Individuals can use estate planning to compile their possessions over their lifetime. Given the lack of clarity surrounding the term, let’s take a closer look at what estate planning actually entails.
What is Estate Planning?
Estate planning is the process of choosing who will get your property and take care of your responsibilities if you die or become unable to do so. Payment of estate taxes and the transfer of assets to heirs are also part of the procedure. Estate plans are prepared with the help of wealth managers and/or attorneys who are knowledgeable in succession law. The purpose of the wealth manager or attorney is to ensure that assets are dispersed in such a way that estate tax, income tax, and other taxes are minimized.
Characteristics of Estate Planning
- Estate planning entails the preservation, management, and distribution of assets following death or incapacity.
- Setting up a will, naming an executor, naming beneficiaries, making funeral arrangements, making donations, and establishing a trust are all part of the planning process.
- When planning one’s estate, the estate planner must devise a tax strategy.
- The estate planning process is carried out by an attorney who is knowledgeable about succession law or estate law, or by a wealth manager.
Estate Planning Tools
Estate planning entails a number of steps to ensure that tangible and intangible assets are distributed to the appropriate people. Here are some of the devices that are included in estate planning to ensure that assets and rights are distributed appropriately.
Advance directives
An advance directive, also known as a living will, is a legal document in which a person specifies the course of action that should be taken with regard to their assets if they become ill or incapacitated.
When planning one’s estate, an estate planner considers advance directives, which state what will happen to a person’s estate if that person becomes legally incapacitated. A health proxy or a power of attorney may be included.
Wills
When planning an estate, a will is commonly used. A will, which expresses the deceased’s wishes, is one of the best ways to distribute one’s estate in a simple manner. When writing a will, it must comply with the laws of the jurisdiction that it falls under.
Probate proceedings may occur in a different jurisdiction; therefore, it is critical to understand that the jurisdiction will follow the provisions of a valid out-of-state will. This will ensure that the will executed elsewhere will be valid.
Trusts
A trust is a tool that can be used to distribute assets after someone dies. It is much easier to specify what should be done with the assets being distributed when using a trust. A trust can be used to establish an education fund, continue a philanthropic course, benefit your children and spouse, and more.
A trust, as opposed to a will, provides a high level of control over asset management and disposition. Through provisions set out in a trust on the management of Wealth, assets can last for several generations.
Planning for Estate Duty
An Estate Duty is levied on the worldwide property and deemed the property of a person. One can plan for estate duty with the assistance of an attorney or a group of attorneys who are familiar with South African Estate Duty law.
The attorney will assist in developing tax-cutting strategies that take advantage of deductible expenses and other benefits. Estate Duty is levied at 25% for amounts greater than R30 million and 20% for amounts less than R30 million; with deductibles, one’s estate can move from a 25% tax threshold to a 20% tax threshold.
What are Estate Planning Mistakes to Avoid?
Because a partner, such as an attorney or a wealth manager, can assist you in locating the tools necessary to carry out your estate planning, there are some mistakes that you or your partner can avoid when developing an estate plan. These are the most common mistakes to avoid when estate planning.
- Not updating the plan over time,
- Not including Charitable gifts,
- Underestimating tax implications,
- Not having an official plan,
- Failing to set up a living will, and
- Not including a guardian for children.
According to the preceding list, an estate planning partner should be someone you can trust and who can ensure that your estate is properly secured if you become incapacitated or die. Estate planning, on the other hand, should not be prohibitively expensive and should be made available at a reasonable cost.
Advantages of Estate Planning
- Estate planning is a much more secure way to provide for your family.
- It is one of the most effective ways to reduce estate duty.
- Through the use of a trust and other tools, an estate plan can help you avoid probate.
- If a person becomes legally incapacitated, there are simple rules governing their estate.
- Beneficiaries will be aware of what they are receiving and when they will receive it.
- To protect young children, a legal guardian can be appointed.
Disadvantages of Estate Planning
- When a large number of specialists are used in estate planning, the costs can become extremely expensive.
- If a trust is not fully funded during the lifetime of the settler, probate may still be required.
Conclusion
Estate planning is an excellent method for distributing assets and ensuring that the public is uninformed of your will settlement when you die. It is a tool that you can use to plan your estate while you are still alive, as well as give instructions on what should happen to your estate if you become incapacitated.
