By Madelein Steenkamp, Fiduciary and Tax Specialist
Estate planning isn’t just about passing on wealth – it’s about protecting your loved ones and ensuring a smooth transition for future generations. It’s not a one-size-fits-all process, however, and a do-it-yourself approach is not advisable. Without careful planning, hidden risks can lead to unintended consequences. We provide an overview of what you need to know.
Seek professional guidance in building a plan that honours your wishes.
Madelein Steenkamp, Sanlam Private Wealth
Estate planning may seem straightforward, tempting you to handle it on your own. But safeguarding your legacy requires careful planning to ensure your assets can be transferred smoothly while avoiding legal complications and financial pitfalls. No two estates are the same, and a cookie-cutter approach can leave critical gaps. It’s crucial to seek professional guidance in building a plan that truly honours your wishes and secures your family’s future.
The risks of a DIY approach include:
Not meeting legal requirements when drafting and executing your will. For your will to be valid, you must be at least 16 years old, and the will must be in writing – whether typed or handwritten. Each page, including the last one, must be signed by you and two competent witnesses, both 14 years or older. Crucially, anyone who serves as a witness (and their spouse) is automatically disqualified from inheriting under that will.
Ambiguous wording in your will, which can lead to unintended consequences. We’ve all heard cautionary tales of DIY and off-the-shelf wills that caused unnecessary hardship. Poorly drafted documents – filled with vague or unclear language – often spark disputes, court battles and costly delays, leaving loved ones in limbo. The solution? Professional guidance ensures that your wishes are crystal clear and legally sound, safeguarding your legacy and preventing avoidable complications.
Failure to understand tax laws and implications. Estate planning is increasingly complex, especially when assets span multiple countries or beneficiaries live abroad. A DIY approach can leave critical tax implications unaddressed, putting your estate at risk. South African assets aren’t the only concern – holdings in foreign jurisdictions can trigger hefty taxes. In the UK, inheritance tax applies at 40% for estates exceeding £325 000, while in the US, assets above US$60 000 can attract Federal Estate Tax of up to 40%.
Adding to the complexity, structures like trusts – widely used in South Africa – can create unforeseen tax burdens for beneficiaries living in other countries.
Drawing up only one will if you have offshore assets. Many assume that one worldwide will is sufficient for both South African and offshore assets, but this isn’t always the case. The rules governing estate administration vary by country, and a single will can delay proceedings, as it will have the effect that the South African and foreign estates cannot be processed simultaneously.
Probate is another key consideration – certain jurisdictions won’t release inherited funds based solely on a Letter of Executorship from South Africa. Additionally, while South Africa grants freedom of testation, allowing individuals to bequeath assets as they wish, other countries have forced heirship rules, restricting testamentary freedom.
Without a clear understanding of international estate laws, your will may not reflect your true intentions. Seeking expert advice ensures your estate plan is legally sound across all jurisdictions.
Not considering special needs of children and maintenance obligations. Proper provisions must be made for your spouse’s maintenance, your children’s future, and the overall liquidity of your estate to ensure your wishes are carried out effectively.
For minor children, protecting their inheritance is crucial. Without the right safeguards, their assets may be held in the Guardian’s Fund until they reach adulthood. Establishing a testamentary trust will protect their inheritance and ensure that it is managed wisely. Careful selection of trustees is equally important – they will oversee your child’s financial well-being until they reach maturity or the age specified in your will.
The consequences of a poorly considered, DIY estate plan can be devastating for those who depend on you. Estate planning is a highly complex area of expertise, so it’s paramount to obtain expert advice to ensure your legacy truly supports the people you love.
For more information, please visit sanlamprivatewealth.com.