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Ten good reasons why you may need lifecover

Reason 1: Tax applicable on death

In terms of current legislation, estate duty of 20% is payable on the dutiable value of a deceased estate. This is after the R3 500 000 reduction is taken into account and any payments or bequests to a surviving spouse, which do not attract estate duty.

In addition to estate duty, death is regarded as a disposal in terms of current Capital Gains Tax (CGT) legislation. Your estate is thus deemed to have disposed of all their assets to their deceased estate, at market value. The deceased estate will therefore be liable for CGT on any gain in excess of R300 000, which is the current CGT exemption in the year of death.

Reason 2: Maintenance of Surviving Spouses

In terms of the law, spouses have a duty to support each other in accordance with their respective means and the standard of living to which they are accustomed. If you possibly leave your estate to your children or other beneficiaries and effectively “disinherited” your spouse, for whatever reason, the spouse will still be able to claim maintenance from the deceased estate, in terms of this legislation. The circumstances in which such a situation may arise could result in litigation regarding the validity of the will, and could seriously delay the winding up of the estate.

Reason 3: Divorce Orders

Make sure that you review your divorce order as part of your financial needs analysis. Most divorce agreements include a clause to the effect that the divorce order is binding on the estate of the parties. This could mean that your estate would have a significant debt to settle on his death. Consider a separate life policy to provide for this potential liability and make sure that any future wife or child does not have to suffer financially as a result of a prior divorce order.

Reason 4: Accrual Claim

The consequences of an accrual claim can be severe. An accrual claim is calculated on the dissolution of a marriage, which could either be in the case of divorce or in the event of the death of one of the spouses. Have you considered the implications of the accrual system, not only if you pass away, but if your spouse passes away?

For example Mr and Mrs. A conclude an ante-nuptial contract, which makes the accrual system applicable to their marriage. Neither have any significant assets at the time of their marriage. They do not have any children together, however Mrs. A has a son from her previous marriage. She is a stay at home mom and bequeaths her entire estate to her son.

She passes away many years later, her estate has not grown, but her husband’s has grown significantly and he now owns his own business. His total worth is now R 30 million. The accrual calculation determines that half of this is payable to her deceased estate, and in terms of her will, then payable to her son. He is not involved in the business and does not have a good relationship with his stepfather. Her husband will need to raise sufficient capital to pay the accrual claim, in this case R 15 million, which could be devastating for him financially.

Reason 5: Living expenses while the estate is being wound up

Consider increasing your life cover in order to cover your family’s payment of rates and taxes, water and electricity, and other household expenditure for at least 12 months while the estate is being wound up. Even a simple estate can take quite some time to wind up and knowing that these household matters are covered will bring peace of mind to those left behind. In order to ensure that this amount is paid directly to those who need it, make sure that the policy has a nominated beneficiary. This will mean that the proceeds are paid directly to the beneficiary which will assist them financially while waiting for the winding up of the estate.

Reason 6: Maintenance of dependants

Life cover replaces your earning power in the event of their untimely death. Consider the ages of your dependants and how much you will need to provide to secure their future. One of these expenses to be considered is education. A good education is no longer a luxury; it is a necessity in the modern world. A cash lump sum will ensure that the opportunities, which you have always wanted for your children, will still be within their reach.

Reason 7: Settling liabilities

Make sure that your dependents are protected from losing their home if the breadwinner passes away. The loss of the breadwinner may mean that they will not be able to service the loan and could mean another traumatic upheaval in their lives, losing their home.

Does you have credit card debt, vehicle finance, a debt to a business partner or a family trust or suretyships? All these will become due and payable on their death. Ensure that your family are not robbed of their security by having to sell a necessary asset like the family home to obtain liquidity to settle the debt.

Reason 8: Winding up and death bed expenses

The average funeral, tombstone and winding up costs, such as executor’s remuneration, conveyancing fees, arrear taxes and outstanding medical expenses, can make a huge dent in the cash available in your client’s estate. A cash injection provided by life cover will eliminate this burden for those left behind.

Reason 9: Insufficient capital on retirement

It is a serious, yet common problem when spouses reach retirement age, only to find that their assets are insufficient to maintain them both for the rest of their lives. Life expectancy after retirement may be another 15 to 25 years. Often, on the death of a spouse, the surviving spouse has a number of years to live but the retirement capital has largely been spent, and some pension might have fallen away. It is important to anticipate this eventually in one’s younger years, so that appropriate life cover can be in place for the surviving spouse.

Reason 10: Securing business interests

Life cover policies are ideal funding mechanisms for co-owners of a business to buy each other’s respective business interest on death. This ensures that the deceased’s family realizes the true value of the business, while the surviving business partner secures his future investment in the business. Properly structured, these policies have the added advantage of being free of estate duty.

Most businesses always remember to insure their equipment, machinery and their premises. Yet they usually neglect to ensure their most important asset their valued personnel. The loss of a keyperson in the business does not have to mean financial ruin for the business. Properly structured, these policies are also estate duty free. A credit loan account can result in a significant cash windfall for a deceased estate, provided of course that it is recoverable. If your client is owed a substantial amount in terms of his credit loan account, this could be secured with a company owned, company funded policy on his life. This will give him the peace of mind of knowing that this amount will be quickly and easily paid back to his estate.

Source: Liberty Life

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