“The golden rule of all estate planning is: don’t wait.” (Missionwealth.com)
Just 20% of South Africans have a valid will (“Last Will and Testament”), resulting in countless heart-breaking stories of grief-stricken surviving spouses and children with no income or access to funds as bank accounts have been closed, floundering in confusion with no idea where the deceased’s will or important documents are kept, what assets and debts there are, how to access password-protected devices or who to contact for help.
To avoid this sad scenario everyone, regardless of age, health or financial position, should have their own estate plan ready, including a valid and properly executed “Last Will and Testament.”
If you are a business owner, estate planning is even more important, especially if your business is your family’s only income. Without proper estate planning, your passing may leave them at a most difficult time without any money and possibly trying to manage a business with no experience.
Implement the six steps below as a matter of urgency to ensure that when you pass away, the legacy you leave behind is maximised and structured, and protects those important to you when you are no longer around to protect them yourself.
Not one of us is assured of tomorrow and the consequences of dying without estate planning and a will are dire.
Act today! Allocate time right now to attend to this most urgent and important responsibility, or contact a trusted professional to help you get the process started.
If you already have an estate plan and will, schedule time to review and update them immediately, and diarise regular reviews – at least quarterly and definitely no later than annually. It is essential to ensure an always up-to-date estate plan to account for any ongoing changes in personal circumstances, business circumstances, financial structures, laws and taxes.
Call in the experts
Your legacy depends on the quality of your planning, involving a combination of financial planning, wealth planning and estate planning, and therefore requires the expertise of qualified professional advisors such as your accountants.
The issues at stake are too complex and the consequences of mistakes, omissions or oversights too dire to risk going it alone – there is just no substitute for specialised expertise and professional advice specific to your circumstances.
For example, a professional should draw up or check your will, which must be properly formatted and worded to reflect your wishes correctly and clearly, and it must be validly executed.
Similarly, specialised advice may be required where there are minor children, or if you have assets in another country.
If one of your assets is an operating business, or an interest in a business, you will need professional advice to ensure the best outcome for your loved ones, business partners, employees, investors and other stakeholders.
Draw up a will
The absence of a will; or an invalid will; or a will containing areas of uncertainty or dispute, will almost certainly result in animosity and long delays in winding up your estate.
If you pass away without a valid will:
- You put your grieving loved ones at risk of financial and emotional hardship;
- You forfeit your right to choose who inherits what from you, instead leaving assets to be distributed according to the laws of “intestate succession”; and
- You forfeit your right to nominate someone you trust to administer your deceased estate.
A valid and updated “Last Will and Testament” is the core and foundation of your plan to protect the people you care for. It should communicate precisely your expectations to all concerned and be valid and accurate in every respect.
Proper estate planning
Estate planning means arranging your financial affairs in such a way that you leave behind a legacy that is as large and as well-structured as possible.
Without a proper estate plan, the assets you have accumulated over a lifetime may be decimated by costs and taxes and the business you worked so hard to build could be lost.
Proper estate planning doesn’t have to be overly complicated or expensive, but must:
- Maximise the assets in the estate, including business assets,
- Reduce estate costs and taxes, and
- Streamline the process of winding up your estate.
For business owners, a well-conceived estate plan will include consideration for the owner’s specific intent, for example, that the business continues to provide income as an ongoing concern; or becomes a source of capital for the surviving family. This may involve handing over to the next generation, or an employee, or an outside buyer. A business might be sold to family or staff, and this often requires special planning, for example, staggered payments or a slower transition where the cash is not available upfront.
If you have business partners, a buy-and-sell agreement should be drafted in advance and measures put in place to ensure co-shareholders are financially able to take over your share of the business when you pass away, and vice versa. A shareholder’s agreement is also necessary to deal with potential conflict and shareholders selling their shares.
To protect your family from financial distress, it is essential to provide money for ongoing financial needs during the lengthy winding up of the estate.
As soon as the bank learns of your death, all your bank accounts will be frozen. Pensions and insurance policies will take time to pay out, and your assets will generally be tied up in the estate, inaccessible to your loved ones. This means you need to find other ways to provide your family with immediate funds to live on after you pass on.
Separate bank accounts and investments, businesses held in entities unaffected by your death, and family trusts are some options, while nominating beneficiaries for life policies, annuities and tax-free investments can ensure payout directly to the chosen recipients.
In addition, your family will need funds to cover significant ‘final expenses’ such as existing debts, medical bills and funeral costs, income taxes and capital gains taxes, estate duties and executor fees.
Similarly, if you have a business, you may need to provide operating capital or liquidity through, for example, key person insurance, life insurance for partners and contingency policies.
If there isn’t enough money in the estate to meet the various costs and taxes of winding it up, heirs will have to use their own funds or the executor will have to sell an asset, such as the family home or the business, to cover the liabilities.
Create an “Important Information” file
All the relevant parties will require documents and information to settle your affairs quickly and easily.
Create a file for your loved ones that contains all the information they might need, for example, details of funds they can access while the estate is being wound up; the location of your will and important documents such IDs, passports, and power of attorney; bank account numbers, card numbers and PIN numbers; and details and passwords for devices, apps and social media accounts.
The executor will also require a file of documents and details, for all assets, all income and all accounts, insurance policies, loans, agreements, business assets and interests, as well as personal documents, along with the required access codes, PINs and passwords.
Business owners will also have to prepare and keep updated documents such as statutory documents; the succession plan; a power of attorney so business affairs can be taken care of by a nominated person; and professionally drafted buy-sell agreements for partnerships or where there is more than one owner.
Taking these six steps without delay will ensure you have structured a full estate plan that will protect those you care about from unnecessary uncertainty, worry and risk, at the time they most need your protection.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.