Although a Will is essential, holistic estate planning ensures that the generation that comes after you has financial freedom.
With estate planning, there are many considerations and legalities that can make this process hard to navigate on your own.
Estate planning is part of an investment strategy. It assists in the transfer of assets, deals with the settlement of any outstanding debts and taxes, and ensures that your wishes are carried out.
The difference between a Will and estate planning
Stian de Witt, CFP, executive head of financial planning at NMG Benefits, said that a Will is a legal document that states how you want your assets distributed after your death. Your Will should include your portfolio of property, money, and personal possessions.
Your Will can also specify how you want your debts and taxes to be paid, name a guardian to take care of your children, and even if you want to be cremated or buried.
Estate planning involves the structuring of assets in the most tax-efficient way to ensure the protection and preservation of assets from one generation to the next in a proper executable manner.
“Estate planning is an integral part of responsible financial management”, De Witt said.
Hilary Dudley, managing director of Citadel Fiduciary, shares five insights you should consider:
1. One size does not fit all
Your estate refers to all the assets you have accumulated, such as cars, cash, properties, investments, policies, loan account claims, and shares in listed businesses or your own business. Estate planning is a mechanism to protect assets and ensure that they are left to your heirs in an efficient manner.
Estate planning is never a one-size-fits-all formula since each family’s situation differs from the next. The complexity and location of assets will differ, and both family size and where family members live should be taken into consideration.
2. Not having a Will affects your family both financially and emotionally
A Will is the foundation for the transfer of wealth to the next generation, continuing your legacy even after you are gone. The legalities surrounding Wills may be complex if they are not correctly drafted and executed.
The last thing you want is for your Will to be invalid because it does not meet the legal requirements or has ambiguities that create uncertainty, causing further emotional distress for your family and delaying the estate administration process.
Janine Horn, Financial Adviser, Momentum, said: "Valid and executable are key concepts. It’s the way that your Will is structured, who the witnesses are, and that those witnesses have not been mentioned in the Will as recipients or beneficiaries of proceeds or inheritance. Therefore, making it executable for an executor."
3. Executorship is essential
"Naming an appropriate executor in your Will to administer your estate upon your death is essential. An executor can either be an individual or a company represented by an individual," Dudley said.
Although the Administration of Estates Act 66 of 1965 provides that the Master of the High Court shall appoint an executor for the deceased estate in the event of the person not having nominated an executor by Will, this rescue provision usually applies when a person dies intestate—without a Will.
Not having a Will can delay the commencement of the estate administration process because this cannot start without an executor having been appointed, and where there is no Will nominating an executor, the process of appointing an executor requires the consent of family members.
If you nominate an individual as your executor, consider nominating an alternative person who can step in if your initial nominee dies, loses their mental capacity, emigrates, or is otherwise unable to accept the nomination.
4. Transfer wealth over generations
Estate planning is key to effectively transferring wealth from one generation to the next. Seventy percent of intergenerational wealth transfers fail, according to a 20-year study in the US conducted by The Williams Group.
The Williams Group found that seven in 10 wealthy families lost their fortune by the second generation, while nine out of 10 lost it by the third generation.
These odds can be beaten, though, as the study revealed that one in 10 people who did manage to make their fortunes last more than three generations, did so via strong estate planning that involved the next generation.
The families that succeeded are the ones that prepared both their children and grandchildren for their futures by having open conversations with them.
5. Talk to your family about succession
"Death is an uncomfortable topic, but it is your responsibility to have these conversations with the ones you love for the sake of the next generation," Dudley said.
Sharing your family’s long-term "financial mission" and the strategy in place to achieve it gives your heirs the bigger picture and helps them understand what their role will be in achieving this for generations to follow.
It is advisable to partner with a reputable wealth manager, especially when offshore structuring and trusts are required, which is often the case.
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