Estate planning is not something everyone likes to think about but it is definitely something we should do to have peace of mind. Estate planning gives us clarity on how the financial future of our loved ones will be taken care of once we are gone. A well-structured estate plan is not just about transferring wealth to the next generation, but also about reducing legal complications and minimizing the taxes and costs involved. At Marsh Fidelity we have always said that estate planning is also relationship planning. A good estate plan ensures your loved ones receive the best support when you are no longer there.
When to Start Estate Planning
Estate planning does not only start when one retires, it starts the moment you begin acquiring assets. For maximum effectiveness, an estate plan should be put in place as soon as you begin acquiring assets to ensure that they are being protected and growing in value as best as they can with minimum costs and tax consequences. When you start acquiring assets, you are building an estate by creating wealth – estate planning means protecting and growing your wealth, and planning for its efficient disposition. There should be provision for changes in the legal environment and also the personal and financial circumstances of the estate planner.
Liquidity for Dependents
An effective estate plan should also take into consideration whether there is enough liquidity available for the settlement of liabilities and to pay for the living expenses of the estate planner’s family who will be left behind. Provision should be made for your dependents’ monthly expenses, both immediately after death and in the future. A life policy is one of the options that can be paid directly to dependents. This will not form part of the property in a deceased estate and executor’s fees will therefore not be charged on the value of the policy. However, some life policies will form part of the estate duty calculation and affect the tax liability of the estate.
Addressing Inflation
Inflation is another variable in the economic environment that will apply to all deceased estates. Inflation can reduce a person’s ability to maintain themselves financially. It can be a good idea to establish a trust where this is suitable to ensure that the growth of assets takes place out of the hands of the estate planner. A company does not serve the same purpose of a trust in this regard.
Changing Tax Laws
The tax laws are constantly changing and one needs to keep up to date so that your assets are protected and when you die the administration of your estate will be smooth and effective. This will ensure that your loved ones will not have the added stress of any unexpected tax costs or complications for the estate to pay.
Estate planning is not only about how much estate duty (tax) you are going to pay once you have passed. It is also about knowing and minimizing how much tax you are going to pay while you are alive. For example, trusts are a tool that can be used in an estate plan but one must also consider how any distributions from a trust will affect your own individual tax and whether or not you will qualify to pay donations tax.
Annual Review of Estate Plan
The following questions should be asked annually when reviewing your estate plan:
- Is there enough liquidity in the estate to pay tax costs, legal fees and executor’s fees should I die?
- How will my loan account or my shares in my business be treated should I die?
- Should the income be left in a trust to be taxed or should it be distributed to the beneficiaries and taxed in their personal capacity?
- Is a donations tax going to be triggered if we use a loan in the trust?
There are ways to plan for covering these costs in the event of death, and to make sure that there will be enough liquidity in your estate without having to sell your assets.
Professional Advice for Estate Planning
If you would like to begin the estate planning process, reach out to us for professional advice.
At Marsh Fidelity, we provide the professional service of compiling a detailed estate plan showing you the legal, tax and financial considerations that will affect your estate. We can also help you to make informed decisions about how to grow and protect your wealth and the legacy that you pass on. A detailed estate plan will show how to maximize wealth transfer to your loved ones before and after death.
Contact us at [email protected] to begin your estate planning journey with us. Our team is well-equipped to advise on all relevant considerations regarding your estate plan to provide you with peace of mind.
See more about us and our services at www.marshfidelity.co.za.
