When writing up your will you need to elect an executor, someone who will manage your affairs when you die to ensure the wishes in your will are carried out.
This might involve the sale of your assets and management of your investments until the estate has been wound up. The executor has signing power over your cheque book and no one else has control during the winding up of the estate. Who do you trust enough to do this for you?
You could select one of your beneficiaries, but this has its own pitfalls, says Berrie Botha of Sanlam Trust.
“Money is a strange thing, it can corrupt,” says Botha. If anyone has experienced the shenanigans of family members when it comes to a deceased estate, he is probably right.
Botha says that even making a spouse executor can be risky, as that person will be in an emotional state and not able to think clearly.
Ideally you should elect an executor with knowledge and experience and then select a co-executor from one of the beneficiaries to keep everyone informed and have some oversight of the executor.
An executor can charge up to 3,5% of the total assets of the estate as well as 6% of all income earned by the estate. This can amount to a tidy sum and might not reflect the work that goes into the winding up of the estate.
An estate of R10-million would attract a fee of R350 000. The fact that the executor earns a fee on accrued income could be an incentive not to wind up the estate in a timeous manner.
The next article in the series will look at testamentary trusts
What to consider when selecting an executor
- Negotiate fees upfront and set them out in the will. While you can empower a beneficiary to negotiate fees, he or she might not be in an emotional position to do so. Berrie Botha of Sanlam Trust says this is particularly true of elder couples where the surviving spouse might be taken advantage of. You can include limits on the length of time the executor can earn fees from the estate’s income or have a reducing fee the longer it takes.
- When selecting an executor ideally you should choose a well-established trust company licensed with the Financial Services Board. Do some research on the company. Important questions to ask are: does it have indemnity insurance, who are the directors, what is its reputation, is it subject to internal and external audits? Choosing a company means that if you outlive your executor you know there is someone to step into his or her shoes.
- Indemnity cover is important should there be fraud or a bad investment decision made by the executor.
- The executor should not be the financial adviser. These responsibilities need to be kept separate to avoid conflict of interest.