Expert Warn Against Common Pitfalls When Drawing Up a Last Will and Testament

 

Martin De Kock (CFP®), Director and Financial Planner at Ascor® Independent Wealth Managers

 

 One of the places where you do not want to make a mistake in your life is in your last will and testament. That is because you will not be around to amend the mistake when it is realised – you would be dead.

Your last will and testament states your final wishes as to what will happen with everything you spent your whole life accumulating (your estate). It also makes provision for the most precious thing in your life: your children.

We have asked expert, Martin de Kock (CFP®) who deal with estates and estate planning, to explain some of the biggest mistakes and other mistakes he regularly find in a last will and testament.

The most common and costly mistake made when drafting a will is to draft the will in isolation, i.e. without performing an estate liquidity calculation and reviewing the testator’s life insurance and policies, and without properly analysing the testator’s assets and liabilities.

The estate liquidity calculation indicates if there are enough funds and cash in the deceased estate to settle all estate liabilities (debt) as well as estate expenses e.g. executor fees, estate duties, capital gains tax, income tax etc. There may be sufficient proceeds from life policies to cover these expenses but, if the policies have nominated beneficiaries, the proceeds do not flow into the estate to cover the expenses but are paid directly to the beneficiaries.

If there are insufficient funds to pay the estate expenses, the executor may be forced to sell estate assets to generate the necessary funds. Such a forced sale of assets could very well result in proceeds less than the fair market value of the assets being sold. This is to the detriment of the heirs.

By doing an estate liquidity calculation and a proper assessment of the testator’s life policies, assets and liabilities, a liquidity shortfall can often be addressed by merely amending the beneficiaries on the life policies and making provision for some of the policy proceeds to flow to the estate. If there is insufficient life cover to address liquidity shortfalls, new life policies can be taken out.

A comprehensive financial planning exercise, performed by a Certified Financial Planner or someone with similar experience, should prevent the mistake when drafting a last will and testament.

 

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