By Desmond Lin
By Desmond Lin
An Introductory Guide To Estate Planning
Estate planning is the process of organizing your finances and property in advance of a potential death. This includes creating a will, assigning power of attorney, and setting up trusts. Proper estate planning can make things much easier for your loved ones after you die.
If you don't have an estate plan, your loved ones may have to go through a long and expensive legal process to get access to your property and money. A will ensures that your wishes are carried out after your death and assigning power of attorney can help reduce the stress on your loved ones during a difficult time. Setting up trusts can also help manage your property and finances after you die.
Estate planning is not just for the wealthy. Everyone can benefit from having a plan in place for their death. If you have any assets or property, estate planning can help ensure that they are distributed according to your wishes.
Creating an estate plan can be a complex process, but it doesn't have to be expensive or difficult. You can start by creating a will and assigning power of attorney. You can also set up trusts to manage your property and finances after you die. With a little planning, you can make things much easier for your loved ones after you're gone. In this article, we will provide you with a brief overview of what’s available and their uses for your estate planning.
Tools for Estate Planning
There are a number of different tools that you can use to create your estate plan. The most common tools are wills, trusts, and power of attorney.
Wills and Testamentary trusts
A will is a document that sets out your wishes for how you want your assets distributed after you die. It can also be used to appoint a guardian for your children and to name an executor who will manage your estate.
Testamentary trusts can be created through a will. A testamentary trust is a trust that is created upon your death and that is funded with your assets. The trustee of the trust manages the assets for the benefit of the beneficiaries you have named in the trust.
Testamentary trusts can be used to provide for your loved ones after you die and control how your assets are used.
If you die without a will, your property will be distributed according to Singapore's laws of intestacy. Typically, your spouse and children will inherit your property if you die without a will. If you have no spouse or children, your parents or other close relatives will inherit your assets.
Creating a will is one of the most important steps you can take to protect your family and your assets. A will allows you to designate who will inherit your assets and how they will receive it. Without a will, your loved ones could be left struggling to pay your debts and manage your assets.
If you have a will, it is important to keep it up to date. You should review your will periodically and make changes as needed to reflect your changing circumstances. You may also want to consider using a revocable trust as part of your estate plan. A revocable trust can provide flexibility and allow you to make changes to your estate plan as needed.
Central Provident Fund (CPF) Nomination
One important tool for estate planning is a Central Provident Fund (CPF) nomination. A CPF nomination allows you to designate a beneficiary who will receive the proceeds from your CPF account upon your death. The beneficiary can be a family member, friend, or other loved one.
If you have money saved in a CPF account, it will not be part of your estate if you die. This means that if you don't make a nomination, the money will be distributed according to Singapore’s intestacy laws. This process can be time-consuming and expensive, so it's best to make a nomination if you want your loved ones to receive your CPF savings.
A CPF nomination can be made at any time and can be changed as often as you like. You can make a CPF nomination online, by phone, or in person at a CPF service centre.
(Image taken from CPF Board)
Manner of Holding of Immovable Property
The manner in which the title to your property is held can have significant implications for estate planning. The way in which title is held can affect the transfer of ownership of the property upon your death, the taxes that may be imposed on the transfer of the property, and the control you have over the property during your lifetime.
There are several ways in which title to property can be held, including sole ownership, joint ownership, and tenancy in common. Each type of ownership has its own advantages and disadvantages.
Sole ownership is the simplest form of ownership. With sole ownership, you are the only owner of the property and have complete control over it. Upon your death, the property will be passed to your heirs according to your will or, if you die without a will, according to Singapore's laws of intestacy.
Joint ownership is a type of ownership where two or more people own the property together. Joint ownership can be either joint tenants with the right of survivorship or tenants in common. With joint tenancy, each owner has an undivided interest in the property and, upon the death of one owner, the surviving owner(s) will inherit the deceased owner's interest in the property.
Tenancy in common is another type of joint ownership. Unlike joint tenancy, each owner has a separate and distinct interest in the property. This means that each owner can leave their interest in the property to whomever they choose in their will.
When choosing how to hold title to your property, you should consider your goals for estate planning and consult with a lawyer or professional to determine which type of ownership is right for you.
