How financial freedom ties into estate planning

Willie Fourie, Head of Trusts and Estates at PSG Wealth

A Google search of ‘financial freedom’ yields many different definitions. Whatever your own view, a more important question is: “What is the longevity of that freedom?” Does financial freedom end when you depart this world, or do you pass on the benefits of your hard-fought financial freedom to your children and grandchildren? And if you choose to pass them on, do you hand over ownership in full, with no strings attached, or do you put structures in place to ensure an orderly management and use of that wealth?

Bear in mind that you will, in all probability, pass on wealth and possessions to a generation where instant gratification is the order of the day. The inherited windfall intended to fast-track the beneficiary to their own financial freedom can just as easily find its way to the latest ‘must-have’ sports utility vehicle or sleek sedan.

Generational aspects may shape our approach to estate planning
Many people enjoying financial freedom in a well-deserved retirement remember the times when basic food items were difficult to come by, work was a scarce commodity, and the future was, at best, uncertain. In the majority of cases, their protectionism is a genuine attempt to ensure that the hard times they endured and conquered do not befall their loved ones.

There seems to be a relationship between the generation which people belong to and their tendencies to create structures as part of their estate planning to serve and benefit the next generation. These tendencies seem to originate in the time in which these individuals grew up, based on their personal experiences, as opposed to being based on an obsession to withhold full ownership from anyone.

You need to take a practical approach to planning for future generations
It is natural to be concerned and want to protect assets for the next generation or individuals who may not be able to do so themselves. There is, however, a correct, as well as an incorrect way to approach this. Be practical and ask your children what they want. Do not create a burden for your executor or trustees and, ultimately, your family, who have to implement and administer this structure when it is not justified. It is often better to do estate planning with the needs of the bigger family in mind. Take cognisance of existing trusts and other estate planning vehicles that your children may already have set up for their own needs, before you finalise your own estate plan.

A properly drafted estate plan will take the needs of family members into consideration to ensure that it is aligned with your intention to transfer your own financial freedom to the next generation. This is the end result of a structured process where a proper analysis of the goals of the estate planning exercise is the focus. Estate planning is more than just avoiding tax. Many a well-structured estate plan has failed because, although very tax-efficient, it neglected the needs of family members.

What structures should you consider to try pass on financial freedom to children and grandchildren?
The world has become a small place and the generations to come will live in a world without boundaries. Do not restrict the movement of assets or the transfer of wealth that could otherwise have benefited your children and grandchildren just because your estate plan is too rigid to adapt to the realities of a continuously changing society. Consider the use of trusts, the benefits of retirement annuities and tax-free investments, and how best to incorporate these into existing estate plans.

Be cautious of estate planning myths
Please do not fall for the view that estate planning structures must be complicated to be effective. Quite the contrary, complicated structures may often lead to costly mistakes in their practical execution and management. Communication is one of the cornerstones of this process. You as the estate owner need to convey your desires to a knowledgeable estate practitioner who, in turn, will provide guidance regarding the various solutions on offer to ensure the continuation of your legacy of financial freedom.