The purpose of having an estate plan

Estate planning is a multi-faceted and often complex exercise that aims to create, protect and distribute your wealth in line with your wishes. Every estate plan should be unique and customised for each individual’s circumstances and purpose in order to achieve a number of goals, which include:

The smooth winding up of your estate

In the absence of a meticulously prepared estate plan, the winding up of an estate can take years to complete. Any delay in winding up your affairs could result in financial hardship for your loved ones, which is something you naturally aimed to avoid when setting up your estate plan. Delays in the administration of deceased estates can be caused by a number of avoidable factors such as lost documentation, difficulty locating a Will, or problems locating heirs and beneficiaries. Delays can also be caused by family feuds especially where a Will is contested, or where the testator’s Will is ambiguous and requires interpretation by the high court. Even the simplest, most well-planned estate can take up to a year to wind up, making estate planning an imperative if you have loved ones left behind.

Distributing your assets to your loved ones

In the absence of a valid Will, your earthly possessions will be distributed in terms of the law of intestate succession. South Africa has no forced heirship or mandatory succession rights which means that, by drafting a Will, you can determine exactly who benefits from your estate and in what proportion. Subject to a few restrictions on your testamentary freedom, a testator is generally free to determine how his assets are allocated amongst his heirs and beneficiaries. Trusts make very useful, and often very tax-effective, estate planning tools to ensure the safe custody and transfer of assets from one generation to another, and should be used, where appropriate, to achieve your succession goals.

Providing financially for those you leave behind

If you have a spouse, partner and/or children who are financially dependent on you, your estate plan can be used to make provision for them in the event that you are no longer around. In putting these mechanisms in place, bear in mind that your estate could take years to wind up and you may therefore need to put short- to medium-term funding mechanisms in place to ensure that your loved ones have access to funds during the winding-up process. In such instances, life policies and living annuities with your spouse and/or children as the named beneficiaries, make excellent estate planning tools as the proceeds are available to your loved ones almost immediately after your death.

Limiting costs and taxed

There are many taxes and costs involved when winding up an estate, and an experienced estate planner will be able to assist you in minimising these costs. Some of the costs your adviser will take into consideration when crafting your plan include transfer duty on immoveable property, capital gains tax, income tax, donations tax, VAT, and fiduciary costs where trusts are involved. In this regard, the purpose of the estate plan will be to minimise the costs to your deceased estate while maximising the inheritance of your loved ones.

Ensuring liquidity in your estate

If there is not sufficient liquidity in your estate when you pass, your loved ones may need to sell certain assets in order to pay costs, which can be hugely traumatic especially where it comes to the forced sale of a family home. To ensure that your loved ones are not financially compromised, your adviser will help prepare detailed liquidity calculations to ensure that your debt, estate administration and death bed costs can be covered, your estate duty is provided for, SARS can be paid, and any other taxes are timeously payable.

Developing a business succession strategy

If you own a business or have shares in a business, you can use your estate plan to make provision for the succession of your business interests, and this is generally done through a carefully structured buy & sell agreement supported by a business assurance policy as the funding mechanism. The idea behind a buy & sell agreement is to ensure that the surviving shareholders have access to sufficient funds to purchase your shares in the event of your passing. If correctly structured, a buy & sell agreement supported by a business assurance policy will ensure that the value of your business interests bypass your estate and are not estate dutiable.

Dealing with your foreign assets

If you own assets in a foreign country, your estate plan should take into account your global assets and, where appropriate, ensure that a valid foreign Will is drafted. Unless otherwise specified, your South African Will covers your world-wide assets, although there may be instances where you require a foreign Will – also known as an offshore Will or concurrent Will, and your adviser should be able to determine whether a foreign Will is necessary.

Drafting supplementary legal documentation

While your Will is likely the most important estate planning document, there are a number of other documents you may want to consider putting in place to provide for your passing. For instance, a Living Will can be a valuable document when it comes to guiding your loved ones in the event of a medical emergency or tragedy. Particularly useful in the event of a terminal illness, an Advance Healthcare Directive allows you to appoint a medical proxy to speak on your behalf if you are unable to, and to provide your medical practitioners with guidelines as to how you wish to be cared for towards the end of your life.

Avoid uncertainty and confusion

Your entire estate plan, when read together with your Will, foreign, legacy documents, trust deeds and codicils should be perfectly aligned to achieve your goals and to create certainty amongst your heirs as to your wishes. Any ambiguity, confusion or uncertainty can delay the winding up process, cause family tensions, and possibly result in legal proceedings being brought to obtain clarity regarding your intentions.

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