The importance of estate planning

Success, whether in your business or personal life, is the result of good planning. The essence of good estate planning is the preservation of wealth.

Estate planning, therefore, may be viewed in light of two facets: firstly, a plan for the creation of wealth during your lifetime and, secondly, the implementation of that plan once you have passed away. By planning your estate, you’re carefully structuring your finances and assets in a way that ensures estate duties are minimised, that there is sufficient liquidity to meet your estate’s financial obligations upon your death, and ultimately that any inheritances are sufficiently distributed or protected for your younger beneficiaries.

Comprehensive estate planning should consider life policies, trusts and donations, and take into account marital contracts, capital gains tax and income tax in a way that will ensure your financial affairs are managed according to your wishes when you pass away. Estate planning need not necessarily be complex, and it should be sufficiently flexible to meet your ever-changing needs. Estate planning is crucial if you are married, have been married multiple times, have children from different relationships or support people financially. It will allow the protection of your loved ones from legal hassles and financial uncertainty after your death. Being self-employed or owning a business could affect your personal financial matters upon death. Thorough estate planning means that you can determine whether or not business creditors can attach personal assets.

Good estate planning is focused, clear and designed to do a specific job — leaving nothing to chance. It is about investing in future goals and laying the foundation for wealth preservation. At the heart of this is your last will and testament: a valid and up to date will, prepared by a professional, should be aligned to your vision and wishes for your family. Estate planning is an important responsibility and yet too many South Africans – 70% of the working population – do not have a will in place.

Without a valid will one dies intestate, with possibly very negative consequences. These consequences include your wishes being ignored and the financial needs of your loved ones being neglected, it may even lead to assets being sold unnecessarily. Furthermore, there will be delays in the administration of your estate, and assets will be distributed in accordance with a set legislative formula. It also means that minors’ inheritance will be held with the Master of the High Court until they reach majority.

A valid will is one that is clearly worded, legally enforceable, ensures that your assets are distributed according to your wishes, and allows you to name beneficiaries who aren’t family members. It will keep estate administration costs to a minimum and should ideally be drawn up in a way that avoids delays in winding up your estate.

Reasons to have a will

You decide how your estate will be distributed. If you die without a will, the distribution of your estate will be determined by the Intestate Succession Act, 81 of 1987.
You can decide who will take care of your minor children by nominating a guardian.
Your heirs avoid a lengthy process in winding up your estate.
It could minimise taxes and costs related to estate duty, capital gains tax, executor’s remuneration, etc.
You can decide who will wind up your estate and determine the cost upfront.
Protection of your assets:
- You could set up testamentary trusts for your beneficiaries.
- You can protect bequeathed assets against the legal consequences of the beneficiaries’ marriage.
You can ensure that your estate is properly funded.
You can change your mind if your circumstances change.
You can decide on and provide for burial preferences.

The fact is that anything can happen in life and being prepared is your best defence against unforeseen events. Planning your estate and how your assets will be distributed means that you are taking significant steps toward securing the financial future of the people that matter most to you.

The information contained in this article is of a general nature and intended for information purposes only. It is neither to be construed as financial advice nor to be regarded as a definitive analysis of any financial, legal or other issue. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner/adviser to take into account your particular investment objectives, financial situation and individual needs.