Far from just drafting a Will and reducing Estate Duty, there is a lot more to Estate Planning than many people realise. It is a complex area of financial planning that requires financial, legal and tax expertise if you intend doing it correctly. Essentially, Estate Planning is the process of creating and managing a programme that is designed to create and protect your wealth, and which ensures that your intended legacy comes to fruition after your death. It is a multi-disciplinary approach to structuring one’s financial, economic, social and psychological needs in relation to one’s estate, spouse, loved ones and beneficiaries. When contemplating your Estate Plan, consider the following questions:
- What would the Estate Duty implications be in your estate?
- What CGT would your estate have to pay?
- Would there be enough liquidity to pay the different costs that would arise?
- Would your loved ones have enough money in cash to keep going until your estate is wound up?
- Would your spouse and children receive what you had intended them to receive?
- Is there any ambiguity in your Will that could lead to confusion regarding a specific bequest?
- Who would be responsible for managing the winding up of your Estate and do you trust them implicitly?
- Where is your Will, and do your loved ones know about it?
A common misconception is that one needs to have accumulated substantial wealth and assets before compiling an Estate Plan. However, any over the age of 18, regardless of the size of his estate, can prepare an Estate Plan. By its very nature, Estate Planning is a fluid process that changes as one’s personal circumstances change, and a review can be triggered by a birth, death, sale of property, divorce, adoption, marriage or any other event that affects how you wish to structure your legacy.
As personal circumstances change, different tools and strategies may need to be employed in the Estate Plan to mitigate costs and ensure that one’s wishes are fulfilled. Every person’s circumstances are unique and can include complications such as divorce, step-children, previous marriages, offshore assets, children from a previous relationship, unborn heirs and encumbered assets, and the advice of Estate Planning experts is a highly recommended.
Estate Planning is a highly-specialised area of financial planning and requires the involvement of an advisor (or team of advisors) who has expertise in the legislative, tax and financial intricacies of all aspects of Estate Planning, including Wills, trusts, insurance, retirement funds, matrimonial property regimes, donations, bequests, business succession planning and taxes. The advisor should be able to draw up legal documents such as a Last Will and Testament, Inter Vivos Trust Deeds and Business Assurance Agreements on behalf of the client. It is highly advisable to include a spouse, partner or family member in the process to ensure that someone close to you has intimate knowledge of your wishes and intentions.
The primary goal of any Estate Plan is to protect a person’s wealth while he is still alive, and to ensure that the maximum amount of his wealth can be transferred to his beneficiaries after his passing. In doing this, the Estate Planning process should:
- Ensure that his estate is wound up efficiently and as quickly as possible to avoid delay and disruption to his loved ones.
- Ensure that the correct heirs and legatees inherit in terms of the wishes of the deceased.
- Ensure that the estate is liquid and can meet all its financial obligations on the testator’s passing.
- Make financial provision for the testator’s spouse and dependants in accordance with his express wishes.
- Ensure that the taxes payable by the estate are minimised through appropriate structuring.
- Make sure the Estate Plan is legal and valid in every respect so that it can be efficiently and practically implemented.
- Provide his loved ones with a clear blue-print of his wishes and what he intended to happen to his assets after his passing.
- Remove any confusion and uncertainty to ensure that loved ones are not left asking questions and second-guessing the wishes of the deceased.
Over and above a valid Last Will and Testament, there are a number of other estate planning tools that can be used to ensure the smooth winding up of one’s earthly affairs, such as the drafting of a Living Will (or Advance Directive). The purpose of a Living Will is to guide one’s family and doctors, and comes into effect when its author is in a medical state from which they cannot recover and, due to the condition, are no longer able to make decisions. A Living Will can be ignored by the family and attending doctors if there is the remotest chance of recovery. It is advised that anyone who has a Living Will should tell their family and friends about it to avoid an uncomfortable surprise at a time of great distress. Essentially, a Living Will is a declaration of one’s non-consent to artificial life support in the event of one being unable to communicate one’s wishes when dying. The Living Will can be made by anyone over the age of 18 years who is of sound mind. Bear in mind that Living Wills are not yet recognised in SA statutory law. However, in terms of Section 12 of our Constitution, ‘everyone has the right to bodily and psychological integrity’, which includes the right to have control over one’s own body. The law recognises a patient’s right to accept or decline treatment. A Living Will stands as a patient’s non-consent to artificial life support when dying. The Living Will does not form part of one’s Last Will and Testament and is a separate document which your loved ones should be aware of, and know the location of in the event of tragedy.
Although many clients have the intention to be organ donors, very few people proactively build this into their Estate Plan. Organ transplants are now so successful that up to seven lives can be saved from each donor, and the sight of two more people can be restored. Registration with the Organ Donation Foundation can be done online at www.odf.org.za or by phoning 0800 22 66 11. Anyone under the age of 70 who is in good health can enrol as an organ donor, and anyone under the age of 18 will need parental permission. Kidneys, heart, liver, lungs, corneas, bone, bone marrow and skin are examples of some of the organs used. It is advisable that one discusses one’s wishes with family and loved ones to avoid any trauma and delay at the critical time. Your wishes can be recorded in your Letter of Wishes or by the existence of a Donor Card.
Another instrument that can be effective in winding up one’s affairs is a Letter of Wishes, which is a non-binding letter designed to sit alongside your Will. Its purpose is to provide posthumous guidance to executors, trustees and family members, and to provide an opportunity to set out your thought process either at the time of making the Will or at a later date. In many cases, a Letter of Wishes will become the most important tool in assisting your executors and trustees in reaching pragmatic early decisions in line with your specific wishes – speaking out where a Will cannot. A Letter of Wishes can be key to assisting your executors to manage family expectations, wealth, the family business, and general family dynamics for many years. Importantly, and unlike a Will, it is a private document.
If one considers the size of one’s online presence, it makes sense to draft what has been termed a Digital Will to ensure that your online affairs are terminated appropriate after your death. Your digital affairs would include your online bank accounts, email accounts, music, Facebook, Twitter, Instagram, saved documents, photographs, online subscriptions, loyalty programmes, chat rooms, blog spots, personal and business communications. Although not a legally recognised document, a Digital Will allows you to express your wishes as to how these facilities should be managed and closed after your death. Although the Executor appointed in your Will is responsible for winding up your estate, it is possible to appoint an ‘online executor’ who would be responsible for closing down your digital kingdom. This would entail providing that person with a list of all the online sites, login credentials, passwords and links that he needs in order to ensure that he has the tools to adhere to your wishes.
Estate Planning is so much more than just drafting a Will. It’s about creating a legacy that is indelibly you. Prepare today to ensure that, in the aftermath of your passing, your loved ones can spend time celebrating your life and appreciating the legacy that you gifted them. As John Allston once said, “The only thing you take with you when you’re gone is what you leave behind”.
Have a great Monday!