The important of Estate Planning

THE IMPORTANCE OF ESTATE PLANNING

After watching the World Cup Soccer match between Argentina and Iceland on Saturday it is undoubtedly true that there are only 2 things in life that are certain – death and taxes. Estate planning is directly related to these two certainties of life, and seeks to ensure that neither one will jeopardise your hard-earned estate or adversely affect your loved ones.

Estate planning is aimed at preserving and protecting your assets not only during your lifetime, but after your death as well. This does not mean that estate planning is only beneficial to those with large estates. For instance, anyone who has a child ought to have a Will. Naming a guardian for your child and arranging to provide for them in the event of unexpected death or incapacity become estate planning concerns.

A Will is the primary document required for estate planning. In the absence of a Last Will and Testament, your estate will be administered in terms of the laws of intestate succession. This may not necessarily be in accordance with your wishes. A well-planned estate will ensure that your wishes are carried out, that your assets and property are distributed according to your desires, that your loved ones are well taken care off after your death, or that your estate does not become overly burdened with tax duties.

There are certain estate planning tools, such as the creation of a trust which may assist greatly in preserving your assets or property for future generations. A trust is a legal entity which is created to hold assets for the benefit of certain persons or entities. At this point a distinction must be made between a trust which is formed in a Will (mortis causa trust) and a trust that is formed between living persons (inter vivos trust). Where a mortis causa trust may be created generally with the intention of protecting minor beneficiaries or beneficiaries suffering from incapacity, the great advantage of an inter vivos trust is that it allows you to enjoy the use and the fruits of the asset while not having ownership of that asset. Generally, if an asset has been transferred to a trust when the founder of the trust was solvent, the creditors cannot lay claim to such an asset. In this way it provides for the protection and preservation of assets for future generations. Estate planning benefits from a well-designed trust also in respect of estate duty. Assets that have the potential to increase in value can be transferred to the trust, thereby ensuring that your estate does not attract a higher estate duty due to the growth in value of your assets.

Effective estate planning also ensures that beneficiaries and loved ones are not left with debt or that estate assets are not sold in order to satisfy estate debts. A simple example is the provision for appropriate insurance to cover the costs associated with the administration of your estate. The terms of your Will should also be well-thought out and drafted with an understanding of legal principles which may apply. Ever so often, we find survivors fighting over the terms of a Will. Poor drafting will unfortunately lead to uncertainties regarding the exact wishes of the deceased. A simple example may be the following clause in a Will: “I leave my house to my wife and children”. Such a clause is fraught with difficulties. What would the position be if the deceased had another wife in terms of a recognised customary marriage and a child from such wife? Alternatively, it may very well have been the intention of the deceased to ensure that his wife has use and enjoyment of the house while she is alive, but ownership of the house is to be transferred to his children in equal shares. This will necessitate the inclusion of a usufruct in favour of the wife, rather than the wording as indicated above.

The importance of proper estate planning cannot be over-emphasised. Poor estate planning or poorly drafted Wills may result in life-long problems or irreversible loses to your loved ones. Each estate is unique and requires proper advice and careful thought.