Estate planning is not something you do once and then never consider again. As your life circumstances change, so should your estate plan. An estate plan is far more than just drawing up a will, instead it takes into account all the assets and liabilities you have accumulated to date. While estate planning is often seen as something you only tackle in preparation for death, this is a short-sighted view. In reality, it involves the optimal structuring and managing of your assets while you are still alive.
Planning for now and the future
It is important not to see estate planning as the final stage of financial planning that will leave a legacy for your loved ones, but instead a continuous process of managing your assets and liabilities throughout your life in order to achieve both your lifetime goals and your objectives after your death.
To achieve this, your estate plan needs to:
Establish estate liquidity
Liquidity in your estate is essential to ensure that your estate costs and liabilities can be covered without compromising the financial inheritance you plan to leave for your loved ones. To establish the liquidity of your estate you need to consider potential tax obligations, capital gains, and estate duty liabilities, and any debts that you may owe. SARS and your creditors will always be paid first from your estate and, if there is insufficient liquidity in your estate, your executor might be forced to sell assets like your vehicles, holiday homes, or even your primary residence in order to pay off your estate debts. It is therefore important that your estate liquidity is established and maintained throughout your life.
Establishing beneficiary nomination
Nominating beneficiaries is not something that should be done once and then forgotten. Instead, it is something that should be reviewed and updated as your financial and personal circumstances change throughout your life. Understanding how beneficiary nomination works for your policies and investments is critical to ensuring your personal wishes are carried out. As children come of age, you may wish to name them personally as beneficiaries to ensure that proceeds are paid directly to them.
In addition, it’s important that you understand the restrictions around Section 37C of the Pension Funds Act which governs how the proceeds of your retirement funds are distributed. Unlike life policies which allow you to select your beneficiary, the distribution of retirement fund benefits, which include pension, provident, preservation, and retirement annuity funds, lies with the fund trustees who are responsible for establishing who your financial dependents are and then allocating the benefits accordingly.
It’s prudent to review the beneficiary nomination of all your policies and investments annually and update them when any major life event occurs, for example when children come of age or a marriage or divorce or even a death occurs.
Legally drafting a will
A legally drafted will that is aligned with how you wish your estate to be distributed following your death, is essential. Your estate planning team should be well briefed on your wishes and should be sensitive to your families’ situation, particularly if you have children under the age of 18. Children under 18 may not inherit lump-sum payouts or other assets directly, so it’s important that your will and estate plan takes this into consideration.
This might involve the formation of a testamentary trust in terms of your will, with your minor child/children named as the beneficiaries of the trust. In the event of your death, any assets intended for your minor children will pass into the trust, which will, in turn, manage the assets until your children come of age.
Ensure efficient estate administration with the EA Group
Our experienced estate planning team will put the appropriate mechanisms in place to ensure, that in the event of your death, that the winding-up process is expedited, and delays avoided. For more information, speak to our Estate Planning team today.