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Estate planning is life planning

| Personal Finance

By Gregory Makama, Business Development Manager at Graviton Wealth Management

Many people mistakenly think that estate planning is only for the wealthy, or even that it is only something that applies at death.  Not so.  Every one of us has an estate – it is simply the sum of your total assets and liabilities at any stage of your life. The process of estate planning – which essentially means having your financial affairs in order and mitigating against any potential risks – is necessary to protect your assets both in this lifetime and for your heirs in the future.

It is estimated that 75 – 80% of working South Africans have no will in place. This means that on their death, they will have no say or control over how their assets are distributed. Even if there is a will in place, but it hasn’t been properly drawn up, missing details could delay the process of winding up the estate. This could have an adverse effect on beneficiaries who may be without an income. Common wisdom states that prevention is better than cure.  If that’s the case, then a little planning now could save your beneficiaries hardship in the future. Let’s consider a few things you can do to make things easier for your beneficiaries.

Things to consider when planning your estate:

  1. Have a valid will drawn up. If you have even a single asset, or if you earn an income, then you need a will. There are various requirements for a will to be valid, and it’s best to get assistance from a professional. The Fiduciary Institute of Southern Africa or Graviton Wealth Management can both assist in this regard. Your financial adviser will also be able to draft a will on your behalf.
  2. Avoid going the do-it-yourself route. There are templates available online, however, all wills are checked by the courts before the executor can act on them. If there is missing information or if some of the requirements haven’t been met – for example a beneficiary also acted as a witness, resulting in a conflict of interest – the will is likely to be considered invalid. This will cause unnecessary delays and expenses.
  3. Draw up a list of your assets and liabilities. This is the first step in drawing up your will. The essential purpose of this exercise is to ensure you don’t leave your family with debt to settle. If there isn’t sufficient liquidity in the estate, the executor may be forced to sell an asset to cover the debt. There are ways to ensure this doesn’t happen, for example linking a life policy to a specific debt so that there is no shortfall. A life policy with no beneficiaries will pay directly into the estate, thereby creating the necessary liquidity.
  4. Appoint an executor for the estate. A friend or family member may not be the best choice. An executor has many administrative duties to perform in the winding up of an estate and requires the necessary knowledge and time. A family member may not want this responsibility during a difficult time.
  5. Update policies. Check investment policies at least on an annual basis to ensure that beneficiaries and their details are still correct.
  6. Keep an emergency file with up-to-date documentation. Include all important documents in the file, as well as details on your medical aid, life policies, ID, bond details and car financing agreements. Other information your heirs and the executor will need to know includes where to find your will, as well as any online passwords. Ensure that a trusted individual knows where to access this file.
  7. Ensure children and pets are safeguarded. Consider whether you’ll appoint godparents – and even alternative godparents – for your children, if something should happen to you while they are still minors. Also make provision for your pets – ensure that someone is prepared to look after them.

An appropriately qualified professional will be able to assist you throughout the, sometimes complex, estate planning process. Once the plan has been drawn up, it should be reviewed regularly as part of the ongoing financial planning process, and especially when life circumstances change.

Your marital regime – in community of property, or ante-nuptial contract with or without accrual – also affects your estate planning and what you may owe in estate duty.

Business owners will have more complex requirements, and in addition to safeguarding their family, they will also need to consider succession planning in their business as well as buy and sell agreements and key man insurance should one of the partners pass away.

Estate planning provides an opportunity to reduce costs

The primary objective of estate planning is to produce a cost-effective plan that includes taxes and that is aligned to the client’s needs. Your adviser would need to consider the following:

  • Ensure that estate duty exclusions and deductions are used in full, and that estate duty is minimised. Policies can be used to ensure liquidity in the estate.
  • Ensure that donations tax exemptions are used in full, and that donations tax is minimised. Donations to a spouse, of up to R100 000 a year, are deducted.
  • Ensure that if transfer duty is paid, the benefits derived justify the expense.
  • Ensure that normal tax is minimised; in particular, that capital gains tax arising on the death of a natural person is minimised.

At Graviton, we believe sound financial as well as estate planning form the bedrock of a financially successful life,  and can go a long way towards alleviating some of the many financial stresses that come our way. Our aim is to increase the number of South Africans who consider estate planning a vital part of their investment strategy and also to reduce the percentage of South Africans who don’t yet have a valid will.

Contact us or speak to your financial adviser for more information on this topic.

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