Five signs that your estate plan and investments may not be aligned

An estate plan is not only a will.

Your will is important, but it is only one part of the picture. Your investments, trusts, companies, properties, retirement funds, beneficiary nominations, life insurance and business agreements can all affect what happens when you die.

A plan can look correct on paper and still fail in practice.

Here are five warning signs that your estate plan and investments may not be properly aligned.

1. Your will was drafted before your life changed

A will may have been suitable when it was signed but become outdated after:

• Marriage or divorce
• The birth of a child
• The death of a family member
• The purchase or sale of a business
• The creation of a trust
• A major increase in wealth
• The purchase of offshore assets
• A move to another country
• A change in the family’s relationships

A will determines what should happen to assets that fall into your deceased estate and allows you to nominate an executor. If there is no valid will, the estate is distributed according to the rules of intestate succession rather than according to informal family discussions.

The original signed will must also be kept safely. A family that cannot locate the original document may face delays and additional legal work.

A useful question is:

If I died today, does my will still reflect my family, assets and wishes as they exist today?

2. Your will and beneficiary nominations were reviewed separately

Not every asset is dealt with in exactly the same way.

Some assets fall into the deceased estate. Others may be paid directly to a nominated beneficiary or dealt with under separate legislation and fund rules.

This means that changing your will does not automatically update every beneficiary nomination. In the same way, changing a nomination does not necessarily change your will.

Life policies, retirement funds, living annuities and certain investments should be reviewed together with the estate plan.

For example, where a life policy is payable directly to a beneficiary, the policy proceeds may still have estate-duty consequences, and the attributable estate duty may in some cases be payable by the beneficiary.

The question is not simply, “Have I nominated a beneficiary?”

The better questions are:

• Is the nomination still correct?
• Does it support the wider estate plan?
• Will the right person receive enough cash?
• Could one beneficiary receive substantially more than intended?
• Does the nomination create a tax or liquidity problem elsewhere?

3. You have valuable assets but very little estate liquidity

A person may own a successful business, several properties and a large investment portfolio, but still have too little immediately available cash.

At death, the deceased estate is generally frozen, and estate assets cannot simply be dealt with until the necessary authority has been obtained from the Master.

The estate may need cash for:

• Outstanding debt
• Tax
• Estate duty
• Administration expenses
• Property costs
• Maintenance of dependants
• Business expenses
• Equalisation between heirs

Estate duty is currently charged at 20% on the first R30 million of a dutiable estate and 25% above R30 million, after the available deductions. Death can also trigger a capital-gains-tax disposal on certain assets.

This does not mean that every estate will pay estate duty or CGT at the maximum rate. It means the potential liability should be calculated rather than guessed.

A family should not be forced to sell a business, property or long-term investment at the wrong time simply because there was no liquidity plan.

4. Your business or trust has changed, but your estate plan has not

For many wealthy South Africans, the family business is their largest asset.

The business may also provide income, employment, property and security for several family members. Yet it is often dealt with in only one line in the will.

A proper plan should address:

• Who will manage the business
• Who will own it
• Whether those should be the same people
• How a surviving business partner will be treated
• Whether heirs who do not work in the business should receive shares
• How the value of different inheritances will be balanced
• Whether a buy-and-sell or shareholder agreement still supports the plan
• How debt and guarantees will be handled

Trusts require the same attention.

A trust deed, will and family plan should not contradict one another. Trustees should also maintain proper records and lodge the required beneficial-ownership information with the Master of the High Court.

A trust that is poorly administered can create cost, delay and family conflict.

5. Your offshore assets were added without updating your estate plan

Offshore investing can improve diversification, but it can also add another legal system, tax system, currency and administration process to the estate.

South African tax residents are generally taxed on worldwide income. South African estate planning may also need to take worldwide assets into account, depending on the person’s residence and circumstances.

Offshore assets may raise questions such as:

• Does the South African executor have authority over the asset?
• Is a separate foreign will required?
• Could two wills accidentally cancel or contradict one another?
• What foreign inheritance or estate taxes may apply?
• How will the family prove ownership and gain access?
• Does the family know where the accounts are held?
• Are the offshore assets correctly declared for tax purposes?

The answer is not always to create another will or another structure. The answer is to obtain the correct cross-border advice before a problem occurs.

A simple estate-alignment check

Your estate plan and investments should be reviewed together whenever there is a major change.

At a minimum, confirm that:

• Your will is current and the original can be found
• Your executor nomination is still appropriate
• Beneficiary nominations are updated
• Your estate has sufficient liquidity
• Your life insurance still serves a clear purpose
• Your business agreements support your succession plan
• Your trust is properly administered
• Your offshore assets have been considered
• Your family knows who to contact
• The plan is understandable and practical

The purpose of estate planning is not only to reduce tax.

It is to make a difficult time easier for your family, protect what you have built and ensure that your wealth passes in a way that supports your intentions.

If your investments and estate plan have not been reviewed together, there may be gaps that are not visible when each document is considered on its own.

*This article provides general information and does not constitute personal financial, tax or legal advice. Estate planning should be completed with appropriately qualified legal, tax, fiduciary and financial professionals.*