“Are we being good ancestors?” (Jonas Salk)
What do you plan to give your family this Festive Season? Now’s the time to think beyond the brightly wrapped gifts under the tree and get started on an estate plan which will leave your loved ones the lasting gift of financial freedom.
Estate planning involves a lot more than just executing a valid will, but let’s start off with a reminder that a will must always be your top priority.
Your will is the heart of your estate plan
You will have heard this many times before, but it bears repeating. Your will (“Last Will and Testament”) could well be the most important document you ever sign. Without executing a will, you forfeit your right (and duty) to decide how your assets will be distributed so as to ensure the future happiness and well-being of your loved ones. You lose your opportunity to choose an executor you can trust to wind up your estate professionally and efficiently. And no matter your age or state, it cannot wait – no one knows when the fateful day will dawn.
Most importantly, your will lies at the heart of your entire estate plan. It underpins and powers it. So, if you don’t yet have a will in place (or if your will needs updating) make your number one priority: “Book an appointment with my lawyer. Now.” Then ask your lawyer to draft your will to form the core of your overall estate plan.
What is an estate plan and why should you have one?
Your estate plan is your roadmap to creating wealth, to protecting it, and to transferring it to the next generation (or beyond). It is the only sure-fire way of ensuring your own comfortable retirement and of providing for the financial wellbeing of your loved ones after you are gone.
It incorporates your overall financial strategy, answering questions such as how you will save and invest, what investment options you will choose, how you will acquire assets, how you will provide for tax and other liabilities, how you will ensure effective succession planning in your business, how you will transfer your wealth to the next generation and so on.
Bring your family in early
It’s never easy contemplating one’s own mortality but in fairness to your loved ones make sure that as soon as they are old enough to participate, everyone is part of the process. Bring them in on everything you can and keep them in the loop when you are tracking progress or thinking of changing anything.
Questions to ask yourself
As the old adage has it “Failing to plan is planning to fail”. So plan. Start by asking yourself (and your family) these questions –
- What is our end goal?
- How much wealth do we need to build up?
- What is our target date for reaching that goal?
- How will we achieve it?
Now formulate your financial mission statement
Use your answers to those questions to formulate a “financial mission statement” and a detailed strategy to get there. As always with goal setting, break the big goals down into little ones, with target dates for achieving them and ways of tracking your progress.
Done and dusted! But wait, how will you actually transfer that wealth to the next generation (or beyond)?
Preserving your wealth for the next generation – and beyond
For many, it’s only realistic to plan one or two generations ahead. But whether your aim is to provide financial cover for just your spouse and children, or for your grandchildren as well, or (let’s aim high here!) for your great grandchildren and beyond, your estate plan should lay out a clear strategy for preserving your wealth down the generations.
Trusts are often recommended for generational wealth preservation and transfer, and whilst they have pitfalls and should only be considered with professional advice, they can certainly provide a powerful solution. In particular they could result in substantial estate duty savings for many generations down the line. Similarly, corporate structures (companies, company/trust combinations and the like) are often used for this purpose, particularly when trading businesses are involved. Donations during your lifetime may be suggested but beware the tax implications. Living annuities enable you to nominate beneficiaries to receive the benefits (with a tax incentive for them to leave at least part of the funds invested). There may be other niche solutions to suit your particular needs.
The bottom line
There are many complex decisions to be made and there is no “one size fits all” solution. Every family’s situation and needs will be unique. Every class of asset and every wealth-transfer vehicle carries with it particular requirements, benefits, risks and cost and tax considerations.
Professional advice specific to you and your family is essential!
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.