Why Estate Planning is Essential
Many people think that a last will and testament ensures that your final wishes will be carried out— only to have their loved ones pay the price for ineffective estate planning.
If you own a business or shares, especially, estate planning is crucial! Without it, your will could be inexecutable, leaving your dependants and enterprise in the lurch.
In this post, we explain the fundamentals of estate planning so that that your loved ones and business interests can carry on securely when you pass away.
What Is Estate Planning And Why Is It Important?
“…ensure that your loved ones receive what you intended with as little friction as possible.”
No one likes to think about death, but unfortunately, it is unavoidable. And when it happens, some taxes and legalities can hinder what your loved ones will receive.
Estate planning is the process of mapping out how your assets will be distributed, with tax implications, financial and legal obligations carefully considered.
By doing so, you can ensure that your loved ones receive what you intended with as little friction as possible.
What is your Estate?
Your estate refers to all of your assets and liabilities. In other words, everything that you own and for which you are accountable (like loans).
Cars, property, bonds, insurance, stocks, pensions, personal belongings and debt are examples of what can make up an estate.
Remember that your business shares are assets too! This is why buy-and-sell agreements are critical components of business and estate planning.
What does Estate Planning Involve?
In essence, estate planning entails:
- thinking about the assets that you have,
- how you want them to be divided, then
- creating the legal documents that will ensure that those wishes are carried out accordingly.
So, estate planning looks at your current financial position and what you need to implement to secure sufficient liquidity in the event of death or incapacitation. It’s important to note that estate planning includes provisions for an event where you are alive, but unable to speak for yourself.
The Point of Estate Planning (Goals)
- to preserve your assets during your lifetime
- to make the necessary arrangements to secure enough liquidity to settle obligations
- to avoid the red tape that can delay payments and the proper execution of your wishes
- minimise how much your estate needs to pay in taxes so that your beneficiaries receive as much as possible
Typical Estate Planning Tasks
- Setting up investments and trusts
- Naming life insurance policy and trust beneficiaries
- Appointing an executor and granting power of attorney to direct assets
- Making provisions for a spouse or ex-spouse (ensuring marriage and divorce certificates in place)
- Nominating guardianship of children
- Creating or updating buy-and-sell agreements
- Other general secretarial services
- Writing a will, including a living will
- Funeral arrangements
What You Will Need
No matter the size of your estate, it is advisable to get a qualified professional on board to help you with financial planning.
This professional must be well versed with tax laws. If you have debt, for example, the law says that those obligations need to be settled first and your family (or beneficiaries) receive what remains. If you owe more than you own, your next of kin will be held responsible for settling those accounts!
Business owners or shareholders must consider business laws, which could contradict or supersede their final wishes—or the other way around! A business could be legally forced to dissolve over a technicality. Then the income you’d hope would provide for your family is gone.
You will need someone qualified and authorised to draw up a valid and legal will. Choose someone who will readily explain how wills work to guide with decisions like choosing an executor. Did you know that your executor can’t be a beneficiary in your will? It is best to appoint a legal representative as the court will only allow an executor to administer your estate if they have adequate legal counsel in any case.
What is the smartest way to go about Estate Planning?
As you can see, there are many things to consider, and it is best to look at them holistically because a change here can impact something there.
Successful estate planning hinges on an in-depth understanding of your current financial standing and what measures to take to get you where you want to be.
Therefore, it makes sense to seek assistance from a single resource with expert knowledge in the realms of personal and business finance, tax and law. Our specialised tax planning consultants are proficient in all manners of national and international tax planning and structuring. Learn more about our consultation and planning services <https://www.exceed.co.za/audit-accounting-2/audit-accounting-services/specialised-tax-planning-and-consultation/>