Estate Planning
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Estate planning is a crucial aspect of financial strategy that involves preparing for the distribution of your assets after your death.
This process ensures that your wishes are respected, your assets are managed efficiently, and your loved ones are taken care of. Despite its importance, estate planning is often overlooked.
In this guide, we will explore the fundamentals of estate planning, its benefits and specific considerations for those in South Africa.
What is estate planning?
Estate planning involves organising and managing your assets to ensure they are distributed according to your wishes after you pass away. Your assets include:
- Real estate
- Savings accounts
- Investment accounts
- Retirement accounts
- Bank accounts
- Life insurance policies
Essentially, estate planning provides peace of mind knowing your loved ones will be financially protected and your wishes respected.
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Why is estate planning important?
Estate planning was once seen as something only for high-net-worth individuals; however, that is no longer the case.
There are several benefits to estate planning, including:
Asset protection and tax benefits
It helps safeguard your assets and reduce taxes on what you leave to your heirs.
Avoiding probate delays
Estate planning can help your loved ones bypass the lengthy probate process, allowing for faster access to their inheritance.
Peace of mind
It provides assurance that your wishes will be respected and your family and loved ones will be financially cared for when you are gone.
Estate planning for expats
For expats living in South Africa, navigating inheritance tax (IHT) is crucial for effective estate planning. Continue reading to understand how IHT impacts your estate.
Domicile vs residency
For UK IHT, the key factor is domicile, not residency. Domicile refers to your permanent home or the country you consider your long-term residence. If you are deemed UK-domiciled, your global estate may be subject to UK IHT, regardless of where you currently live.
UK domicile rules
If you have been a UK resident for 15 of the last 20 years before your death, you are typically considered UK-domiciled for IHT purposes. This means your entire estate, including assets in South Africa, could be subject to UK inheritance tax.
Practical steps for expats
To manage these complexities, it is important to consult with estate planning professionals who understand both UK and South African tax laws.
Additionally, using the UK-South Africa double taxation treaty can help prevent your estate from being taxed twice.
Make sure your will is updated to comply with both jurisdictions and consider trusts to potentially reduce your IHT liability.
Upcoming changes
From April 6, 2025, the UK plans to shift IHT from a domicile-based system to a residence-based system. This change will base IHT on where you live, rather than your domicile status.
What makes up estate planning?
Estate planning encompasses several components. Some of these include:
Last will and testament
A will is a legal document that outlines your final wishes, including the distribution of assets, guardianship of minor children, and other key matters. It is crucial to seek legal advice from a lawyer or legal expert to ensure your will is legally binding.
Inheritance and estate laws differ in each country, including South Africa, so you may need to draft multiple wills for different jurisdictions if you are an expat.
Financial service companies, like Holborn Assets, collaborate with legal experts to offer will writing services.
Trusts
A trust is a legal structure used to hold and manage assets, providing greater control over their distribution, simplifying the probate process, and assisting with estate taxes. Consulting with a financial adviser is essential to choose the right type of trust for your needs. Common types of trusts include:
- Testamentary trusts
- Inter vivos trusts (including revocable living trusts and irrevocable trusts)
- Discretionary trusts
Power of Attorney (POA)
A POA grants an appointed person the authority to make decisions on your behalf, with either general or limited powers. There are two main types of POA:
- Financial Power of Attorney, responsible for financial decisions.
- Medical Power of Attorney, responsible for healthcare and medical decisions.
Advanced healthcare directive
An advanced healthcare directive is a legal document that provides guidance on your preferences for medical treatment and healthcare services.
Where to start?
Individuals will choose various methods for estate planning based on their unique circumstances.
The checklist below highlights key considerations for creating your estate plan.
List your assets
Firstly, make a list of your assets. These may include:
- Real estate
- Cash
- Securities (shares, stocks and bonds)
- Jewellery, artwork and other collectables
- Life insurance policies
You may also want to list any outstanding debts, including mortgages.
Review your coverage
Life insurance offers crucial financial protection for your loved ones. A policy can provide a lump sum payout to support your family or be placed in a trust to cover inheritance tax obligations.
If the policy is not placed in a trust, any proceeds will be added to your estate, potentially increasing the tax burden.
There are two primary types of life insurance: term and whole life coverage. For those seeking more control and flexibility, options like universal life insurance may be more suitable.
If you already have a policy, ensure it offers adequate coverage and that your beneficiaries align with your current wishes.
Writing a will
A will is a legal document in which you outline what happens to your assets after death. Without a will, your estate will be divided according to predetermined rules and local laws, which can delay the process.
When drafting a will, you can specify who receives your assets, appoint guardians for your children and more.
As an expat in South Africa, you may need to create a new will to comply with the laws of the jurisdiction.
Consulting a specialist is recommended to ensure your will is valid and compliant with local laws.
Utilising trusts
A trust is a legal arrangement that holds assets for your heirs. You can dictate who receives the assets, when they are released and any other conditions you wish to include.
Trusts offer several advantages, such as reducing estate taxes and streamlining the transfer of wealth. For expats, trusts can significantly lower inheritance tax (IHT) liabilities.
Don’t overlook digital assets
In today’s digital world, it is essential to include your digital assets in your estate planning. Digital assets can include:
- Social media accounts
- Digital media collections
- Cryptocurrency wallets
These accounts are typically password-protected, so it is important to decide who should have access to them after you are gone.
Review your plans
Life changes over time. Your estate plan should reflect these changes. It is important to review it regularly, especially after life events or legal changes. Even if your situation stays the same, revisiting your plan can help keep it current and effective.
Estate planning solutions with Holborn
Estate planning is a crucial part of any financial strategy. It is essential to understand that estate planning is not a one-time task but an ongoing process. Regular reviews and updates are necessary to ensure your plan adapts to life changes.
Setting up an estate plan early is vital. Do not underestimate the importance of having a solid plan in place. Consult with an expert to make sure your affairs are properly managed.
Our team of financial specialists collaborates with legal experts to offer a comprehensive range of estate planning services.
Prepare for the future by ensuring your estate plan is up-to-date. Contact Holborn today to schedule a free, no-obligation consultation and discover how we can assist you.
Frequently Asked Questions
Estate planning involves organising and managing your assets—such as real estate, savings accounts and life insurance policies—to ensure they are distributed according to your wishes after you pass away. It also helps in minimising taxes and avoiding lengthy probate processes. Essentially, it provides peace of mind knowing your loved ones will be financially protected and your wishes respected.
