Defining your financial legacy
Building a legacy starts with knowing what it means to you — then understanding your financial products, your will, and how to invest on behalf of a child.
Achieving financial freedom and building a lasting financial legacy is a goal for many South Africans, but where to start is rarely obvious. It helps to separate the question into three parts: what a legacy means to you, what you are actually signing up to when you invest, and how you protect the people it is for.
What does legacy mean to you?
Defining your financial legacy is a deeply personal exercise. It might mean ensuring your children have access to a good education, leaving your loved ones a substantial nest egg, or making a lasting impact on your community. Whatever it means for you, the starting point is the same: your salary can only take you so far, so it is worth setting clear goals for your money and treating investing as the way you get there.
Know what you are signing up to
When you start an investment or take out a policy, you are entering into a legal contract with a financial services provider — one that sets out the rights, obligations and responsibilities you and the provider must adhere to. Most of those terms are shaped by law rather than by choice, so it is worth understanding the answers to a few questions before you commit, and again whenever you are comparing products:
- 1When can you access your money?
- 2Are there limits to how much you can contribute?
- 3What are the benefits of your contributions?
- 4How long does it take to access your investment?
This matters most when comparing similar-sounding products — a basic unit trust, a tax-free investment and an endowment can behave very differently once you look past the label.
A valid will still matters
To make sure your loved ones are taken care of, you need a valid will — the document that sets out how your assets should be distributed when you die — and it is worth reviewing it with a professional whenever a major life event changes your circumstances. Different financial products are then subject to different rules for how their benefits are paid out: some go to your estate, some to your nominated beneficiaries directly, and retirement fund benefits specifically to your dependants under the Pension Funds Act. We go into which products fall into which category in more detail in Getting your affairs in order.
Investing on behalf of a child
Wanting to give a child a head start is one of the more common forms of legacy, but it comes with its own legal wrinkle: minors — children under 18 — do not have contractual capacity, so they cannot enter into an investment contract on their own. In practice this means either setting up the investment in your own name, or having the child’s legal guardian set up and administer it on the child’s behalf. Once they turn 18, they gain contractual capacity and can access and manage the investment themselves.
This article is general information and not advice. Silke Financial Services is an Authorised Financial Services Provider, FSP No. 12462.