Will mis takes can be c ostly
Get good advice when writing your will
MOST investors consider only two criteria when selecting investment portfolios: historical returns and in vestment management f ees. T hat makes sense.
But what if you were told that it could also make sense to consider the slightly more expensive portfolio that has underperformed? Would y ou belie ve that ? Frank Richards, head of investments: FINANCIAL planning is not onl y about c overing y our as sets and growing your wealth, it is also about managing your affairs in the e vent of death.
Suraj Lallchand, head of Standard Trust Limited, has provided a list of mistakes people oft en mak e w hen drafting a will. • Forgetting to review your will every year Life cir cumstances chang e, so update y our will r egularly. T his includes g etting married, di vorced, moving to a different location, having a child, selling an as set or even losing or g aining a busine ss.
It is a good idea to choose a specific dat e e very y ear t o r eview the will. • Forgetting to include a “Fideicommissum residuary” (leftovers) clause The residuary clause can either cover the “leftovers” of your estate (if you want to be very explicit in your will about who will get what property), or it can be the main clause you use if y ou jus t want to tr eat most, or all, of your estate as one big pool to be divided up among your main beneficiaries.
Should you forget to include a residuary clause to cover property you don’t mention else where in y our will, you will die p artially intestate, meaning only some of your property is c overed b y y our v alid will.
In this case, the la w will dict ate how any property that you have not otherwise mentioned will be dis tributed, and t o whom. • Forgetting contingencies If, for example, you named four beneficiaries and one dies before you do, you need t o name a b ackup.
You also need to name a contingent per sonal r epresentative if the person who you’ve designated is unable t o carry out the acti vities.
The per son or or ganisation y ou have nominated as an executor must also be r evised.
Work with y our b ank, financial planner or at torney on “w hat if ” scenarios. (What if your appointed executor bec omes insol vent? Or FundsAtWork at Momentum Employee B enefits, said that although it is a good start to look at the his torical returns and investment management fees when selecting portf olios, it is some what concerning that little attention is given to the makeup of the portfolios and that the int ellectual property embedded in the portfolio construction is overlooked.
Your will is inv alid if the signatur es and witne sses ar e no t in or der. what if the value of your stock portfolio falls?) • Getting too detailed If you state specific rand amounts, you risk having your estate being distributed in a way you may not have intended.
Use per centages w herever pos sible, particularly for the larger shares of your estate among y our beneficiarie s.
Let’s assume your estate is valued at R1,8 million w hen you dr aft your will and you decide t o lea ve most of it t o your onl y daught er, e xcept f or R180 000, which you want to go to your sister.
You ma y think that y our daught er will g et mor e if the e state gr ows in value.
But this may not be the case. W hat if for some reason the value of your estate decreases due to a fall in property prices or a t ax liabilit y?
Without advocating a shortterm focus, it is import ant t o c onsider ho w much of the capital in a particular portfolio is at risk, how this portfolio is likely to beha ve in a declining mar ket and what the pos sible dr aw do wns ar e.
“Should w e not spend a bit mor e time t alking about the t argeted out come, given the time frame and the ‘risk budget’?
When you die, your estate could have dwindled to R185 000. By using r and amount s ins tead of per centages y our sis ter will s till g et R180 000, but y our daught er will get v ery lit tle. • Keeping secrets from your adviser or lawyer Tell your adviser or attorney everything you can think of, even personal, p ainful or emb arrassing secr ets that may aff ect the claim. Do y ou have a stash of cash in a shoebox in your g arage? • Make sure your will is properly signed This is per haps the mos t common mistake. The will is invalid if the signatures and witnesses are not in order. It is advisable to seek guidance for this.
— Business E ditor.
“The risk budget is different for risk profiled portfolios that are different. It is an indication of the risk appetite and how capital can most effectively be deployed t o achie ve the r equired out come,” said Richar ds.
He said w ell c onstructed portf olios can easily underperform suboptimally constructed portf olios.
This oft en happens — in r ecent times, local and global equities were the top perf ormers w hile “other” as set classes, which provide valuable diversification benefit s, underperf ormed.
Not enough at tention is being p aid to the portfolio’s construction and how it is likely to behave in different market cycles, he said.
— Business Editor.