DIY estate planning can cost you: This is what you need to know to save
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RANDS AND SENSE:
By Gerhardt Meyer
With online solutions popping up promising to crank out an estate plan in under 30 minutes, you may be tempted to do-it-yourself (DIY). Afterall, you will be avoiding all the costs that come with professional assistance, right? Well, going the DIY route might cost you more than you think.
Many people mistakenly view estate planning as being confined to the wealthy. In reality it is important for everyone, and essential to ensure that your loved ones are looked after and that your estate is transferred without unintended consequences. And estate planning is not a “one size fits all” exercise – there are various risks involved, especially when you attempt to do it yourself. Here are some risks to consider.
- Legal requirements matter. For a will to be valid, the testator (who the will belongs to) must be over the age of 16 years, and the will must be in writing (typed or handwritten), with each page, including the last page, signed by the testator and two competent witnesses of 14 years of age or older. Any person who signs as a witness (or spouse of any witness) is disqualified from inheriting under that will.
- Ambiguity leads to unintended consequences. The importance of having a valid, executable will cannot be over-emphasised. A badly drafted will where the wording is unclear or ambiguous, often leads to disputes, court actions, unnecessary delays, and additional costs to the estate. This can be avoided if you enlist a professional to draft your will, who will ensure that the language clearly expresses your wishes, and the formalities are strictly adhered to.
- Failure to understand tax laws and implications. Estate planning is about more than the will itself and is becoming more complex, with many people externalizing assets due to our volatile economic and political environment, making DIY estate planning even more risky. Assets held in foreign jurisdictions can have various tax and other cost implications that need to be catered for, which differ to South African assets.
Assets held in the UK and the US are subject to inheritance tax and/or Federal Estate Tax under the legal concept of “situs”. In the UK this results in tax at a rate of 40% for assets over the value of £325 000 and in the US tax at a rate of up to 40% for assets over $60 000. Should your US situs assets amount to more than $60 000, there will be an obligation to report the assets to the Internal Revenue Service. The cost of making the necessary filings through a US lawyer is about $5 000 (about R75 000).
Why professional help counts
South Africa has signed double taxation agreements with various countries including the UK and US. These are complex treaties and understanding the practical tax administration practices can be daunting.
It is often believed that having a single world-wide will is sufficient to deal with both South African and offshore assets, but this is not always true - it depends on the type, location, and value of these assets.
Given the various risks involved in DIY estate planning and the potentially tragic impact it can have on the people you love, it is best to consult a professional to ensure peace of mind and a proper estate plan to match.
Gerhardt Meyer, a Certified Financial Planner, is head of technical support at PSG Wealth