You’re married, you have two kids and a mortgage and you spend your days trying to make ends meet. You are living each day as it comes and you don’t have a second to think about the future. Well you should be – especially a future where something could happen to you or your spouse which might leave your children without parents or financial support.
Here are the important steps you need to take to put the appropriate plans and policies in place to ensure that your children’s future is well taken care of in the event of your death.
Buy life insurance
It is vitally important that you buy a life insurance policy to provide for your children once you are gone. If you consider that 12 years of schooling can cost between R250 000 and R1 million for one child, it’s clear that you have to have made provision for this expense in case something happens to you – as well as for food, clothing, medical aid or expenses and tertiary education.
A financial planner can assist you in working out exactly what your children’s expenses will be and help you identify a figure that will meet their immediate and long-term needs in the event of your death. You can also make use of one of the many life insurance calculators available online or take the 1Life financial needs analysis.
If you are indebted it is a good idea to have credit life insurance as well, which covers the outstanding amount on your debt – for instance the remainder owing on your car or bond. Most lending institutions insist on this, but you don’t have to take their insurance offering and can shop around for a competitive quote.
However, even if you do not have credit life cover in place on some or all of your debts, your regular life insurance policy cannot be used to cover these debts, as long as you have named a beneficiary on the policy. Always ensure that a beneficiary has been listed so that your loved ones will have access to the full life insurance pay-out!
Appoint a guardian
If your children are underage, you should appoint a guardian who will act as their parent should something happen to you. You do this by stating the guardian’s name and guardianship in your will. Give your choice of guardian a great deal of careful consideration, taking into account who your children have an emotional connection with, who will be able to look after them appropriately, who will give them the support that they need and very importantly, who is able and willing to take on the responsibility of raising someone else’s children.
Have a conversation with your preferred guardian before officially appointing them in your will. Make sure that they understand what the costs of raising your children will be and what financial provisions you have made for their future. Assume nothing. Make sure that they are happy with your requirements for the care of your children or that you are willing to compromise in line with their requests.
If you have not appointed a guardian, your children will become wards of the state. In all likelihood, the state will appoint your next of kin as a guardian, which may not be what you would have wished and it might also create unnecessary delays and heartache for everyone involved.
Leave instructions for creating a trust
Make provision for the creation of a trust to administer any assets and the life insurance that you leave behind. Your will must state that a trust, which is a legal entity that acts as the owner of the assets and acts in the best interests of your children, must be created after your death. It is advisable that the trust be administrated by three trustees – two family members or close friends and a third party who is either an accountant or a lawyer.
It’s also very important to include in your will an explanation of exactly what your requirements of the trustees are – for example how many of your children’s assets should be spent making their lives comfortable in the short term and how much should be kept as a lump sum that they receive when they are eighteen or twenty-one or how much their guardian should receive each month to cover expenses.
Appoint an executor
In South Africa, if the total value of an estate is worth less than R250 000, an administrator can be appointed to liaise with the banks and other financial institutions to wind up the financial affairs. If the estate is worth more than R250 000, an executor with an understanding of accountancy and legal practices must be appointed to ensure that all actions are carried out in line with the Administration of Estates Act, the law that relates to deceased estates. It is permitted to appoint a non-financial or non-legal professional as an executor, but this person must then retain the services of a professional to make sure that they are acting within the law. State your requirements in your will.
The proposed executor must also have expressed a willingness to take on this role. It is a good idea to appoint someone who has a vested interest in winding up the estate as quickly as possible so that there is no financial question around the ownership of assets or access to funds by your children and their guardian.
While it’s never easy to contemplate your own passing, it is absolutely vital that you ensure that the people you love the most are cared for after you are gone. The loss of a parent is devastating, but if you have made financial provision for your children, you can rest easy knowing that their futures are on sound financial footing.