Estate planning is the process of making provisions to transfer your property when you die, or to manage your assets if you become incapable of handling your own affairs. Planning for such events is the last thing many persons may want to consider, but one will find that there are great advantages to doing so. With proper estate planning you can choose how your assets will be distributed after your death, ensure that your property will be distributed in an orderly and efficient way and minimize the payment of estate taxes. Below are a few tips on estate planning which will be useful in the administration of your estate.
Perhaps the most important element of estate planning is having a valid will. The benefits of this cannot be emphasized enough. With a will you are in a position to direct the administration of your assets after death and ensure that your assets are distributed according to your wishes. It is essential however that your will be properly drafted and executed to ensure that your desired objectives are fully and effectively met. A careless error could mean the difference between a valid will and an invalid will or an effective and an ineffective gift.
A will must be in writing and signed in the presence of two witnesses. It is important to ensure that beneficiaries are named in the will and that provisions are made for the distribution of all of your assets. Where a minor is involved, it is recommended that you appoint guardians and trustees for their welfare as failure to do so will result in a court-appointed guardian or trustee. Appoint an executor who you regard as honest and trustworthy. That person will be responsible for paying your debts and distributing your assets in accordance with your will. Name more than one executor so that there is continuity if one executor is no longer willing or able to carry out his or her functions. This can minimise complications and eliminate the time it would take to wind up the estate.
When a person dies intestate, that is, without a will, his/her estate will be distributed in accordance with the law and their assets may fall into the hands of persons they never intended. The time it will take to wind up the estate will be much longer and more costly. Where a will is made and an executor is named, a simple application is made to the court for a grant of probate appointing the named executor. However, when a person dies intestate, it will take a much longer period to wind up the estate as one will need consent from the Administrator General before an application can be made to the court.
Another rule of thumb, as regards estate planning is to establish joint ownership of your assets where appropriate. Such assets may include money, stocks, real estate or personal possessions. With joint ownership, there is no need for a formal 'transfer' of your assets upon death as they will automatically pass to the surviving joint owner. When a person dies, his/her assets may be subject to certain estate taxes and fees before they can be transferred. These include transfer tax, stamp duty, executor's commission and attorneys' fees. Transfer tax on death is 1.5 percent of the market value of the real estate and shares as at the date of death. This tax must be paid within one year of the person's death otherwise interest of six per cent per annum is charged until payment is made. Stamp duty ranges from J$5000.00 to J$25,000.00 depending on the value of the net estate being transferred. In addition, you will need to factor in attorney's fees and executor or administrator's fees. The executor or administrator's fee is six per cent of all monies that pass through his/her hands during the execution of the estate. With joint ownership, since the asset passes automatically to the joint owner and not through the hands of the executor or administrator and requires no formal 'transfer', this will significantly eliminate or minimise the payment of the taxes.
Obtaining life insurance is also a highly recommended step. It can be simple to execute and relatively inexpensive but can result in significant savings for loved ones depending on the extent of the coverage. The proceeds from such insurance policies will be paid directly to the named beneficiary upon death and like joint ownership there is no need for a formal 'transfer'.
The establishment of trusts is also a crucial part of estate planning. A trust is created when one party (the settlor) transfers assets to another party (the trustee), who then holds legal title to them for the benefit of someone else (the beneficiary). A trust may be used to supplement a will or may operate during the life of the person who put the trust in place (the settlor). A trust can help to protect assets and can be a means of ensuring that those assets are available to benefit persons long after the demise of the settlor.
In general, it is advisable to prepare a list of all your important documents and assets. This should include passports, wills, mortgage instruments, as well as birth, marriage and death certificates. You will also want to include important financial records, such as bank accounts, stock certificates, land titles and insurance policies. Make sure your family members or executors know where to find these vital documents. In addition, ensure that you maintain and update your estate plan, for instance, adjusting your will as the need arises to take into account matters such as newly acquired property or changes in your status (recently married or divorced).
Lastly, it is strongly recommended that you obtain legal advice from an Attorney-at-Law, who is equipped with the requisite expertise and skill. An attorney can assist with designing an effective estate plan that meets all applicable legal requirements and the creation of all necessary legal documents. This in turn will prevent unwanted complications in the administration of your estate and result in the effective distribution of your wealth.
Samantha Moore is an Associate at Myers, Fletcher & Gordon. Samantha may be contacted via firstname.lastname@example.org or www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.