Lack of understanding hinders inheritance claims

Different ways of pass on assets when you die

Often when parents die, leaving wealth in various investments for their children, the family members’ limited communication and a lack of understanding of the processes that must be followed delays the inheritance being distributed.

It is important to understand that even if the deceased has left assets, and potentially a will, assets are not all treated the same way when it comes to distributing them immediately to beneficiaries.

Sadly, there isn’t broad understanding of this concept among those who have a big portfolio of assets and policies to make available when they pass away.

First, let’s discuss the process to be followed immediately after you find out that a loved one has passed away. Once the unfortunate news has been shared with the closest family and friends, you need to establish from the deceased’s financial adviser or the bank if there is a funeral policy.

Call the funeral cover provider and they will guide you through the claims process and advise you which funeral homes or undertakers to use. Establish if there is a will in place in order to find out if there are special instructions regarding the burial arrangements, for example, a cremation request.

Also, find out who is the executor of the will and notify them of the death. Once the dust has settled, the process of dealing with the inheritance and estate begins. It is here where things can and do get cloudy.

What is an estate?

An estate is the deceased’s net worth. It includes assets such as his or her home, furniture, vehicles, bank accounts, rights and licences and investments in companies, unit trusts, property and shares. An estate also includes all your liabilities such as your mortgage bond, loans, credit cards and tax liabilities.

What is an executor?

You nominate an executor to be responsible for winding up your estate and to ensure your final wishes are carried out effectively and within the law. It is an executor’s duty to ensure that assets are divided in terms of the last will. The executor also has to pay all the creditors owed by the estate before distributing the residue to heirs.

What’s in the estate and what is not?

The assets that form part of your deceased estate and can be included in the will include immovable property, such as the property on which you live, any investment properties and land, and movable property such as cash in the bank, your cars, jewellery, paintings, investments such as unit trusts, shares, offshore investments and intellectual property.

Living annuities

If you are retired and using a living annuity to provide a pension, you need to nominate a beneficiary to whom the benefit will be paid when you die. There is no need to mention the living annuity in your will. Your nominated beneficiaries can take the annuity as a lump sum payment, but it will trigger tax as per the retirement tax tables.

Retirement funds

Retirement funds are administered by the Pension Funds Act which states that the trustees are responsible for allocating your benefits if you die before retiring. There is no need to mention your retirement funds in your will because they don’t form part of your estate. The trustees of your fund have to identify all your dependants, decide how to allocate these benefits to them and how the benefits should be paid. The beneficiaries you nominate are merely a guide for the trustees.

Life insurance

When you take out a life insurance policy you also nominate a beneficiary and typically the proceeds from the life cover are paid directly to the nominated beneficiary without the need for the life cover to be mentioned in the will. The payout is tax-free for the beneficiary. You can also nominate your estate to be the beneficiary of your life insurance policy should you wish that the proceeds are paid to your estate.

Tax-free investments

If you have a tax-free investment structured like a life policy, you can nominate beneficiaries and they will receive the benefit tax-free immediately after the company has been notified of your death. However, the payout will be included in the calculation of the value of your estate for tax purposes.

‘ ‘ No need to list retirement funds in your will – they don’t form part of your estate

Family trusts

A trust is a legal entity on its own under the control of the trustees. Assets in a trust, such as unit trusts and companies that you have donated to, a trust do not form part of your estate.