Many people are so focused on trying to make ends meet that they can find little time to think about the requirements of the future. “What’s the use of putting aside money for tomorrow if I can’t even pay my bills today?” they may say. Even further from consideration is making plans for what should be done with their money when they die.
Maintaining the money that you have worked hard for is a vital element of financial planning. You should not only concentrate on managing the funds you currently have or on earning more money; it’s also crucial to work on protecting your assets throughout your lifetime and beyond. Financially successful people always make preparations to preserve their wealth for future generations.
Since the beginning of the year, we have been discussing our 2012 Money Manifesto, which shows you how to create a comprehensive action plan to improve your finances. One of the manifesto’s pledges is that you should create an estate plan and leave a financial legacy of wealth for your beneficiaries to enjoy.
Why plan for your passing?
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. Many people erroneously believe that only rich people need an estate plan. However, if you own property or a business, or have dependents and family members, then you need to prepare for your passing.
You should have the right to decide who gets your assets when you die; but if you don’t leave instructions for your estate, then the authorities will dictate who gets it. Proper planning can also facilitate faster settlement of your estate, as once you have created the appropriate documents, it will be easier for your survivors to get your assets transferred.
Another benefit of an estate plan is that it can free up money to pay for some death expenses, such as funeral bills, legal fees, transfer costs or other expenses. Smart planning can also help you to reduce your estate tax liability, so that there’s more money left for your survivors, and your wealth can be preserved as much as possible.
Estate planning strategies
One of the main considerations in estate planning is the tax implications. Upon your death, your assets may be subject to certain taxes and fees before they can be transferred, and an estate plan can help to minimise the effect of these costs. In Jamaica, these estate charges include transfer tax, stamp duty, executor’s commission and attorney fees.
The documentation needed for a proper estate plan will vary according to the laws of the country in which you live, or where your assets are held. Some legal documents include a last will and testament, trust deed, living will and power of attorney. You may need to seek legal advice to ensure that your estate documents are properly constructed.
Life insurance is an estate planning element that is simple to execute and relatively inexpensive to obtain. The proceeds from policies with a named beneficiary will automatically be paid to that person upon your death, and your beneficiary’s right to this money cannot be contested. Life insurance proceeds can also provide quick cash to meet your survivors’ needs.
Don’t delay with your planning
It’s not as difficult as you may think to get started with an estate plan. Your first step is to write a list of your assets and your liabilities. Look for records such as bank statements, insurance policies, stocks and property titles to determine all you own; and get details on your debt from mortgage documents, loan statements, or credit card bills.
Next, decide what you want to do with your assets when you’re not around. Select the appropriate strategies that will prevent unnecessary dislocation to those who would be financially affected by your passing. Ensure that you find someone who would be a suitable executor to carry out the instructions in your will, and name a trusted guardian to take care of your dependents.
Most people don’t know the laws surrounding estate transactions, so it’s best to seek professional advice to complete your plan. If necessary, hire a lawyer who is experienced in drafting wills and discuss your insurance needs with a consultant. It might be useful to speak to a financial advisor about your assets or debt, and get advice from a tax accountant if you have a complex estate.
If you currently have no assets, then make it your immediate goal to start the process of wealth building. Apply the other steps in our Money Manifesto to make the necessary changes to your financial situation; then diligently work at creating a financial legacy that will benefit the lives of those you leave behind.
Copyright © 2012 Cherryl Hanson Simpson. No reproduction without written consent.
Originally published in The Daily Observer, February 16, 2012
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Cherryl is a money coach and business mentor, and founder of Financially S.M.A.R.T. Services. See more of her work at www.entrepreneursinjamaica.com and www.financiallysmart.org. Contact Cherryl