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Estate Planning: A complete Guide

Estate Planning: Explained

 If you’re interested in learning more about Estate Planning and why it could be so valuable to investigate, then you’re in the right place. This blog will take you through the ins and outs of Estate Planning and hopefully provide a clearer picture to you of what it all entails.

Estate planning is so often connected with old age, and the idea that it’s not necessary to consider before then. However, estate planning isn’t necessarily only applicable at certain milestones in your life, or at a certain net worth only, it's actually quite beneficial to think about it wherever you find yourself in your life.

What is Estate Planning?

 Well let’s start with what is your ‘estate’, no it’s not just a plot of land you may have. It’s in fact got to do with all your possessions. Therefore planning your estate refers to the crafting and collection of documents and processes to be reassessed upon your death.

The plan is more or less in place to make sure that you are in control of what happens to your possessions after your death and so that your loved ones are taken care of. It is considered essential if you are married, or have been married multiple times and have children or support people financially. This is because protecting your loved ones from legal hassles after your death is important, try to make the whole process easy once you are gone.

By planning your estate, you are essentially carefully allocating and structuring your finances and assets in such a way that estate duties (and other related taxes) are minimised and that there is sufficient liquidity to meet your financial obligations upon your death.

E.g. You have enough assets and equity (such as a house or car) to pay off any remaining debts which you may have. So that ultimately any inheritances received by your family are successfully distributed or protected for younger beneficiaries.

On the whole, it’s a misconception that Estate Planning is only about “making a will”. A will is only one component of a great and comprehensive estate plan. Other elements such as your marriage contracts/ capital gains tax and other income taxes you may owe to SARS must be taken into account in your estate plan to ensure that the process of finalising your estate once you have died is a smooth and easy process.

Why is estate planning important?

Essentially you need to think about those around you who depend on you financially or depend on the assets in your estate that you own. Because, oftentimes in South Africa, it is reported that many estates don’t have the sufficient liquidity required to settle debts, which then causes much financial hardship and stress upon those previously dependent on you who must then fend for themselves.

 Tactical decisions should be made to best suit and protect your loved ones liquidity needs upon your death. This is because steep taxes such as death taxes and capital gains tax can really detract from what you want to pass on. So making strategic decisions to counteract this (within the law) is helpful.

Estate planning for a single individual

In today’s society more and more people are choosing to remain unmarried or are single for other reasons with no children. Despite this, it’s still a good idea to estate plan for just yourself in these instances.

When individuals are accustomed to earning and spending for themselves only, they are used to a high level of control over their finances. Therefore, it is important to estate plan as when you pass on, without a plan, the law may make decisions which do not align with you.

 Without a plan or even a will in place (despite being a single individual) with specific instructions on what you intend to have done with your possessions after your death, the Intestate Succession Act system would regard you as a person having died ‘intestate’.

This essentially means that all your possessions will be divided up in a methodical way according to the order within the Act and this may not be in line with your actual preferences.

 So if you have no plan in place, there is a likelihood that even a long lost extended family member such as a second cousin could receive all your assets without a clear direction of what to do with them. Whereas perhaps a single individual would prefer a close friend or a charitable organisation to benefit from their assets instead.

Couples and joint Estate planning

Often, people don’t deem it necessary to estate plan- especially when in good health. But unfortunately, tragedy can strike at any point and can leave couples who are financially intertwined in tricky situations.

Therefore, for couples of any age and circumstance, estate planning together is much more about protecting each other from worst case scenarios and ensuring that life can continue in a seamless fashion should something tragic happen to one partner.

 Families and Estate Planning

Every family is different and family dynamics can sometimes play a significant role in estate planning. For example, children from previous marriages, or adopted children or something along those lines can make slight differences in the eyes of the law and just goes to show the real importance of putting your vision into action and planning your estate prior to your death to ensure nothing is left in a way that wouldn’t work for your family.

It’s really a good idea to be upfront about anything that could potentially cause complexity in the distribution of an estate. Transparency is ultimately the key here.

When should I Start Estate Planning?

Basically, if you’re thinking about it, just do it. The sooner the better. Remember they say the only two certainties in life are death and taxes… and there is certainly some truth to that! Just get it planned sooner rather than later. Begin with what you already own and what you can afford. Your plan is always subject to change and it’s easy to update over time as your circumstances can change.

Tools for Estate Planning

 Below we will discuss a few tools which can be used to ensure that your estate plan is optimised.

