National Wills Week (September 12-16) is a good reminder to relook the legacy you are building, rather than just singling out wills. Although a will is essential, holistic estate planning ensures that the next generation has financial freedom. This may seem obvious and straightforward, but 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 to transfer assets, deals with the settlement of any outstanding debts and taxes, and ensures that your wishes are carried out.
Here are five insights to 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. Planning for a smaller family may differ vastly compared to a larger family with more beneficiaries,” says Hilary Dudley, managing director of Citadel Fiduciary, who uses these examples to show the importance of having an estate plan that is tailored to your specific needs.
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. 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 which create uncertainty, causing further emotional distress for your family and delaying the estate administration process.
“Even with a valid will, the process of winding up a deceased estate takes at least a year, provided there are no complications like disputes, tax audits or businesses that need to be sold. Queries around the validity or content of a will delay the process and not having a will at all can also cause delays and emotional stress,” says Dudley.
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,” explains Dudley.
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 nominated executor dies, loses their mental capacity, emigrates or is otherwise unable to accept the nomination.
Dudley uses her late father’s will to elaborate on this. Signed in 1984, it was still perfectly executable when he died 32 years later because he nominated several successive executors, the last of whom was not deceased at the time of his death and took the appointment – talk about planning ahead.
4. Transfer wealth over generations
Estate planning is key to effectively transfer wealth from one generation to the next. Seventy percent of intergenerational wealth transfers fail, according to a 20-year study in the United States of America, conducted by The Williams Group, which found that seven in 10 wealthy families were losing their fortune by the second generation, while nine of 10 lost it by the third generation. These odds can be beaten though, as the study revealed that the one in 10 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 who succeeded are the ones who 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,” says Dudley.
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 to understand what their role will be in achieving this for generations to follow. It also empowers them to take on some responsibility while you are still around.
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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