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Estate planning, executorship and family trusts
Taking over from a family member who becomes incapacitated is not straightforward.
Many families face the unfortunate reality of having to take over the affairs of an ageing parent or relative, particularly when they’ve become incapacitated by mental and physical health problems. If it’s happening in your family, you’ll know about the emotional and financial difficulties that this can cause.
It’s a good idea to help your parents with estate planning, and instructions on who will manage their affairs if they do become incapacitated, while they’re still enjoying good mental and physical health. Put a plan in place that will ensure your family is ready in the sad event that an older relative becomes incapable of managing their own finances. This will enable you to preserve their estate in the most efficient, cost-effective way, while sparing your family added strain and grief.
Which steps can you take if a family member becomes incapacitated?
Taking over the affairs of a member of your family who has been incapacitated is always distressing, but legal complications can make it even more difficult. Under South African law, as soon as a person is declared unable to manage their own affairs, all contracts with that person are restricted to protect them from exploitation. This means that they cannot appoint an agent to manage their finances.
Power of attorney
If your parent signs an agreement granting you power of attorney and they later start to suffer from mental illness or incapacity, that power of attorney falls away. A responsible person must be appointed to manage their financial affairs and assets. There are 3 ways to do this:
- Appointing a curator bonis
You can apply to the High Court to have the affected person declared incapable of managing their affairs. If the court grants your application, it will appoint a curator bonis to take over and act in the best interests of the incapacitated person.
- Appointing an administrator
In the case of mental illness or incapacity, you can also apply to the Master of the High Court to appoint an administrator to handle their affairs. You’ll need expert medical testimony from a mental health specialist to support your application.
- Setting up a Special Trust
If your loved one has been diagnosed with the early stages of dementia, but medical experts confirm that they are still of sound mind, they can set up a Special Trust Type A and transfer all their assets into it, and they can choose the administrator who will manage it for them when they become unable to do so.
All these processes can be complicated, so you will need professional advice and help to put them in place. Court costs, attorney fees and expert testimony can be costly, and those expenses will come out of your ailing relative’s estate.
However, apart from the cost, there is an even more serious risk to consider. Has your parent made a will?
Mental incapacity and estate planning
If your family member lacks the capacity to sign a contract, they cannot sign a valid will. A will that they signed before they became incapacitated, however, will still be valid. Make sure that any at-risk family members draw up and sign a will while they still have full mental capacity. If they don’t have a valid will when they are declared mentally incapable of managing their affairs, they will in effect die intestate.
If you have minor children, it makes sense to make provision in your will for a family trust
Estate planning is the process of legally organising family assets so that they are protected and can be transferred to the next generation easily. You should consider several issues when planning your estate, including the following:
- A valid will
Dying intestate can have unintended consequences for your loved ones. The law sets out a strict formula for the distribution of intestate assets between your surviving spouse, children, parents, or siblings, so your estate may not be divided the way you wanted it to be.
- Marriage contracts
For example, if you are married in community of property when you pass away, only 50% of the value of your estate would be yours to bequeath. If you are married in accrual, your spouse would have similar claims on the deceased estate.
- Death taxes
Tax provision is a serious part of proper estate planning. A deceased estate is still liable for capital gains tax (CGT) and estate taxes. The executor must prepare a post-death tax assessment in which they declare all CGT payable as a liability and therefore not subject to estate duties. Then they must pay CGT whenever it applies to any estate assets that they sell.
- Family trusts
Although not everyone needs them, many families will find trusts very useful in estate planning. If you have minor children, it makes sense to make provision in your will for a family trust that can house their assets until they are old enough to manage their affairs. This is the most common form of trust used in South Africa. You can also set up a trust while you are alive – for example, to house specific assets outside your personal estate – but get professional advice about the investment and tax laws relating to trusts.
- Solvency and liquidity
Estate liquidity and estate solvency are different things. You may have fixed but non-liquid assets in your estate that you leave to the beneficiaries in your will, but if your estate is not liquid, the executor may have to sell them instead to settle debt. You can include financial instruments like life insurance and credit life cover in your estate planning to avoid this.
- Executorship
It’s an honour to be asked to be the executor of a family member’s estate, but the responsibilities can be complex and time-consuming. The duties of an executor include those mentioned above, plus the identification and collection of the estate assets, the safeguarding and investment of those assets before they’re distributed to beneficiaries, and the payment of debts and liabilities owed by the estate. It may be better to appoint a professional adviser or institution as your executor.
Nedbank offers estate planning products and services that include the free drafting of wills and the professional execution of an estate. You can also request a call if you’ve been appointed as the executor of someone’s estate and need help.
