Why is Estate Planning so important?
It is important not to view estate planning as final stage financial planning designed to secure a financial legacy for your loved ones, but rather as an ongoing process of managing one’s assets and liabilities throughout your lifetime to ensure that your estate is designed to achieve both your lifetime goals and your objectives following your death.
Ensuring estate liquidity
Having sufficient funds available in your estate is crucial to ensuring that your estate expenses and liabilities can be provided for without compromising the inheritance intended for your loved ones. In preparing liquidity calculations, you will need to consider the potential tax, capital gains and estate duty liabilities in your estate, as well as any debt owing.
Ensuring beneficiary nomination
Beneficiary nominations are something that should be reviewed and updated as your personal and financial circumstances change throughout your lifetime. Further, understanding how beneficiary nomination works in respect of various types of policies or investments is important to ensure that your goals are met.
Make an active effort to review the beneficiary nomination on your policies and investments on at least an annual basis, and upon any major life event such as the birth of a child, a death in the family, marriage, or divorce.
Drafting your legacy documents
An integral part of estate planning is to ensure that your legacy documents are correctly drafted and valid and that they are aligned with how you wish your estate to be distributed in the event of death. Along with a well-drafted will, the collation of an estate planning file can be extremely useful to your loved ones and to accelerate the process of winding up your estate.
A living will can be a valuable document for your loved ones should tragedy strike. In this document, you can provide guidance to your family and medical doctor regarding end-of-life medical care and treatment.
Protecting the inheritance of minors
Structuring your estate to ensure that your minor children are adequately provided for in the event of your passing will be vital. Remember, children under the age of 18 may not inherit lump-sum payouts or other assets directly as they are deemed not to have the legal capacity to manage such assets. This could include the formation of a testamentary trust in terms of your will with your minor children as the named beneficiaries to the trust. In the event of your death, any assets intended for your minor children can be left to the trust which, in turn, will manage the trust assets until your children respectively reaches the age of majority, or the age as specified in the deed.
If you haver minor children, your will should also make provision for a legal guardian for your children in the event of your death. While your nominated guardian can also be a trustee of the testamentary trust, it is sometimes advisable to keep the roles separate for the sake of maintaining checks and balances.
Reducing tax liabilities
While it is not possible to avoid paying tax, proactive estate planning gives you the opportunity to structure your estate to reduce the tax obligations of your estate in the event of death. There are several mechanisms that you can use to reduce the estate duty liability in your estate to maximise the inheritance of your loved ones.