Longevity in estate planning

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Willie Fourie, Head of Estate and Trust advisory services at PSG Wealth

We often think of longevity when it comes to financial planning, but there is also something to be said for considering the longevity of your estate planning. A distinguishing feature of robust estate planning is that the structures and the transfer of assets that are put in place can address the needs and circumstances of the beneficiaries in the long term.

Implementing estate plans is often costly. In addition to the cost of professional advice, taxes are incurred when assets are transferred between various structures. Implementation can also span several years, as the aim is often to use abatements optimally so that the plan can be executed as cost-efficiently as possible. It therefore does not make sense to take a short-term view when it comes to estate planning. The ability of the executor to implement structures several years down the line also needs to be considered and planned for.

Trusts don’t always solve all longevity challenges

Trusts are often described as the magic cure to longevity concerns. This is unfortunately not so, even though one of the major features of a trust is that it is more beneficial to the next generation. Generation skipping in its simplest form means that the benefits of being a trust beneficiary can be transferred seamlessly and unhindered to the next generation without the need to unbundle an estate planning structure or vest the assets in the hands of a particular generation. This facilitates the optimisation of benefits and the use and enjoyment of assets – without the burden of ownership that brings along taxes and other unforeseen circumstances.

Expect changes to legislation to impact estate planning structures, but don’t buy into quick fixes

Once a structure has been implemented to take the needs and circumstances of the beneficiaries into consideration, Murphy’s law may well strike. The popular saying “anything that can go wrong, will” highlights that unforeseen circumstances may require that you make changes to a previously well-thought-through plan. Legislative changes over the years have been predominantly negative, but what if future changes are for the better? What if the scrapping of exchange control enables trustees of trusts in South Africa to relocate the domicile of the trust to another offshore jurisdiction where the beneficiaries may be resident at the time? Can an existing trust structure survive its tenure in SA and be transportable to another jurisdiction?

When new legislation is tabled for discussion, people often feel pressured to act. Quick fix solutions are sometimes proposed and implemented before the ink is even dry on a draft Bill, but it sometimes takes years before it becomes legislation.

Plan in advance where ageing parents are involved

The longevity of an estate plan is crucial for children with ageing parents, or for those whose spouse or siblings are unable to manage their own affairs. In many instances it is important to encourage the relative involved to act sooner rather than later, and to get their affairs in order while there is still time – especially when it can take several years to implement plans successfully or where a person’s mental faculty may decline during this time.

The law is often vague regarding the rights of individuals with mental and other debilitating illnesses, the rights of their families, and the administration of their assets. Different scenarios determine how an estate is dealt with after death and how assets are administered during the testator’s lifetime.

Understanding the basics can be valuable if a loved one is diagnosed with a dread disease or debilitating illness, especially if it may cause rapid decline. In these circumstances it is best to structure an estate plan that is flexible and that takes cognisance of changes in their personal circumstances or changing legislation.

Working with a FISA accredited fiduciary adviser is among the best ways to ensure an estate plan goes the distance as the law, along with your exact wishes, will be included in this process effectively.