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Managing your estate
Estate planning is an essential part of your financial plan. Your 'estate' means everything you own, which are your assets; and do not own, which are your liabilities.
Estate planning is all about how you intend to dispose of your assets after paying off your liabilities when you die. The more complex your finances, the more essential it is that you get expert advice.
These are the four main steps to estate planning:
Your financial plan and your estate
The best place to start with estate planning is to establish how much you have or do not have.
A proper financial needs analysis will identify and quantify:
- Your assets - classified as property
- Movable property such as your furniture and car
- Life assurance policies, shares, trusts and any lump sum from a retirement fund
- Your liabilities. Your debts and what you expect to pay out in future support of dependants
- Your tax commitments at death.
Drawing up a will
If you die without a will, your assets (less your liabilities) are divided amongst your relatives according to a legal formula.
You need to revise your will on an ongoing basis because your personal circumstances may change. For example, you may have a child.
Most banks draw up and execute wills, or you can go to a lawyer or an accountant.
The liquidity of your estate
The liquidity of your estate simply means how much cash is available to settle liabilities and to meet commitments to dependants.
An estate can take a year or even longer to be wrapped up. During this time you need to ensure your dependants have sufficient money. By ensuring that there doesn't have to be a fire sale of assets to raise money urgently to meet liabilities, saves a lot of stress and worry on the whole family.
Taxation at death
Tax comes in two main forms at death. Estate Duty, which is tax on your assets less your liabilities, with certain exemptions at death. Capital Gains Tax (CGT), is tax on any capital gain that you may make on an asset.
Death is considered to be a CGT event. In other words, at your death all your assets are valued from the date of acquisition and again at the date of your death. Any gains are subject to tax, although there are certain exemptions. Liabilities are not taken into account for CGT purposes.
As you can see, estate planning can be quite a task and any help you can get from a Financial Services Provider (FSP), attorney or accountant is well advised.
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