We are often reminded that estate planning is an ongoing process rather than an event but an aspect of the planning frequently overlooked and not sufficiently emphasised is the need for the liquidity requirement to be constantly monitored.
Whilst we are employed, the general rule is to have a reserve fund of six month’s income readily to hand to fund emergencies. However, this reserve fund will not be adequate in the event of death which may result in the forced sale of assets. The recent collapse of the Rand with the resultant slide of equities on the JSE and the hardening of the housing market indicates that this is not the time for selling!
Apart from your normal household debt covering mortgage bonds, motor vehicle finance, clothing accounts, school fees and the like, which capital amounts will now need to be paid, there will also be the costs associated with the administration of the estate- executors fees, last illness expenses, funeral costs, your final income tax assessment which could include capital gains tax and of course if your estate is sufficiently large there could be an estate duty liability.
With many marriages failing, there could be a maintenance obligation to a previous spouse or minor children which needs to be met. These obligations rarely die with you. The monthly sum, annualised and then calculated over the term that the obligation must run is certainly going to amount to a sizable capital sum, which without careful planning could severely cripple the estate.
If one is married by ante nuptial contract, it would be wise to re-visit the contract just to make sure that the promises made at that time have been met as any outstanding gifts or settlements will constitute a claim against the estate.
One should not overlook any guarantees or sureties you may have signed on behalf of a business or maybe assisting a child to obtain finance as the provider of the finance facility will not allow the estate to merely walk away from the obligation.
Your current Will also needs to be looked at to make sure that the estate has sufficient cash to meet all bequests and of course that the bequests are still reasonable. Where you may have bequeathed a sum to each of your grandchildren, nieces or nephews when they were few in number, has that class of beneficiary now expanded resulting in quite a outflow from the estate where your spouse, for example is in greater need? Assets which are co-owned may also require cash to buy out the partner, depending on the agreement.
As circumstances vary amongst individuals so greatly, it would be prudent for you critically analyse your own asset and liability position taking into account any obligations which will continue after your death including settlements in terms of your Will.
If there would be a liquidity shortfall, could this be covered by the easy sale of certain assets without hardship, is it affordable to cover this eventuality by the purchase of insurance or should the terms of the Will be amended? In need, a consultation with a financial planner with knowledge of executors fees, funeral expenses and income tax and suchlike could be a good idea.