Explore the critical differences between estate planning and legacy planning, and understand why having a valid will is essential for safeguarding your assets and wishes. File photo.
By: Mariska Redelinghuys
In the context of estate planning, we often talk about ‘leaving a legacy’, which may lead to the terms ‘estate planning’ and ‘legacy planning’ being used interchangeably. However, they do differ.
Estate planning refers to growing and protecting your assets over your lifetime and planning how those assets will be managed and transferred after your death. This includes ensuring that there is enough liquidity in your estate to settle debts such as outstanding mortgage loans and estate expenses such as executor’s fees and estate duty.
With almost 20 million South Africans currently in debt, making sure you don’t leave an insolvent estate behind is crucial, is crucial. Fees and taxes can also be extremely costly. By law executor’s fees can be up to 3.5% plus VAT of the value of your Estate. As an example, an estate of R2 million could rack up R80 500 in executor fees alone. Estate duties are also levied on dutiable estates of more than R3.5 million at 20% on the first R30 million and 25% thereafter.
Estate planning also involves planning for the maintenance needs of your surviving dependants and for the transfer of wealth from one generation to the next. Without a proper estate plan, you have no guarantee that your wishes will be carried out.
Legacy planning delves a level deeper. While estate planning focuses on valuables, legacy planning focuses on values. More than simply transferring money and property, legacy planning is about transferring wisdom and priorities. This is important in every family, but perhaps more prominent in family businesses – especially farming enterprises and philanthropic endeavours.
The importance of having a will
Unfortunately, less than 15% of South Africans have a valid will in place when they die. Your will may be the most important document you will ever sign because it is the primary document that will be used to implement your estate plan. More than your wishes, it contains instructions to your executor on how your assets must be managed and transferred when you pass away. It goes without saying that if any changes are made to your estate plan, your will should be reviewed immediately and updated accordingly.
When to review your will and estate plan
Changes in your personal circumstances are always prompt to review your will and estate plan. Such circumstances typically include getting married or divorced, growing your family, or purchasing additional property.
Also be cognisant of changes in external circumstances that may impact your estate plan, such as changes to the financial and regulatory environment. For example, recent amendments to the Trust Property Control Act may impact the management of your family trust. Similarly, annual changes to tax laws may allow for additional exemptions or impose higher tax rates, which may in turn necessitate putting additional estate planning structures in place or updating existing ones.
As such, it is important to be proactive and schedule regular updates with your financial planner, rather than only doing so in the wake of big life changes.
* Redelinghuys is a legal specialist: advice at PSG Wealth.
PERSONAL FINANCE