  1. Firstly, your Will.

Your Will is a legal document, which is usually drafted by an attorney, which specifies how, when, and to whom your assets will be distributed following your death. Your Will does not have to be complex and complicated, but it should take into consideration several items such as:

  • Specifying who will receive which assets, detail is important here.
  • For those with children, a legal guardian for your children should something tragic occur.
  • Name your executor, who will manage and administer your estate once you have passed on.
  • Determine which assets pass immediately to heirs and which pass into trusts or other accounts to be distributed at a later point.
  • Specify any charities or organizations you would like to benefit from your death which would otherwise not be considered.

Remember your Will is your Will, you are in control of what happens with your things and it’s important to allocate things carefully and with consideration and detail.

  1. Another tool of estate planning is the creation of a trust.

 Trusts are used to accomplish and achieve more complex and specific financial goals. A trust is essentially an arrangement which is utilised to manage and distribute your assets independently. In the context of estate planning, an asset can be transferred to a trust which then ‘owns’ the item and will keep hold of its ownership throughout its lifetime.

Through the use of various trusts, you can:

  • Transfer property to your heirs privately and without the cost and potential delays of probate.
  • Provide ongoing income to a spouse, minor child, an elderly parent or someone with special needs.
  • Reduce estate taxes significantly.
  • Benefit a chosen and favourite charity.
  1. Another tool for estate planning is that of Powers of attorney.

There are two dominant types of powers of attorney:

  • Firstly, Financial powers of attorney make financial decisions and manage your assets for you. They dictate who will handle your affairs in the event you become incapacitated or
  • Health care powers of attorney make decisions for your health and treatment thereof, particularly if you cannot make those decisions yourself.
  1. Living Will

A living Will can sometimes be confused with a ‘Will’ as discussed above. It is otherwise known as an ‘advanced directive’ and indicates your desired treatment should you become incapacitated. It is a guide for your loved ones and health care providers to fulfil your wishes in the event of a tragedy.

  1. The last tool which we will discuss is Life insurance

Life insurance provides an instant source of income (tax-free in most cases), to your loved ones after your death. Your family can use the finances to maintain their lifestyle to a reasonable extent, pay taxes without liquidating your assets and carry out your estate distribution wishes in a fair and just fashion.

Estate duty

Remember earlier when we said, there are two things certain in life… death and taxes?

Well, here it all starts to play out. Let’s start with Estate duty. Estate Duty is levied on the worldwide property and deemed the property of a natural person.

There are several deductions which can be made in accordance with the estate duty act of South Africa. According to the SARS website, an abatement of R3.5 million is allowed against the net value of the estate to determine the dutiable value of an estate.

Furthermore, the Estate Duty is levied on the dutiable value of an estate at a rate of 20% on the first R30 million and at a rate of 25% on the dutiable value of the estate above R30 million. This information is all amended to the specific cases of each individual.

Who is liable for Estate Duty?

Usually, it is the responsibility of the Executor to pay the duty as levied on the property of the deceased. However, there are cases which the estate duty is payable directly by the person who is receiving the property.

If you are setting up your estate plan, make sure to just clarify how this will all take place and who is responsible for what once you are gone. This can save a lot of stress caused to your family.

3 Estate planning mistakes to avoid!

Lastly, we will take you through a few estate planning mistakes which are important to try and avoid and overcome!

  1. Not discussing your estate plan with the relevant family and friends

Of course, you must always find something that works for you where possible but it is a good idea to have a brief discussion with your family and friends about the situation at hand. This allows for expectations to be set in the present and there is then an opportunity for discussion if needed should there be a disagreement.

One must try to set aside time to discuss your estate plan with your spouse or anyone who you’ve allocated as your Trustee or Executor so that they are clear on what to expect.

  1. Naming just one beneficiary

You should always have more than one beneficiary assigned to receive your assets. This is because, in the event that a beneficiary passes away before you do or at the same time as you, you’ll want to have what’s known as a contingent beneficiary.

It is good practice to ensure that for each asset, policy or account you list a primary and one or more contingent beneficiaries. This helps avoid the reallocation of assets against your will once you are gone.

  1. Updating your plan infrequently

It goes without saying that this could be a problem. Should you lose an asset or gain something of significant value, you must have the consistency to update your estate plan to ensure it is accounted for!

Use an Estate Planning Tool!

We have created a handy Estate Planning Tool to assist you in planning your estate. Our Estate Planning Tool will help you identify all the important information you need and provides explanations for all the jargon you may come across when planning your estate. Click below to download our free tool. 

Download Now 

In summary

 All in all, the main gist of Estate planning is that it is important, it is relevant to everyone and it is not something which can be stressful. Estate planning merely makes the lives of the ones you love much easier when you’re gone as it provides a clear path to navigate for them.

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