An estate is the total property, real and personal, owned by an individual prior to distribution through a trust or will. Real property is real estate while personal property includes everything else, for example cars, household items, and bank accounts. Estate planning distributes the real and personal property to an individual’s heirs.
Estate planning is the process by which an individual or family arranges the transfer of assets in anticipation of death. An estate plan aims to preserve the maximum amount of wealth possible for the intended beneficiaries and flexibility for the individual prior to death. A major concern for drafters of estate plans is estate duty and taxes.
A more preferable definition for me is that estate planning is “ the arrangement, management and securement and disposition of a person’s estate so that he, his family and other beneficiaries may enjoy and continue to enjoy the maximum from his estate and his assets during his lifetime and after his death, no matter when death may occur.”
Estate planning helps you:
- Understand the nature and extent of your wealth
- Structure the ownership of your wealth to accomplish your goals
- Minimize exposure to one omnipresent creditor – ZIMRA
- Establish a baseline to measure changes in your financial status
- Facilitate financial planning, including asset protection planning
- choose how your property will be distributed after your death,
- help assure that your property will be distributed in an orderly and efficient way
Estate planning tools (as previously discussed in detail) are legal arrangements, contracts and entities which can be used in the estate planning / asset management process to achieve one of the following objectives:
§ The minimisation of potential tax liability (e.g. legally breaking the link between the planner and a growth asset to minimise estate duty), although this should not be overrated or given too much emphasis as it is not always feasible.
§ The provision of liquidity
§ The provision of capital and income for dependants, as well as retirement capital and income in the event of a cessation or insufficiency of a regular income flow such as a salary or pension.
§ Capital appreciation and income generation – a purpose of the estate plan should be to limit the increase in the dutiable value of the estate without inhibiting the increase in the value of the assets themselves. In order to avoid paying estate duty on the future growth in value of assets, estate planning is used to “freeze” the value of “growth” assets at present values. This can be done by selling or donating the assets concerned to a trust, a company or an intended beneficiary, or donating assets to a spouse (although donations tax issues will need to be examined carefully beforehand to avoid the creation of further problems for the beneficiary).
§ Protection against insolvency and inflation/erosion – this includes the insolvency of not only the planner but also his future beneficiaries and their spouses. The estate plan must not be vulnerable to such events and must enable beneficiaries to weather the storm of such problems without endangering the position of other beneficiaries or depriving them of long term benefits which might have been planned for. Closely related to the insolvency problem is that of the dissipation of assets after the death of the planner through inept administration or the spendthrift ways of succeeding spouses or relatives (which is a real concern in our country.) Thus, protection of the assets earmarked for certain beneficiaries (spouse or children, for example) against the intervention of third parties who become involved in the family is often high on the list of priorities of wise estate planners
§ Facilitation of the smooth and efficient administration of the planner’s estate (This is crucial, more so in the event of death. A structure for proper administration of the estate, for smooth operation without the presence of the planner is invaluable, and ensures continuity.
With regard to the disinvestment of one’s property, there needs to be close liaison between one’s legal advisor and accountant to ensure that one does not fall foul of the various tax legislation and even other legislation such as the Land Acquisition Act in some cases. Each case must be treated on its own individual merits.