7 Deadly Sins of Retirement Planning - #7 Failing to protect your legacy for the next generation: 3 important steps

A properly planned estate that includes an up-to-date and relevant last will and testament is an essential element in effective retirement planning. To pass away without (a) subjecting your financial affairs to an estate analysis or (b) even worse, in my opinion, without a valid last will and testament can cause unnecessary hardship and trouble for those left behind. Importantly, failure to do an estate analysis or have a proper last will and testament can allow inheritances to be transferred in a manner not intended during the lifetime of the deceased. Maybe a few examples can help in clarifying some common concerns;

• The entire estate is left to a surviving spouse who then re-marries and leaves the inherited estate to a 2nd husband or wife to the exclusion of the children of the first marriage

• A surviving husband or wife is left, for months, without sufficient funds for his or her maintenance while an estate is being wound up

• During retirement one or other of the spouses suffers a difficulty and the other is unable to fully attend to their needs

Power of attorney

According to the free online dictionary, a power of attorney is defined as:

” A written document in which one person (the principal) appoints another person to act as an agent on his or her behalf, thus conferring authority on the agent to perform certain acts or functions on behalf of the principal.”

This is an important legal document as it allows the person to whom the power has been granted (for the duration of the lifetime of the person granting the power of attorney) to act on behalf of the grantor. This power is particularly useful when the grantor is indisposed or otherwise unable to act for him- or herself. For example, if a spouse is ill in hospital and unable to sign when certain transactions need to be authorised by him or her. Proper care should be taken before granting such a power of attorney and prior legal advice is recommended. On a practical note, some banks refuse to acknowledge the legality of a general power of attorney and will not allow bank transactions to take place on the grantor’s bank account without a specific bank document being signed authorising transactions. Why a court of law will accept a valid general power of attorney but these banks will not is beyond my comprehension! 

Succession planning is about making sure that in the event of your death your dependants are taken care of and your personal financial affairs are dealt with in an efficient and cost- effective manner.

The last will and testament

Your will is the document that co-ordinates any succession plan and can be used to reduce estate duty and other costs that may become payable. The primary consideration in deciding on the contents of your will should be the distribution of your estate in the manner you desire. Secondary considerations would include factors such as estate duty, the quick and smooth administration of your estate and the protection of the assets of your estate from creditors and maladministration.

The recommended process to ensure that your legacy continues in the manner that you wish, in my opinion, consists of a minimum of three steps;

Step 1: Wind up your estate while you are alive (estate analysis)

By providing detailed information as to the current values of ALL your possessions (cost, current value, tax information) an estate planner will be able to perform an estate analysis which in effect is the winding up of your estate BEFORE you ass away! This exercise will show the winding up and administrative costs that will of necessity be incurred in your estate. It will also illustrate who gets what, and the value of the inheritances (bear in mind that these values are never exact as values tend to fluctuate in line with timing issues and the type of asset in question).

Step 2: Ensure that sufficient funds are available for your dependants should you pass away

The analysis in step 1 will provide you with the amount of cash your Executor will require to finalise the winding up of the estate. Bear in mind that should there be insufficient cash resources, the executor may well have to sell investments or property to generate sufficient cash to settle outstanding debts (if any) and estate costs. At this point it would be prudent to establish whether any dependants will be financially secure in the event of an untimely passing of the breadwinner.

Step 3: Assess the impact of your permanent or temporary disablement during your retirement

The cost of frail care or other medical assistance during retirement years can be particularly devastating should you suffer an event requiring such care on a permanent or even a temporary basis. A financial planning professional will be able to calculate the impact of such an event and make recommendations to cover such an eventuality during your retirement years. It would be unwise to plan your retirement on the basis that your medical aid will provide 100% of your medical related needs throughout your retirement years. For example, your medical aid may well cover the purchase costs of a wheelchair but will not, in all likelihood, cover the costs of modifying your vehicle or alterations to your home to make it wheelchair friendly.

Protecting your financial freedom during your retirement is as important, if not more important, as the effort you used in accumulating the wealth to allow you to retire comfortably.