Your life insurance plan can help protect you enough for your estate planning needs – here’s how
Why is estate planning so important?
In the last quarter of 2021, it emerged that around 1.3 million South African government employees did not have a will in place.
This represents between 80% and 90% of government employees, many of whom are parents and manage single-parent households.
Many are also owners. Unfortunately, having no will also extends to society at large.
For several years it has been estimated that around 70-75% of South Africans in all employment sectors do not have a will.
This is at the heart of why estate planning is so important.
“People need to understand how important a will is,” said Discovery Life‘s head of legal services, Harry Joffe.
“A will or estate plan is not just for the wealthiest members of society. Everyone, no matter what income bracket you are in, is subject to the same legal procedures upon your death. In fact, people with smaller estates in terms of assets often have more complex estates when it comes to liquidating them.
“The reality is that the consequences of not having a valid will or estate transfer in place can be devastating for the family left behind. Quite simply, it can make things more complex, fiscally inefficient, expensive, and emotionally draining than the experience should be,” he adds.
What can happen if you don’t have a will or an estate plan?
Joffe explains, “You basically lose the ability to decide who gets to inherit what and how much. Your estate will be distributed in accordance with South African law on intestacy and not necessarily according to your personal wishes.
Taking that very important first step: where to start
The best place to start is to seek the expertise of a qualified professional.
“An estates attorney, trust company or estates firm is best suited for this difficult and administratively intensive service,” comments Joffe.
“So having experts on hand to help you meet your needs and structure a holistic estate plan that supports you in the best possible way is a great place to start,” he adds.
Benefits of using life insurance as an estate planning tool
Life insurance can effectively help you provide much-needed cash to your estate, while creating opportunities for you to help your executor settle your estate more quickly.
One of the primary functions of life insurance is to provide financial security and estate (money) protection for your family and other beneficiaries when you can no longer. It essentially provides cash liquidity through the payment of benefits in the event of death, critical illness or disability.
To do this, your plan or policy needs to be very clear about your priorities and goals and match them with your assets, liabilities, risk tolerance and other financial factors.
This creates a strategy that can be very useful as an estate planning tool in your larger financial plan.
Some benefits of using your life coverage plan to enhance the legacy you leave include:
- To be able to maximize the real value of your assets to take the best care of those who matter most to you. “One way to do this is to set up a trust, which is a very effective wealth structuring tool and can be used to deal with many complex family structures in a fair and beneficial way as long as the right trustees are in place,” explains Joe. .
- To be able to provide for the needs of a spouse while minimizing tax burdens. “A spouse as the beneficiary of a life insurance policy avoids inheritance tax, but does not provide money to the estate. A balance must be struck between passing assets to a spouse and securing sufficient liquidity of the estate.
- To be able to secure an inheritance in a controlled manner. “A trust is a great way to set parameters that control how your inheritance is used by those you leave behind, especially if one of your goals is to provide for your current family, as well only future generations. Life cover in specific trusts can help protect your assets against many levels of wealth transfer and prevent assets from being squandered by heirs,” says Joffe.
- To be able to ensure the fair transfer of a business to heirs/co-shareholders. “If you have a co-shareholder actively involved in your business, you may want 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 might 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 to specific causes that are meaningful to you. “You can choose to have a specific charity or cause as the beneficiary of your life insurance plan. This way, you can use life cover to leave a charitable donation that supports your passion for philanthropy. It’s a great way to leave a lasting impact if it means as much to you as providing financial security for your loved ones, and is also effective in reducing inheritance taxes,” says Joffe.
Tune in to learn 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 Registered Life Insurer and Registered Credit and Financial Services Provider, NCR Reg No. NCRCP3555. Product rules and conditions apply.