Spring-cleaning your estate plan

The Difference Between Estate Planning and Legacy Planning

In the context of estate planning, we often talk about ‘leaving a legacy’, which may lead to the terms ‘estate planning’ and ‘legacy planning’ being used interchangeably. However, they do differ.

Estate planning refers to growing and protecting your assets over your lifetime and planning how those assets will be managed and transferred after your death. This includes ensuring that there is enough liquidity in your estate to settle debts such as outstanding mortgage loans and estate expenses such as executor’s fees and estate duty.

It also involves planning for the maintenance needs of your surviving dependants and for the transfer of wealth from one generation to the next. Without a proper estate plan, you have no guarantee that your wishes will be carried out.

Legacy planning delves a level deeper. While estate planning focuses on valuables, legacy planning focuses on values. More than simply transferring money and property, legacy planning is about transferring wisdom and priorities. This is important in every family, but perhaps more prominent in family businesses – especially farming enterprises and philanthropic endeavours.

 

The Importance of Having a Will

Your will may be the most important document your will ever sign, because it is the primary document that will be used to implement your estate plan.

More than your wishes, it contains instructions to your executor on how your assets must be managed and transferred when your pass away. It goes without saying that if any changes are made to your estate plan, your will should be reviewed immediately and updated accordingly.

 

When to Review Your Will and Estate Plan

Changes in your personal circumstances are always a prompt to review your will and estate plan. Such circumstances typically include getting married or divorced, growing your family or purchasing additional property.

Also remember changes in external circumstances that may impact your estate plan, such as changes to the financial and regulatory environment. For example, recent amendments to the Trust Property Control Act may impact the management of your family trust.

Similarly, annual changes to tax laws may allow for additional exemptions or impose higher tax rates, which may in turn necessitate putting estate planning structures in place or updating existing ones. It is therefore important to be proactive and schedule regular updates with your financial planner, rather than only doing so in the wake of big life changes.

 

While Spring-Cleaning Times Evolve, the Concept Stays the Same

In ancient times, the act of spring-cleaning was often tied to agricultural cycles. In agrarian societies, the end of winter heralded a time of preparation for the planting season. The same can be said for spring-cleaning your estate plan. Let’s plant the seeds of effective planning now, so that the next generation can reap the benefits of the legacy we leave behind.

 

Frequently Asked Questions (FAQs):

What is the difference between estate planning and legacy planning?

While both involve planning for your financial future, estate planning focuses on managing and transferring your assets after your death, while legacy planning focuses on transferring your values and priorities to future generations.

 

Why is it important to have a will?

A will is the primary document that outlines your wishes for how your assets should be managed and distributed after your death. Without a will, your assets may be distributed according to default laws, which may not align with your intentions.

 

When should I review my will and estate plan?

You should review your will and estate plan whenever there is a significant change in your personal or financial circumstances, such as getting married, divorced, having children, purchasing a new property, or experiencing changes in tax laws.

 

What are some common mistakes people make when planning their estate?

Common mistakes include:

• Failing to create a will or trust.
• Not updating your will or trust after significant life changes.
• Naming the wrong person as executor or trustee.
• Failing to consider potential tax implications of your estate plan.
• Not planning for long-term care needs.

 

Can I do estate planning on my own?

While it's possible to do some basic estate planning on your own, it's generally recommended to consult with an estate planning attorney to ensure that your plan is comprehensive and legally sound.

 

What is the role of a financial planner in estate planning?

A financial planner can help you assess your financial goals and create a comprehensive estate plan that aligns with your objectives. They can also provide guidance on investment strategies, risk management, and tax planning.