When it comes to meeting your estate planning goals and needs, a last will and testament is only one of the components you need. Various other factors are at play in this kind of wealth transfer process. Your life insurance plan can be a very effective estate planning tool.
Why is estate planning so important?
In the last quarter of 2021, it emerged that an estimated 1.3 million South African government employees do not have a last will and testament in place. This accounts for between 80% – 90% of government employees, many of whom are parents and managing single-parent households. Many are homeowners too. Sadly, not having a will extends into broader society as well. For several years, it has been estimated that around 70 –75% of South Africans across all employment sectors do not have a will.
This is at the heart of why estate planning is so important.
“People need to understand just how important a will is,” comments Head of Legal Services at Discovery Life, Harry Joffe. “A will or estate plan is not just for wealthier members of society. Everyone, no matter in which income bracket you fall, is subject to the same legal processes when you pass away. In fact, people with smaller estates asset wise often have more complex estates when it comes to winding them up.”
“The reality is that the consequences of not having a valid will or wealth transfer in place can be devastating for the family that is left behind. Quite simply, it can make things more complex, tax inefficient, costly, and emotionally more draining than the experience needs to be,” he adds.
What can happen if you don’t have a will and estate plan?
Joffe explains: “You essentially forfeit the opportunity to decide who should inherit what and how much. Your estate will be distributed according to the South African law of intestate succession and not necessarily as per your personal wishes.”
Taking that all-important first step: where to begin
The best place to start is to seek the expertise of a qualified professional. “An attorney who specialises in estates, a trust company or a specialist estates firm is best suited to this difficult and admin intensive service,” comments Joffe.
“So, having experts on hand to help you address your needs and structure a holistic estate plan that supports you in the best possible way is an ideal place to get started,” he adds.
Benefits of using life cover as an estate planning tool
Life insurance can effectively help you to provide much-needed liquidity in your estate, while also creating opportunities for you to assist your executor in winding up your estate quicker. One of the primary functions of life cover is to provide financial security and wealth protection (money) to your family and other beneficiaries when you no longer can. It essentially offers cash liquidity through the payment of death, severe illness or disability benefits.
To do this, your plan or policy needs to make it very clear what your priorities and goals are and match these to your assets, liabilities, risk tolerance and other financial factors. This creates a strategy that can be highly supportive as an estate planning tool within your broader financial plan.
Some benefits to using your life cover plan to enhance the legacy you leave include:
- Being able to maximise the real value of your wealth to take the best care of those who matter the most to you. “One way to do this is to set up a trust, which is a highly effective wealth structuring tool and can be used to address many complex family structures in a fair and beneficial way as long as the correct trustees are in place,” explains Joffe.
- Being able to provide for a spouse while minimising tax burdens. “A spouse as a beneficiary on a life policy avoids estate duty, but does not provide the estate with cash. A balance should be found between leaving assets to a spouse and ensuring sufficient liquidity in the estate.”
- Being able to secure a legacy in a controlled manner. “A trust is a great way to set parameters that assert control over how your legacy is used by those you leave behind – especially if one of your goals is to provide for your existing family, as well as future generations. Life cover in specific trusts can help to protect your assets from numerous levels of wealth transfer, and avoid assets being squandered by the heirs,” says Joffe.
- Being able to ensure the equitable transfer of a business to heirs/co-shareholders. “If you have a co-shareholder that is actively involved in your business, you may wish for them to be your successor. You may also want to pass on an equitable inheritance among multiple family members who will continue to run things. So, you can consider things like a buy–sell structure and agreement and key person protection – both of which use life insurance.”
- Being able to give back to society and specific causes that hold meaning for you. “You can opt to have a specific charity or cause as a beneficiary on your life insurance plan. This way you can use life cover to leave a charitable gift that supports your passion for philanthropy. It’s a lovely way to leave a lasting impact if this means as much to you as ensuring that your loved ones are financially secure too, and is also effective for estate duty reduction,” says Joffe.
Tune in for more about the importance of estate planning with Discovery Life’s podcast series with Bruce Whitfield.
Discovery Wills and Trust Services, a division of Discovery Central Services (Pty) Limited, a company registered in South Africa with registration number 2016/054628/07 and part of the Discovery group of companies. Discovery Life Limited. Registration number 1966/003901/06, is a licensed life insurer, and an authorised financial services and registered credit provider, NCR Reg No. NCRCP3555. Product rules, terms and conditions apply.
This post and content is sponsored, written and provided by Discovery Life.