Estate planning is not an optional extra

Last updated on 12th December, 2017 at 05:07 pm

In the event of their death, any caring parent or spouse wants their dependants provided for and their heirs to receive the maximum inheritance. But that can only happen once the liabilities are paid on your estate.

Estate planning is a vital part of your long-term financial management. “You’ll spend a lifetime working to create your estate”, says Ronald Samuels, Chief Executive of Sanlam Fiduciary Services, “but without adequate estate planning, you can lose it, and this can happen through no fault of your own. The environment out there is full of traps for the unwary, and the sheer complexity of living makes it essential for you to get competent estate-planning assistance. Marriage, permanent relationships, children, taxes, and a range of risks can weave a web which, if not managed, can prove fatal to unplanned estate arrangements.” Irrespective of your financial position, everybody needs to plan their estate for the following reasons:

• Thorough estate planning may ensure that your dependants have an income.
• It may ensure that you pay as little tax as legally possible.
• It sees that your worldly possessions go to the intended heirs.
• It ensures that your debts are settled.
• It safeguards your business interests.

Estate types differ

In the estate-planning process, four estates come into play, each needing careful consideration. These are:

• Retirement-fund benefits – for death before retirement or if you elect a life annuity at retirement, you may nominate a beneficiary for the proceeds.
• Contractual arrangements such as life insurance proceeds and, if you are in business with partners, buy-and-sell agreements.
• Personal assets – which are dealt with in a Will.
• Trust assets – which are dealt with by the trustees of the trust in terms of a trust deed.

Where to begin?

The first step in estate planning is to determine your assets and liabilities. As different assets are taxed differently, you need to know exactly what you own, for example immovable property (your home), movable property (furniture, stamp/coin collection, vehicles), and intangible assets such as shares, bonds and unit trusts. Liabilities would typically include the amount your dependants will need to support themselves, your debt, tax commitments at death and the amount of life insurance you need so that your estate will be able to meet all its liabilities and commitments.

Keep it simple

Ideally, try and make your estate plan as simple as possible. This begins with drawing up a valid Will in which you specify who will inherit your personal assets. When you die without a Will (intestate), it complicates life for your dependants, sometimes with unpleasant consequences. Appointing an executor will speed up the admin process. The more complex a Will, the longer it will take to wind up, invariably making the process more expensive. And if you have assets offshore, it’s advisable to have a separate Will in the foreign jurisdiction dealing only with those assets.

Beneficiaries and guardians

It’s important to review and update your Will, particularly in the event of a divorce and a second or third marriage. Likewise you need to regularly review and update life-insurance policies and other documents that list beneficiaries, such as trust deeds and group-life funds. It’s not easy to decide on who should raise your minor children in the event of simultaneous death, but you should be bold and tackle this issue head-on. Discuss it with your spouse, select the most suitable candidate(s) and stipulate it in your Will.

Consider a living trust

Establishing a testamentary trust, which is set up in a Will, is a common means of protecting the financial interests of minors or incapacitated dependants. The trust holds the assets and pays the beneficiaries an income until they reach a certain age, after which the trust may be dissolved and the remaining assets distributed to the beneficiaries. If there is no surviving parent and no trust was created, a minor child’s cash inheritance must be paid over to the Master of the High Court’s Guardians Fund for safekeeping. Not to be confused with guardians, trustees are appointed in a Will to administer monies inherited by children under the age of 18 (who cannot inherit cash from you directly) or heirs who are incapable of doing so (eg those who are mentally disabled). If you have children, you could consider a living trust if you have assets to put into such a trust before death. By bequeathing assets to an existing (living) trust already set up during your lifetime, you eliminate the need for a testamentary trust in your Will.

How liquid will your estate be?

When you die, all your assets, including your bank account, are frozen and there may not be sufficient cash to pay home loans, vehicle finance, conveyancing costs and more. Even though you have named an executor, the Master of the High Court has to officially appoint the executor, which can take up to three months. If your estate will not have enough money to pay your debts and support your spouse and children, it’s advisable to take out life insurance to cover these liabilities. In an increasingly uncertain world, death is a certainty. So, if you want to do your loved ones a big favour, do your estate planning as efficiently as possible and timeously.   By Wilma de Bruin