Estate planning is a fancy term that means deciding what will happen to your money and your things when you pass away. Nobody likes to think about death, but if you plan for it, you can make life much easier for your loved ones should the worst happen.
It all starts with your will, which is a legal document that determines how your estate is distributed when you die. Your ‘estate’ is everything you own (your assets) minus what you owe (liabilities and costs related to your death). Anyone over the age of 16 is able to draw one up.
Why do I need a will?
Without a will, your estate will be divided according to the Law of Intestate Succession. In other words, you have no control over who inherits your assets. This law can be very blunt. If you live with your partner but you’re not married to them, for example, they will inherit nothing unless you have a will.
So, you need a will because it allows you to care for those who are financially dependent on you. Remember to keep your will updated, especially after significant life events such as getting married or divorced, having children, buying a house or starting a business.
What else do I need to know about wills?
Your will should include a nominated ‘executor’ — the person who will carry out your wishes and handle the administration of your estate. The admin part can be complex, so make sure you know who your nominated executor is and how much they will charge. Legally, an executor can ask for more than 4% (3.5% + VAT) of the assets in the estate. Depending on the size of your estate, it might be a good idea to negotiate the executor’s fee upfront and state it in your will.
If you have children, you could also include a nominated guardian for them. The guardian will look after your children if you pass away, so keep this section updated too, as life circumstances change. Nominating a grandparent might be fine when the kids are young, but they are getting older and might not be able to manage in a few years’ time…
What are the other benefits of estate planning?
The main benefit is that it reduces costs and lightens the burden on your loved ones when you pass away. Costs at death can be high. There’s estate duty to consider — a tax calculated at a minimum of 20% of the value of your estate — and there are other administrative expenses involved. Any outstanding debt must also be settled before your beneficiaries receive anything. A good estate plan will make provision for all the relevant costs, and even streamline some of them, meaning that more of your wealth goes to your family and less to unnecessary parties.
This links to the next point: Should you die, having an organised estate plan reduces the stress on your loved ones at an already stressful time. With a qualified and experienced executor appointed, and a clear will in place, the emotional distress of winding up your estate will be greatly reduced.
Ask for help
Estate planning is relatively simple for some people, but for others it can be a complex task. If you fall into the latter category, you might need to meet with a financial planner or estates specialist. Depending on your financial situation and whether your beneficiaries will require any special care when you pass away, a professional will also be able to suggest other estate planning tools such as setting up a trust, for example.
It’s always better to plan for the worst, even if death is scary to think about. You’ll feel much better once you’ve put a solid estate plan into place.