Effective Estate Planning: A Legacy That Lasts

Effective Estate Planning: A Legacy That Lasts

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The Wikipedia definition of estate planning is deceptively simple – it is “the process of disposing of an estate”. Estate planning typically attempts to eliminate any uncertainties over the administration of probate and to maximise the value of the estate by reducing taxes and other expenses. This is something anyone who has built up an estate with assets wishes to do; after all this is the legacy that is left to the immediate family.

The idea is to protect it to the best of our ability while we are still alive and able.

Reasons to plan

Estate planning can be divided into five elements:

  • Protect the value of growth assets in the estate
  • Protect assets from forced sale by assessing the availability of liquidity in the estate
  • Reduce exposure to taxes such a capital gains tax (CGT) and estate duty
  • Limit estate expenses
  • Ensure the smooth transition of  the client’s estate on death

Many believe that estate planning is more about avoiding estate duty than anything else. However, it is so much more than that; it is an holistic process, encompassing all the relevant values of a person’s assets and liabilities at a given time. From this information, an individually customised and suitable plan needs to be developed.

An estate plan should also be flexible enough to ensure that future adjustments, resulting from such things as changing laws, financial situations and family needs, can be made.

What to look out for

An estate plan should take into account these aspects:

  • Your will; and, for the record, there is no such things as an old will
  • Any trusts (if applicable) and any relevant loan accounts
  • Life policies showing nominated beneficiaries
  • Liquidity required to fund CGT, executors fees and estate duty
  • All assets and liabilities and, most important, shares in private firms
  • Any sureties that have been signed

Efficient use of all available estate planning tools will ensure estate duty is kept to a minimum. Individual cases will determine whether a particular method is suitable or not. Most people who think that estate planning is just worrying about assets or minimising outgoings, should realise that it is more about achieving the goals set during one’s life and beyond.

Many are unaware of the available estate planning opportunities. Having a Will is just one part of estate planning. One must always ensure there is sufficient liquidity in the estate to meet any liabilities without compromising your dependents.

A trust is certainly not always the answer to everyone’s circumstances but before forming a trust or, perhaps, terminating one, I would suggest you talk this over with a professional.

A costly oversight

A colleague of mine often says that people spend a lifetime building up their estate, but how much time do they spend on preserving it? I read recently in the Glacier-Sanlam financial proposal that it is estimated that a person spends about 76 800 hours building their estate. If you do not spend at least two hours planning it, it could cost up to 30% of your estate in unnecessary expenses and taxes and your heirs and dependents may not receive what is due to them.

Estate planning is often overlooked when more emphasis is placed on investment strategy and the creation of wealth. However, estate planning actually forms one of the supporting pillars of a sound financial plan. Rich or poor, everyone needs to plan their estates. It can be as simple as drawing up a will in which all your worldly possessions are left to your spouse, or as complex as establishing a local or offshore trust.

Inefficient planning reduced Elvis Presley’s estate by 73% and because the amount paid is on public record, there is no truth in the rumour that Elvis is alive and kicking in Memphis. The last place I would want my heirs to end up is in Heartbreak Hotel. 

Bryan Hirsch
BRYAN HIRSCH has been in the financial services industry for 47 years and is a director of Bryan Hirsch Colley & Associates. He has written two books, the first Bryan Hirsch’s Guide to Personal Finance and more recently, Steps to Financial Freedom. Bryan has written for many of South Africa’s top financial and business publications, has been a weekly guest on Radio SAFM for 18 years, and has his own weekly TV show You & Your Money on Summit TV.