The word “estate” might make you think of sprawling land and a mansion that have been in a family for generations. Or perhaps clusters of expensive condos on a golf course.
But an estate is also what is yours – the money, property and assets you leave behind when you die. It is your privilege to decide what becomes of it. That’s a good feeling – knowing you’ll be providing for loved ones, charities, or employees even when you’re gone.
Estate planning is crucial. It is the process of preparing for the transfer of your wealth and assets after your death. An estate plan should include clear instructions about your assets, investments, life insurance, pensions, property and personal belongings, as well as debts.
It’s an action plan for enjoyment of what you have during your lifetime and after that by your beneficiaries, the people who inherit from you.
Before you put together an estate plan, you must think about your circumstances and needs. List the people who depend on your support. Then decide what you want to happen after your death. Obviously you don’t want it depleted by costs and taxes. You also don’t want conflict or confusion between loved ones.
Here are four priorities for estate planning:
- Arranging your estate means ensuring that all your affairs are in order and arranged according to your goals.
- Managing your estate starts with making sure there will be enough liquid assets (things easily converted into cash) to settle all debts. These could be fees for your executor, the person or party you picked to implement your will. Estate duty, income and capital gains tax, hire-purchase agreements and a mortgage could also be factors. Without proper planning, the taxes paid on an estate can be so high that they equal many years of work. Life cover remains one of the most cost-effective, efficient ways to take care of this part.
- Securing your estate means safeguarding it from creditors, debt traps, beneficiaries who can’t manage their own affairs and so on.
- Disposing of your estate is ensuring assets that need to be disposed of during your lifetime, say into a trust or sold to a third party, are transferred seamlessly and your estate is wound up accordance to only your wishes.
Estate planning isn’t done once you have a legal will locked in the safe. It’s ongoing actions to create, manage and build your wealth, so that you and your family can benefit as much as possible – during your lifetime and after your death.
Which brings us to one of the most important documents you’ll sign in your life, a will.
Simply put, this is a legal document stating what you want done with your money and assets. You can draw up a will at 16, with signatures from witnesses just 14 years old, on a form sold by stationery shops.
But a will is a vital area of financial planning, so it’s worth getting professional advice. If your will is invalid, you die intestate (like anyone who had no will at all). Then the laws of intestate succession apply and your assets could go to someone you didn’t even want as a beneficiary
Someone has to make sure your last wishes are carried out properly. That is an executor. Ideally it should be a professional or trust company specialising in drafting of wills and administering estates.
A Trust can be established in your will in order to hold and administer assets on behalf of a beneficiary. Whether it makes sense to set up a Trust fund depends on the beneficiary’s circumstances and the value of the assets. Some reasons for setting up a Testamentary Trust include:
- To provide for maintenance obligations.
- To ensure that minors' inheritances are invested until a certain age (age of majority is 18).
- To administer assets on behalf of immature/handicapped beneficiaries during their lifetime.
Should you need assistance with the drafting of a new Will, updating your existing Old Mutual Trust Will or need expert advice on estate planning, please contact an Old Mutual adviser today.