
Many advisors are certified financial planners (CFP), but experience can also be a form of qualification. Any advisor representing Liberty, for instance, will meet the requirements set out by the Financial Advisory and Intermediary Services Act (FAIS).
Do you have references?
A referral from a satisfied client is one way to select a good advisor. However, find out first why the client is satisfied. Is it because the advisor doubled their money in a month or because they have a long term financial strategy that they are happy with? Short- term gains can be reversed, but a long- term financial plan creates long- term wealth.
Do you follow the six- step process?
Most leading financial planners follow the internationally recognised Financial Planner Institutes sis- step process for identifying a client's current financial knowledge and experience, and current financial situation. The gap between the current situation and desired outcome helps to create the financial plan.
How often will I meet you?
Financial reviews are critical to any successful plan and one should meet with an adviser at least once a year. At this time changes to personal circumstances can be discussed as well as taking stock of whether or not you are on track with your plan.
Do you have someone who can step into your shoes?
It is preferable to deal with a financial adviser that is part of a company so if something does happen to the adviser there is someone else who can take over the relationship.
Which companies do you deal with?
Make sure your adviser has contracts with reputable service and product providers.
What do you charge and what will you provide for this fee?
It is important to understand how the adviser earns an income. Some are paid commission by the product providers they represent and others an advisory fee from their clients. You need to understand what services this include and whether you feel that you are getting value for money. Clients can stop their ongoing advisory fee on investment products if they feel their advisor is not providing a service. Changes to legislation also allow clients to now redirect and ongoing commission on their investments products to a new advisor if they change advisers.
What are the costs of this product and what is your commission?
Costs matter, especially on investment products where they can affect total returns.A good advisor will offer you various choices where you can decide on the relative costs and benefits of the products on offer.
Why is the product right for me?
The product must meet your needs, not that of the adviser, so make sure that you understand the product benefits, terms and any restrictions on claims or withdrawals.
(Article by Liberty)
Wednesday, October 20, 2010
The value of advice
How a financial advisor can help you achieve your goals.
A financial advisor is your financial coach. He or she is there to guide and to encourage you, but ultimately your financial fitness will depend on how much you buy into that partnership and how committed you are to your financial goals.
We all know we should exercise regurlarly and that it will keep our weight down and make us healthier- so why don't we?
It is usually because we lack discipline- it is easier to sit on a couch and just relax after a tough day in the office.
Now if we had a personal trainer arrive on our soorstep every day, we would probably find it that much easier to stick to an exercise programme.
A trainer would also be able to develop a personalised programme that suited our goals; to build muscle, we would have a more intensive weight- bearing programme; to lose weight, we would need morecardiovascular training. If we had weak areas, the trainer would recommend some exercises and avoid others so that we did not develop injuries.
A personal trainer for your financial well- being
A financial advisor is effectively a personal trainer for your financial well- being. We know we need to have a financial plan that includes paying off our debt, saving, investing and risk cover, but when are we ever going to get around to creating and implementing the plan?
A financial advisor can help set up a financial to meet your goals without taking risks that you can't afford, or maybe by taking more risks (training a bit harder) to reach those goals.
If you are tempted to dip into your savings to buy a new car, your financial advisor is there to remind you of the impact of impulsive purchases on your long- term goals. And when the markets move up or down, your financial advisor will remind you of why you made your investment decisions, so that you stay focussed on your long- term plan rather getting caught up in the emotions of newspaper headlines.
The real cost of DIY financial planning
Nowadays there are many options for DIY finances, and it can often cut fees, but at what cost?
For example, if you experienced a trauma and needed to claim on your disability cover, would you really want to try and claim through a website from your hospital bed? Or if you die, do you want your family to be worrying about getting your finances in order?
A good financial advisor will step in and deal with the paperwork- this os what they are trained to do.
Call your financial advisor today and get financially fit!!!!
A financial advisor is your financial coach. He or she is there to guide and to encourage you, but ultimately your financial fitness will depend on how much you buy into that partnership and how committed you are to your financial goals.
We all know we should exercise regurlarly and that it will keep our weight down and make us healthier- so why don't we?
It is usually because we lack discipline- it is easier to sit on a couch and just relax after a tough day in the office.
Now if we had a personal trainer arrive on our soorstep every day, we would probably find it that much easier to stick to an exercise programme.
A trainer would also be able to develop a personalised programme that suited our goals; to build muscle, we would have a more intensive weight- bearing programme; to lose weight, we would need morecardiovascular training. If we had weak areas, the trainer would recommend some exercises and avoid others so that we did not develop injuries.
A personal trainer for your financial well- being
A financial advisor is effectively a personal trainer for your financial well- being. We know we need to have a financial plan that includes paying off our debt, saving, investing and risk cover, but when are we ever going to get around to creating and implementing the plan?
A financial advisor can help set up a financial to meet your goals without taking risks that you can't afford, or maybe by taking more risks (training a bit harder) to reach those goals.
If you are tempted to dip into your savings to buy a new car, your financial advisor is there to remind you of the impact of impulsive purchases on your long- term goals. And when the markets move up or down, your financial advisor will remind you of why you made your investment decisions, so that you stay focussed on your long- term plan rather getting caught up in the emotions of newspaper headlines.
The real cost of DIY financial planning
Nowadays there are many options for DIY finances, and it can often cut fees, but at what cost?
For example, if you experienced a trauma and needed to claim on your disability cover, would you really want to try and claim through a website from your hospital bed? Or if you die, do you want your family to be worrying about getting your finances in order?
A good financial advisor will step in and deal with the paperwork- this os what they are trained to do.
Call your financial advisor today and get financially fit!!!!
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