Estate planning: the
risks of going it alone
Estate planning isn’t just about passing on wealth – it’s about protecting your loved ones and ensuring a smooth transition for future generations. It’s not a one-size-fits-all process, however, and a do-it-yourself approach can carry significant risks. Without careful planning, oversights can lead to unintended consequences. We provide an overview of what you need to know.
Estate planning may seem straightforward, tempting you to handle it on your own. But safeguarding your legacy requires careful planning to ensure your assets can be transferred smoothly while avoiding legal complications and financial pitfalls. No two estates are the same, and a cookie-cutter approach can leave critical gaps. It’s crucial to seek professional guidance to ensure your estate plan honours your wishes and protects your family’s future.
The risks of a DIY approach include:
Not meeting legal requirements when drafting and executing your will. For your will to be valid, you must be at least 16 years old, and it must be in writing – whether typed or handwritten. Each page, including the last one, must be signed by you and two competent witnesses, both 14 years or older. Crucially, anyone who serves as a witness (and their spouse) is disqualified from inheriting under that will.
Ambiguous wording in your will, which can lead to unintended consequences. Poorly drafted documents containing vague or unclear language can lead to disputes, court battles and costly delays, leaving loved ones in limbo. Expert guidance can help ensure your wishes are clearly expressed and legally sound, reducing the risk of avoidable complications.
Failure to understand tax laws and implications. Estate planning is increasingly complex, especially when assets span multiple countries or beneficiaries live abroad. A DIY approach can leave critical tax implications unaddressed, putting your estate at risk. South African assets aren’t the only concern – holdings in foreign jurisdictions can trigger hefty taxes. In the UK, inheritance tax applies at 40% for estates exceeding £325 000, while in the US, assets above US$60 000 can attract Federal Estate Tax of up to 40%.
Adding to the complexity, structures like trusts – widely used in South Africa – can create unforeseen tax burdens for beneficiaries living in other countries.
Drawing up only one will if you have offshore assets. Many assume that one worldwide will is sufficient for both South African and offshore assets, but this isn’t always the case. The rules governing estate administration vary by country, and a single will can delay proceedings, as the South African and foreign estates will not be able to be processed simultaneously.
Probate is another key consideration – certain jurisdictions won’t release inherited funds based solely on a Letter of Executorship from South Africa. Additionally, while South Africa grants freedom of testation, allowing individuals to bequeath assets as they wish, other countries may have forced heirship rules, restricting testamentary freedom.
Without a clear understanding of international estate laws, your will may not reflect your true intentions. Seeking expert advice can help ensure your estate plan is legally sound across all jurisdictions.
Not considering special needs of children and maintenance obligations. Adequate provision must be made for your spouse’s maintenance, your children’s future, and the overall liquidity of your estate to ensure your wishes are carried out effectively.
For minor children, protecting their inheritance is crucial. Without the right safeguards, their assets may be held in the Guardian’s Fund until they reach adulthood. Establishing a testamentary trust can help protect their inheritance and ensure that it is managed wisely. Careful selection of trustees is equally important – they will oversee your child’s financial well-being until they reach maturity or the age specified in your will.
The consequences of a poorly considered estate plan can be far-reaching for those who depend on you. Expert advice can help you avoid costly mistakes and ensure your estate plan provides for the people you love.
For more information, please contact Madelein Steenkamp at madeleins@privatewealth.sanlam.co.za.
The formation and registration of trusts, and the provision of independent trusteeships – both local and offshore.
The creation of BEE, charitable, special and Shariah trusts compliant with regulatory and legislative requirements.
The administration of deceased estates in South Africa and abroad.
Advice on complex structures, asset restructuring and bequests in foreign jurisdictions.
Advice on emigration and immigration, foreign earnings and the application of any double taxation agreements.
Updating trust deeds to ensure they’re in line with the latest changes in the trust environment.
Updating and/or drafting of wills dealing with South African and/or foreign assets.
Advice on the establishment and management of charitable organisations, their tax status and tax deductible donations.
Advice on the potential tax consequences and reporting obligations if you hold a US passport or green card, or if you have children living in the US.
Guidance on the financial implications of life-changing events, such as getting married, divorce or the birth of a child.
