By Gerhardt Meyer CFP®, Head of Technical Support, PSG Wealth
With online solutions popping up and 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 who are 14 years of age or older. It is also important to note that any person who signs a will as a witness (and the spouse of any witness) will be disqualified from inheriting under that will.
Ambiguity leads to unintended consequences
The importance of having a valid, executable will cannot be over-emphasised. We have all heard stories of people who have drafted their own wills but, in the process, caused a lot of unintended harm and hardship. A badly drafted will where the wording used is unclear or ambiguous, often leads to disputes, court actions, unnecessary delays, and additional costs to the estate. This can easily be avoided if you enlist the help of a professional to draft your will, ensuring that the language used clearly expresses your wishes, and the formalities are strictly adhered to.
Failure to understand tax laws and implications
Estate planning is of course about more than the will itself and is becoming more complex, with many clients externalizing assets due to our volatile economic and political environment, making DIY estate planning even more risky.
When you undertake estate planning, you should consider who your beneficiaries are and what their needs may be as well as the overall liquidity of your estate. 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. If you, for example, hold assets in the UK or the US, these assets are subject to inheritance tax and/or Federal Estate Tax (FET) 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 in excess of $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 (IRS). The cost of making the necessary filings through a US lawyer is approximately $5 000.
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 South African and offshore assets but this is not always true, depending on the type and location, as well as 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.