Estate planning – make time to manage your affairs
Too many people make the mistake of thinking that estate planning is only something that wealthy people have to do – wrong! Estate planning is for everyone who has accumulated any assets as well as built up some form of business enterprise.
Estate planning is important because it is all about protecting your loved ones. When a person’s estate has not been carefully planned, inevitably the affairs of the deceased are left in confusion along with a negative impact on loved ones who must wade through red tape and rigmarole while still grieving the loss of their loved one.
WHAT IS AN ESTATE?
We all have an estate no matter what our financial status is. Your estate refers to everything you own such as:
- Property (residential, agricultural, business).
- Financial assets (bank accounts, shares).
- Life insurance policies.
- Personal goods (vehicles, jewellery, furniture and other belongings).
ACTIONS TO BE TAKEN TOWARDS BETTER ESTATE PLANNING
- Write your will – this is a legal document in which you name an executor to carry out your wishes, heirs for your assets and name the guardians if you have minor children.
- Analyse and document your financial position.
- List your property and assets i.e. land and vehicles.
- Draw up an inventory list of all your furniture and personal belongings.
- Draw up a record of all bank accounts held in your name.
- List all policies held in your name.
- Draw up a list of chosen beneficiaries.
- Name an executor of your estate who will manage your will – consider who you most trust to administer your estate effectively.
- Source advice from specialists to minimise costs and taxes payable.
PRACTICAL ACTIONS TO TAKE THAT WILL MAKE MANAGING YOUR AFFAIRS EASIER
- Have a file in which you store important documents so they can be found easily.
- Complete a power of attorney form – this is not something that will be used by heirs, but it is nonetheless an important document for your loved ones to have should you become incapacitated because of an illness or accident.
- Save a copy of your will.
- Save copies of your identity documents and passport.
- Keep records of all banking accounts including numbers and passwords.
- List all your policies with detailed names and account numbers.
- Keep a record of running accounts – especially debts still outstanding.
- Store records of each vehicle licenses with details of financing arrangements and licence numbers etc.
- File real estate records such as title deeds, lease agreements etc.
- If you use the services of an accountant, record their details in the file.
FOUR MAIN REASONS TO DO ESTATE PLANNING
It is always wise to plan for when something happens to a family’s breadwinner/s.
- It allows you to choose who gets what
The main purpose of estate planning is deciding who will benefit from that which you will leave behind. If you don’t name the beneficiaries it will be left to the courts to decide and this process can take years and cost a lot of money. The courts cannot know which of your heirs is likely to be responsible and manage your affairs carefully or which is likely to irresponsibly waste what you have left your beneficiaries.
- It gives one the chance to name a guardian for your children in the event of an early or unexpected death
If you are a parent to young children, it is especially important to prepare for the unthinkable. Not one of us likes to think of dying young but as a parent one needs to ensure that one’s children will be cared for and raised with good values. It is wise to name a guardian for your children in case they are left with no parent before they turn 18. If this is not done, the courts will be asked to step in and decide who is to raise your children.
- It reduces taxes on what you leave behind
Estate planning means finding the best ways to transfer assets to your heirs while creating the smallest possible tax burden for them. In South Africa as in most other countries, death and taxes go hand in hand. The deceased estate has to pay inheritance taxes namely estate duty and capital gains tax.
- Estate duty taxes the transfer of wealth (assets) from the deceased’s estate to the beneficiaries. Estate duty is charged and collected on the estate of every person who dies. It is up to each individual to find out what this means against his or her estate. The duty assessed has to be paid within one year of the date of death.
- Capital gains tax is tax levied on any capital gain (profit) on the sale or transfer of an asset from one owner (in this instance, the deceased) to a new owner.
It is possible with careful planning and good advice to reduce the income tax beneficiaries might have to pay. Without a plan, your beneficiaries will be paying a large percentage of their inheritance to the South African Revenue Service.
- It lowers the risk of family strife and ugly legal battles
Stop fights before they start. I am sure many of us have heard sad and ugly stories of the bitterness and fighting that has arisen between previously loving family members when they dispute an estate. One sibling thinks they deserve more than another, or another sibling tries to get control of the money and others feel they cannot be trusted. This is a sad scenario which can be avoided with an estate plan in place. The plan enables one to choose who manages your affairs, who controls finances and who runs your business if you become mentally incapacitated or after you die. It also empowers you to make specific provisions for example:
- To provide for a younger child not yet able to provide for his/herself;
- To give less to a beneficiary whose education you funded while paying less for other siblings; or even
- To give more to a child who has done most of the work supporting or caring for you and the family.
This time spent planning gives you the opportunity to decide who will benefit in the most sensible and fair manner possible. When people don’t have their paperwork in order it becomes a nightmare for everybody left behind. In a worst-case scenario loved ones may miss out on life insurance benefits, tax deductions or overlook settling outstanding accounts just because they didn’t know about them. Get your paperwork in order and have your important documents available for your loved ones.
Remember your last will and testament cannot only be done once and set aside. It is a living document and needs to be reviewed and revised whenever there is a change in your circumstances. This means changes like getting married, divorced or widowed, having a new baby, any new purchases or sale of any assets or with the acquisition of a new business or new farmland. It is not only up to you as head of your home and breadwinner to care for your family during your lifetime, you need to plan for the maximum transfer of your wealth to the next generation in the most sensible and harmonious manner possible.
Publication: April 2020