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Why Estate Planning is Important in Financial Planning
Family Finance

Why Estate Planning is Important in Financial Planning

Do you ever find yourself thinking about what will happen to your businesses and assets when you die? 

Will they go to their rightful inheritors? 

How smooth will the process be? 

Estate planning affords you the luxury of finding answers to those questions. Lack of estate planning can be disastrous for your wealth.

If you pay attention to what is happening in the country, I am sure you have seen stories of multi-billion-shilling businesses that collapsed after their owner's demise. Heirs rivalry and poor wealth management have seen companies like Tuskys and Akamba Bus go bankrupt after their founders died. 

Without proper estate planning, your heirs might have to spend millions in legal fees fighting among themselves. Undocumented creditors will lay claims on your estate and business partners will explore loopholes for their benefit. 

During our working years, we are constantly accumulating wealth and investing in schemes that will continue yielding returns after our demise. We must protect those assets to continue our legacy, benefit our dependents and take on a path of creating generational wealth for our families.

To achieve that and eliminate any risk of losing our life's work, we should make estate planning part of our financial planning.

Estate planning refers to formulating a plan to see your investments and assets go to your rightful beneficiaries when you pass on. The beneficiaries could be members of your family, friends, or a charity organisation.

Estate planning isn’t just for the ultra-wealthy individuals; it should form part of everyone's financial planning strategies. This article will discuss the importance of planning your estate and its financial benefits.

Also read: What Does Paying Yourself First Really Mean?

It Helps you Mitigate conflict. 

Horrific stories of siblings fighting over the inheritance of their parent's estate are prevalent. The fights sometimes take dark turns that lead to death. The main cause of such conflicts is the parent’s not stipulating how their estate should be divided among heirs. Estate planning will prevent such conflict as you will specify the estate share each heir receives.

Conflict can arise between your beneficiaries and business associates. An estate planning will help you lay down what percentage of the business you own, what you are entitled to, and to whom you transfer your voting power.

Such conflicts will prolong the process of your estate inheritance as beneficiaries will spend time in bloody and legal disputes. 

Also Read: Alive & Not So Well: Who Will Manage Your Finances When You Can't? 

You can Appoint a Fiduciary

Estate planning allows you to appoint a fiduciary. A fiduciary is someone you select to represent you and your interests when you aren’t in a position to do that by yourself. A fiduciary can come in handy when you are incapacitated due to poor health or old age and when you die. 

Also read: Money and Me: Eccentric Relative Gets Cremated

Since fiduciaries are legally obligated to act in your best interest, they will see that your estate is distributed to your beneficiaries the way you intended. They will help you develop a bespoke strategy tailored for your needs and estate goals to ensure that:

  • Your succession planning is successful
  • You avoid probate 
  • Your estate is handled with confidentiality
  • You pay as little tax as possible
  • Your assets and investments are well protected and managed professionally.

When planning your estate, choose someone you trust, and they should have enough financial knowledge to manage your estate. If you can’t find someone, you can use your insurance provider. Most insurance companies in Kenya offer fiduciary service to their clients after they pass on. 

Also Read: 5 Things to Consider Before Passing an Inheritance to Your Children

You can Protect your Heirs. 

Estate planning allows you to protect your heir especially young children who can’t make financial decisions. It grants you the opportunity to decide:

  • Their Education: You can create plans that will see you educate your kids if you die. You can do this by creating a custodial account or buying them education insurance. You can also invest in a life insurance policy that guarantees your kid's education after your death.
  • When they Receive the Inheritance: You can create clauses in your will that will keep your estate safe until your child is old enough to manage their finances. Most Parents will pass on the inheritance as trust funds when their kids are 25. 
  • How they Receive the Inheritance: Estate planning allows you to create a roadmap of how the inheritance is distributed to your child. You can give it to them wholly or in parts at different stages of their lives.

Estate planning doesn’t just protect young heirs; even adults can lose out on your estate. When it comes to adult children, it’s not just about losing out. An adult beneficiary may make poor judgments with their inheritance due to a number of causes, like outside influences, and debt, or they may simply be bad at managing finances.

When planning your estate, you also need to specify and document not just wealth and investments but also debts. Without proper documentation, creditors and scammers can take advantage of your heir. They will use your negligence to steal your wealth, which will be detrimental to your legacy.

Also read: How to Save For Your Child’s Education By Age

It Prevents your Estate from Being Claimed by the Government.

Without properly planning your estate by naming your beneficiaries, you risk losing all your assets. Estate planning allows you to keep financial records of bank accounts, stocks, safe deposit boxes, insurance policies, and other investments. These records come in handy after your death, and your heirs track your wealth.

In Kenya, the government, through its agency, The Unclaimed Financial Assets Authority (UFAA), takeover investments that are dormant and haven’t been claimed by anyone. While the assets aren’t lost, and your family can claim them long after your demise, they will be subjected to lengthy legal litigations to prove they’re the rightful beneficiaries.

Also Read: Family Finance: How to Make the Most of Your Inheritance, Avoidable Mistakes

It Saves Time and Money  

Planning your estate can save both you and your heirs money and time. You can plan your estate to align with your other financial planning, like retirement planning. It will put you in a position to make investments that will benefit you and your dependents. 

Estate planning can also help you if you develop conditions like mental illness that prevent you from making sound financial decisions. Your financial advisor or appointed fiduciary will step in, preventing you from having to waste your money.

Estate planning will also help your heirs minimise the tax and duty they pay on inherited assets. You can plan this by finding assets that constitute the lowest taxes and duties and investing in them. You should see an expert tax advisor to guide you.

Planning your estate ensures your inheritance gets handed over to the beneficiaries in time. It ensures that your dependents' needs are met, and their lifestyle isn’t interrupted. It also prevents long and costly legal battles that could sometimes lead to losing their inheritance.

Also Read: Inheritance Etiquette: How to Talk to Your Family About Money.

Wrapping Up

Estate planning will provide you with peace of mind knowing that you will leave your family in a better financial position. It will see that you continue your charitable work and leave behind a solid legacy. 

You can start planning your estate by keeping a record of all your investments and assets, accounting for the dependant's needs, getting a durable power of attorney, and keeping an up-to-date will. Like most financial planning, estate planning can be a tedious and complicated process; you should consider involving professionals to help you create the best plan.

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Doris is a finance professional, freelance writer and SEO expert. She has experience helping businesses of all sizes create content that helps improve their site quality and increase their online traffic. She is a personal finance and wealth creation enthusiast and a frequent contributor to Money254. Visit Doris' personal website to learn more about her work.

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