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Succession SA #3: The Guardians of your legacy

“Every man, in proportion to his virtue, considers himself, with respect to the great community of mankind, as the steward and guardian of their interest in the property which he chances to possess.  Every man, in proportion to his wisdom, sees the manner in which it is his duty to employ the resources which the consent of mankind has intrusted to his discretion.”

Percy Shelly, quoted above, was married to Mary Shelly, the author of the famous literary work “Frankenstein”.  Most of us know the story well:  the mad scientist who created the human-like monster who then turns out to be his (and many centuries later, our) worst nightmare.

What many of us don’t know is that the name of the scientist was Frankenstein, not the monster.  The monster remained unnamed throughout the novel.  The monster created by Dr Frankenstein also only became monstrous as a result of the rejection and neglect by his creator, not as a result of his nature or demeanour.

We are all born with potential.  Potential turns into ability and ability turns into earnings.  Our earnings turn into wealth and the wealth that survives us becomes our material legacy.  During our lives we are custodians of the wealth and have the responsibility to safeguard and use it well.

During our lives we have the opportunity to provide the form and structure within which the wealth entrusted to us is used and protected.  Being a custodian means that our possession of the wealth is temporary, and a transfer of the wealth is inevitable.  One can either provide a controlled environment in which the wealth is looked after, or, as Dr Frankenstein did, simply scupper our responsibility and let nature take its course.

Frankenstein’s monster was a result of his creator’s failure to accept his duties as custodian of his creation, which then became his legacy.

We see many of these failures in estate planning.  What should be a source of comfort and protection for heirs becomes a nightmare of family strife and hardship.

Just like Frankenstein’s monster, wealth will meander its way through the back alleys of legal administration and through the hands of strangers if one fails to provide for suitable guardians of one’s wealth.

A good example is making provision for the guardianship of your wealth when your children are still minor.

A & B have a minor daughter, F (like Mary Shelley, why bother naming people here, right?).

A & B own their house valued at R5 million, a share portfolio of R8 million, life cover to the value of R10 million, a car and some minor other assets.

A & B drafted their Wills and left their respective estates to each other on the death of the first dying. On both their deaths, they leave their entire estate to F, who is now four years old. A & B do not make provision in their Wills for F’s inheritance to be held in trust in the event F inherits while she is still a minor (a minor is a person under the age of 18).

A year after signing their Wills, A & B are involved in a motor car accident and F is the only survivor of the accident. F now has to live with her great aunt, who will become her legal guardian*.

Enter the executor, the law and the Guardian’s Fund – how will each of A & B’s assets be dealt with on their death, and how will it potentially affect F?

Fixed Property

The property will be registered in the name of the minor, F. This seems to work out the way A & B wanted, right? Not quite.

As F is a minor and not being able to enter into contracts without the assistance of an adult, F’s guardian will have to assist her when transferring the municipal account, payment of utilities and rates, entering into lease agreements in respect of the property (if applicable), appointment of persons to attend to maintenance on the property, instituting legal action should tenants not pay, and many other actions required when owning a fixed property.

Furthermore, should the need arise to sell or mortgage the property, F and her guardian will not be able to sell or mortgage the property without the consent of the High Court. In applying to court, the court must be satisfied beyond all reasonable doubt that the sale or mortgage of the property will be to the advantage of F.

Investments and Other Assets

As F has no natural guardian, the proceeds of investments and cash assets have to be paid to the Guardian’s Fund, unless the guardian is able to provide security to the Master’s satisfaction.

The law is, however, silent on what the executor of the estate is to do if F is entitled to other movable assets and the guardian is unable to provide security to the satisfaction of the Master.  In most instances, the executor may choose to liquidate these assets and transfer the proceeds to the Guardian’s Fund as well.

Funds held in the Guardian’s Fund earn interest at a rate determined by the Minister of Finance from time to time, currently 7.25%.  The capital earns interest from the month after it was paid to the fund, until the month before it is claimed (when F turns 18), but only up to five years after the capital became claimable. Therefore, if F does not claim the funds until she is 25, then there would be no interest on the capital from the time she turned 23.

F’s aunt, as guardian, will have to approach the fund for payment of F’s expenses relating to maintenance and education.  Such payments are first made from the interest received on the capital, and if insufficient, from the capital held by the fund.  The Master is only permitted to pay up to R100 000 of the capital.  Therefore, if the interest plus R100 000 of the capital is not sufficient to cover F’s expenses, then the court has to be approached to permit the Master to pay more from the capital.

All of the above complications could have been avoided, if A & B stipulated in their Will that a trust should be created for F on their death. Better yet, A & B could have formed a trust during their lifetime, and kept it dormant, ready to accept F’s inheritance. 

A & B would also have been able to nominate the trustees, to ensure that the persons who will have to make decisions on F’s finances were qualified to do so and would have F’s best interests in mind when making decisions.  The trustees would be allowed to retain assets in any form and after selling/mortgaging the property if required, would not need to reduce any assets to cash. 

Each one of us, to the proportion of our virtue and the proportion of our wisdom, needs to ensure that the wealth we have created and those that we have brought into this world will find a safe haven with emotional, financial and physical guardians to look after their development and the wealth we have left them.

On reflection, it seems as if Dr Frankenstein was the monster after all.  And yet, on death, his monstrous creation was the only being who wept in sorrow over his death.

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