Estate planning for every life stage

BOITUMELO NTSOKO: Welcome to the Money Savvy Podcast. I’m Boitumelo Ntsoko. Many people think that estate planning is only for the elderly or for those with a lot of money or assets. But is that really the case? Have you thought about how your debt, retirement funds or investments will be dealt with if you died today? If not, then stay tuned.

Eric Jordaan, who is a certified financial planner at Crue Invest, joins us in this episode to shed light on this, as well as to give us an idea of what your estate plan should look like throughout your life. Welcome, Eric.

ERIC JORDAAN: Thank you Tumi, thank you for the opportunity.

BOITUMELO NTSOKO: Eric, could you please tell us why estate planning is crucial?

ERIC JORDAAN: Sure. Maybe to understand why it’s so crucial, I think the first thing that we need to look at is what the real importance or purpose of an estate plan is.

So, if you look at estate planning, what the real purpose of that is, is to look at ways in which you can structure assets in such a way that you can get the most enjoyment of those assets while you are alive, but also thereafter in terms of how you transfer those assets after your death to your dependants or heirs in such a way that it’s done in the most cost-effective and practical way.

So the importance of estate planning is not just to look at how you transfer your assets to your dependants or heirs one day, but also in terms of your life now, and how you enjoy those assets while you’re alive.

BOITUMELO NTSOKO: Could you maybe give us some key elements of what make up a solid estate plan?

ERIC JORDAAN: Sure. I think to look at the key elements of the estate plan, the first step, where you need to start, is to have a vision in terms of what it is that you would like to achieve with your estate plan, and how you would like to structure your assets. Once you understand what your vision is and how you’d like to benefit, yourself as well as your heirs and dependants one day, once we have that vision we can look at how we structure your assets.

Once we start looking at your assets, we can then look at what structures they are held in. In other words, are they held in as life cover or as life policies, in which instance we need to understand who the beneficiaries of those life policies will be. Next, we need to look at whether you have any assets in retirement funds, and what the rules around those retirement funds are, who the beneficiaries of those retirement funds are, and then look at what the impact of any death claim would be and in what form your heirs or dependants one day can benefit from those retirement funds.

The next step that you will probably then have to look at is the need and requirement for a trust.

So a trust is not there for everyone. It has very specific needs, but that needs to be examined to determine whether or not that’s a relevant aspect for you to look into in your estate plan.

And then lastly there is looking at your will, and understanding what’s in your will and how that ties up [with] your estate plan, because ultimately that would be the benefit or the document that controls how your assets are transferred to your heirs or dependants one day.

BOITUMELO NTSOKO: Now, if you’re in your twenties and have just started your career and maybe you don’t really have any assets to your name, do you really need an estate plan?

ERIC JORDAAN: Yes. Look, estate planning doesn’t have to be this all-encompassing complex process. Estate planning can be very specific to what you have at that time.

Always remember, as I said at the beginning, estate planning is not necessarily only how you leave your assets to your dependants or heirs one day. It’s also how you get the most out of your assets while you are still alive.

Some of it could be as simple as where do you save? Do you save it into a retirement-funding structure, or do you save it into a voluntary investment like a unit trust structure, because all of those do have some estate planning aspects that we would be able to consider.

BOITUMELO NTSOKO: And how does your estate planning change once you enter into a marriage or a life partnership and if you have children as well?

ERIC JORDAAN: Yes, I think in that instance the main change would be that your estate planning would then need to start focusing on how you transfer your assets to your dependants one day, because that means that you now have people who depend on you to provide or assist with their futures. So your estate plan needs to be amended or adjusted in line with that change in what your requirements would be.

So those would be aspects where you would have to look at your will, and how you make provision, for example, for minor children.

Do we make use of a testamentary trust in that instance? At what age does that testamentary trust come to an end? Those are the type of questions you would have to look at.

And then where there’s a spouse, you need to provide and assist in terms of future living expenditure, etc. There you would have to look at how you structure your beneficiary nominations – for example on your life policies, on your retirement funding.

So there’ll be a lot of big decisions that would need to be made in the event of such a change to your living arrangements.

BOITUMELO NTSOKO: Should those who are in a life partnership go into greater detail with their estate plan?

ERIC JORDAAN: People in a life partnership need to look at things like do you co-habit – first of all, what the legal structures in your life partnership would be.

So where that doesn’t go into your traditional marital structures, then you would need to look at your living arrangements, and is there a need to put in place a co-habitation agreement, for example, to try and formalise your agreements as well as what the obligations of each party would be when entering into that life partnership.

BOITUMELO NTSOKO: And what are some of the important factors to remember for those who are trying to build a legacy for their kids, but they’re also assisting their parents financially?

ERIC JORDAAN: Yes, that’s always a very difficult question because it does end up [with a] question in terms of how we balance those two requirements that you have, or responsibilities on your shoulders. Within that, you can look at your estate planning and look at what mechanisms can ensure that continuity, and where we transfer assets from one generation on to the next.

So within your will or within setting up an inter vivos trust, for example, you can then structure your assets in such a way where you can provide for maintenance for your elderly parents, for example, where they might need financial assistance. But ultimately once they pass away those assets can then transfer to your children to care for their maintenance as well.

So you need to look at a structure in terms of where there’s some form of discretion left to a trustee who is able to allocate income, etc, to different parties.

BOITUMELO NTSOKO: Once you reach retirement, what changes do you need to make to an estate plan?

ERIC JORDAAN: I think that once you enter your retirement years, the main difference would be [that] you are now changing from what we would call an accumulation phase – in other words, where you’re still working towards and saving for your retirement – to a stage where you’re now needing to start living off your capital.

So that would typically mean that a lot of the structures that you’ve had in terms of your retirement funding would change from your retirement funding; you would potentially move into a compulsory annuity situation.

And there you would need to look at how you change your beneficiary nominations in that instance, because there are certain differences where beneficiary nominations in a retirement fund are ultimately decided on by the trustees of your retirement fund, whereas once you go into a compulsory annuity situation, you can appoint your beneficiaries individually, and there’s no trustee discretion involved there.

So that would be one of the changes that would definitely take place in your estate once you move into your retirement years.

BOITUMELO NTSOKO: And once you have an estate plan in place, what other life events necessitate a review of it?

ERIC JORDAAN: Any main life change that would occur would necessitate a change in your retirement plan. That is not necessarily just you either getting married or if there is a divorce, or children, etc. It could also be required in the event of, for example, where you relocate.

So whether you decide to potentially emigrate or live in a different country for a while, there may be different requirements at that stage in terms of which structures you would need have your assets invested in. That would definitely be another example of a life event that would need a review of your estate plan.

Other events could also be where there’s a change in circumstances of your children, for example where a child might no longer be in a position to receive an inheritance, even if he is a major but can’t manage his own financial affairs, for example.

In that instance, you would be able to adjust your estate plan to provide for a trust to hold that specific child’s assets. That would be another life event that could take place that would necessitate an update of your estate plan.

BOITUMELO NTSOKO: Thank you so much, Eric. That was Eric Jordaan, who is a certified financial planner at Crue Invest.