What your will, your doctor, and your financial adviser have in common

WHEN discussing the value of the financial profession, financial advisers are often compared to medical doctors and are sometimes even called “financial doctors”. The reason behind this is that financial advisers look after the financial challenges of clients in much the same way that doctors look after the health issues of patients. This is not a perfect analogy, but there are certainly some comparisons to be drawn.

A detailed examination

For example, if you have been suffering from a persistent headache, you wouldn’t just go to a medical doctor asking for a headache tablet. You’d expect the doctor to ask about the medical history of you and your family, complete a thorough examination, determine the root cause of the headache and – after delivering the diagnosis and prognosis – prescribe the relevant treatment. Similarly, a financial adviser must first understand your personal circumstances and unique financial goals to determine your financial needs and how best to meet them.

The same holds true for making sure one’s affairs are in order before passing away. Documenting your wishes in your will may offer some immediate relief, but it is only once you have a proper estate plan in place that you can have true peace of mind. Having an estate plan ensures that your executor will be able to deal with your financial obligations and assets will be dealt in accordance with your wishes, and in the most cost-effective way.

Prevention is better than cure
It is tempting to delay talking to a financial adviser about estate planning – especially when we are younger. We offer excuses such as not having accumulated significant assets or not having started a family yet. However, the principles of estate planning remain the same, regardless of your wealth or personal circumstances, and – unfortunately – so do the unintended consequences of not having an estate plan in place.
Every estate faces a potential “liquidity risk”. Simply put, this is the risk of not having sufficient cash available to settle the claims against the estate. If there isn’t sufficient liquidity, the executor of the estate will be compelled to sell some of the estate’s assets to settle any outstanding claims against it. If you don’t have any large debts, this might not raise alarm bells, but even if you don’t have any debts there are still certain unavoidable expenses associated with winding up a deceased estate. These include executor’s fees, estate duty and capital gains tax. Fortunately, these can be estimated ahead of time, and it is therefore possible to put a plan in place to ensure that these expenses will be covered when you pass away.

Don’t neglect regular check-ups
As we transition through the different stages of our lives, our financial priorities also change. Whether it is a growing investment portfolio or a growing family, your estate plan must be updated to reflect your changing circumstances.
Few things impact our priorities as much as having children. Parents’ goals and dreams reach beyond their own lifetimes as they start to think about the legacy that they want to leave behind. In such circumstances, an estate plan must not only make provision for wealth protection but must also cater for the effective transfer of wealth.
In some families this could mean setting up a family trust, and in others it could mean securing a family business for future generations. In both of these scenarios, there are various strategies to consider, each with their own tax implications and each having to be addressed correctly in one’s will. It is therefore critical to schedule regular meetings with a financial adviser to discuss any such changes and to review your estate plan in light of them.

The doctor is in
As tempting as it is to self-medicate, it is always advisable to use a professional when it comes to health issues – including your financial health. It is never too soon to reach out to a financial adviser about your estate planning, and it is never too late to review your current estate plan.

• * Redelinghuys is a legal specialist: Advice at PSG Wealth.