Five steps to leaving a remarkable legacy

BY: HILARY DUDLEY

DESPITE THE inevitability of your death, the subject of what happens after you’re gone is all too often ignored. Rather than leaving matters to chance (or the courts), estate planning should be seen as a life-long responsibility of reviewing and adapting your plan to ever-changing circumstances.

If your goal is to end well, then you need to plan well. The good news is that it’s never too late to start planning to ensure that your loved ones are cared for according to your wishes.

Often the best way to start is to think of this as a process to ensure the transfer your assets to the people of your choo-sing after you’re gone. Doing so potentially involves the use of multiple tools and structures that may apply during your lifetime or after your death, ranging from a will to local or offshore trusts, to donations and the use of powers of attorney.

I advise clients that their estate planning is not cast in stone, but must be an organic strategy that adapts over time—and using an advisor to navigate some of the complexities will pay dividends many times over.

Where to start?

The obvious starting point is to take stock of the legacy that you wish to leave your heirs.

This is less fraught in South Africa, where we have freedom of testation that allows you to bequeath your assets to whomever you please. In some jurisdictions, by contrast, inheritance laws dictate that some assets must be distributed to your heirs according to their degree of blood relationship to you.

In assessing your assets, locally as well as abroad, there are four categories of assets to consider.

  • Direct and indirect assets can be accommodated in your will. Indirect assets, in this context, refers to ownership of shares in a private company or a member’s interest in a close corporation.

  • Trusts offer estate planning and other benefits, but also introduce certain legal and governance complexities that must be borne in mind in your planning, and with which it is preferable that you obtain professional advice and assistance. You cannot bequeath trust assets in your will, but you can possibly nominate succeeding trustees or make bequests to a trust.

  • Similarly, pensions may currently be exempt from estate duties and from executor’s fees but require up-to-date nomination forms to ensure the transfer to your intended beneficiaries. They cannot be dealt with in your will. Bear also in mind that the Pension Funds Act requires the fund trustees to establish your beneficiaries based on dependency, and can (if necessary) override your nomination.

  • While technically your life policies can be left to your estate as the nominated beneficiary, in most cases it is preferable to nominate one or more individuals to receive the proceeds directly. Nominating your estate means that the proceeds get tied up in the winding-up process. However, liquidity requirements also need to be taken into account—and life policies may be subject to estate duty whether or not the proceeds pass directly through the estate.

Navigate the complexity

When discussing estate planning with new clients, I like to show them what I call my ‘Complexometer’, which is a scale that measures the complexity that they and their family can tolerate in the implementation of their estate planning needs.

Clients who fall at the lower end of the complexity scale would typically prefer to have a clear and simple strategy that aims to minimise their tax liabilities while they are alive, and ensure the orderly but uncomplicated transfer of assets to their heirs after their death.

At the opposite end of the scale are clients and families which can cope with a complex estate planning strategy, likely using multiple structures locally and offshore. In such an instance, the aim is to ensure orderly management of assets located all around the world to manage tax exposure and minimise various risks during and beyond your lifetime.

Deciding where you feel you sit on the scale enables you to make a more informed decision on the level of advice and expertise you need, and the level of complexity with which you and your family can live in the implementation of your estate plan. In my experience, it doesn’t make sense to implement something that is too complex for your needs and which might not be understood by you or your family, as this will only result in frustration and dissatisfaction.

You also need to be prepared to change the plan for reasons other than changes in your personal circumstances. For instance, when you’re using structures that are susceptible to changes in law, you must be prepared to constantly tweak or adapt them so that your tax planning remains optimal and compliant. If you are change-averse by nature, then the more complex estate planning options may not bring you and your family peace of mind, but cause angst instead.

If you do choose to use legal structures, they should also be reviewed frequently to see whether they still fit into your plan. By their very nature, they demand greater attention to detail—also ensuring compliance with complex tax and regulatory regimes.

The onus on ensuring good governance in the creation and running of your trust is therefore extreme.

It’s a family affair

Estate planning cannot (and should not) happen in isolation. You will have far more harmonious family relationships when everyone is clear about your goals and wishes regarding your assets. Accordingly, involve your spouse, partner, children, and their children in discussions about your plans and your wishes.

Rather make your plans clear before-hand, even at a high level, to prevent any surprises or misunderstanding later.

Clear and simple communication can also promote healthier family dynamics when your children’s partners and spouses are clear on where they fit into your plans. It goes without saying that special arrangements are needed if you have dependents who are minors and therefore not yet legally eligible to receive their inheritance, or if you have heirs with special needs.

Compliance is everything

Navigating these many intricacies take on extra significance for South African families which are spread across the globe. Differences in tax and regulatory issues in different jurisdictions almost certainly require the help of experts in the field to assist with the implementation of the estate plan.

This theme of expert advice is a recur-ring one, particularly when your estate spans multiple jurisdictions and makes use of more complex structures. The benefits of having a trusted advisor to call upon become apparent when you start considering the many different laws, and how they will influence your estate.

It is important to ensure that you take qualified advice in each jurisdiction that may impact your plan. More important than being made aware of the complexities, is finding a partner who can help you properly implement your plan.

Look beyond the now

While many people talk about adopting a holistic approach to estate planning, it is not uncommon to find fundamental gaps in clients’ plans. This might be because of inappropriate advice or an inability to implement the plan because it’s too complex or daunting. Failing to plan may be planning to fail, but failing to implement will be certain to fail.

The advantage of partnering with estate planning professionals is that you can focus on the big picture while they take care of the details. Details such as knowing and applying current laws in all jurisdictions, and ensuring that all structures continue to remain compliant.

With the guidance of a trusted advisor who has knowledge of your wishes and of your family, it is also easier to project manage the entire process and implement a proper succession plan—for example, for executorship of your estate or for the trustees who will in future be responsible for the management of your local legacy. Having these professionals to depend on will also simplify the safekeeping of documents to ensure that your wishes are carried out quickly and efficiently.

The most effective way that I have found to make sure that your estate plans are well laid, and carried out, is to not avoid the ‘D-word’ in your family. People tend to have a reticence about talking about death and dying, but it is a fact of life. It really is a matter of when, not if, and it’s important to make sure everyone is comfortable with the process that will unfold on your death.

It really helps family dynamics to have discussions in a far more relaxed environment than when already dealing with a difficult situation. If you make these difficult conversations a way of life, it will help your family to deal with the change that will come, and to visualise what kind of life they can live after your death. This helps to remove some of the uncertainty of an already vexed and uncertain time.

Therefore, help prepare your family for the transition that will occur on your death, and ensure that you can leave a remarkable legacy and end well.

Hilary Dudley is the managing director of Citadel Fiduciary (Pty) Ltd.

Securing the next generation’s future…

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Enduring memories

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Involve the whole family in the process—including your children

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