Life Insurance Policies
When it comes to estate planning, one important tool is life insurance. A life insurance policy can provide financial security for your loved ones in the event of your death and can be used to pay other expenses incurred upon your death.
There are several different types of life insurance policies, each with its own advantages and disadvantages. Term life insurance is the simplest and most affordable type of life insurance. It provides coverage for a set period of time. Whole life insurance is a more complex type of life insurance that offers lifelong coverage. Whole life insurance policies also build cash value over time, which can be accessed during your lifetime. Universal life insurance is another type of permanent life insurance that offers flexibility in how the policy's cash value is used.
When choosing a life insurance policy, you should consider your goals for estate planning and consult with a financial consultant to determine which type of policy is right for you. Life insurance policies (or irrevocable trust insurance policies) are a type of policy that cannot be revoked, even by the person who bought the policy. The only way to revoke such a policy is with the consent of all nominees. As life insurance policies are a form of trust, the benefits disbursed under such policies do not form part of the deceased's estate.
However, some policies allow policy subscribers to leave the nomination field blank. In such a situation, the benefits of the policy will be distributed according to the deceased's will. When choosing a life insurance policy, it's important to keep your goals for estate planning in mind and consult with an insurance agent or financial consultant to determine which type of policy is right for you.
Lasting Power of Attorney
A lasting power of attorney (LPA) is a legal document that allows you to appoint someone you trust to make decisions on your behalf if you become unable to make decisions for yourself. LPAs can be used for a variety of purposes, including making healthcare decisions, managing your finances, and handling your property.
LPAs are an important tool for estate planning. They can be used to ensure that your property and finances are managed according to your wishes in the event that you become incapacitated.
If you don't have an LPA and you lose mental capacity, your family member is not automatically given the right to make legal decisions on your behalf. This can hinder their ability to care for you. As they have not been legally appointed to do so beforehand, they may face difficulties trying to:
Make care arrangements
Manage your bank accounts and properties
Decide how best to use your funds for your day-to-day needs
Your family member will have to apply to Court to be appointed as your deputy before they are authorized to make decisions and act on your behalf.
Compared to making an LPA, the deputyship application process will not only take longer to complete but will also cost more. Therefore, it is important to consider making an LPA as part of your estate planning. This will ensure that your loved ones can easily and effectively manage your affairs if you become incapacitated.
Advance Medical Directives
An advance medical directive (AMD) is a legal document that allows you to specify your wishes for medical care in the event that you are unable to make decisions for yourself. An AMD can be used to specify your wishes for treatment, including life-sustaining treatment, in the event that you are terminally ill or permanently unconscious.
AMDs are an important tool for estate planning. They can be used to ensure that your medical care is managed according to your wishes in the event that you become incapacitated.
Only individuals who are mentally sound and at least 21 years old can make an AMD. The AMD also has to be signed by 2 witnesses who are not vested in the individual’s death. One of the witnesses has to be the individual’s doctor.
Inter Vivos Trusts
An inter vivos trust is a type of trust created by a person during his lifetime. The settlor will place his property into the trust and appoint someone (the trustee) to manage it for the benefit of another person (the beneficiary). The settlor may specify when and how to distribute the property to the beneficiary, as well as any conditions the beneficiary must meet in order to receive the trust property.
A trust is a useful instrument to ensure that your property is used according to your instructions (e.g., for educational, medical, or religious purposes). It can also be used to leave assets to children who are younger than 21, until they reach the age of maturity and can claim the inheritance for themselves.
The trust can take the form of a simple deed which must be signed, sealed, and delivered to the Inland Revenue Authority of Singapore to be stamped for a nominal fee of $10.
Steps to estate planning:
1. Calculating your estates
The first step in estate planning is to take stock of what you own. This includes understanding the value of your assets, liabilities, fees and expenses, and the nature of your ownership. Once you have this information, you can begin to calculate your estate's net value.
What are your estates?
Your estate consists of everything you own and owe. It's important to understand the value of your assets and liabilities so that you can make informed decisions about your estate planning.
Your liquid assets are cash, savings, fixed deposits, current accounts, and time deposits. These assets are easily converted into cash and can be used to pay off debts and other obligations.
Your investments include unit trusts, shares, bonds, and investment property. These assets are less liquid than your liquid assets but can still be converted into cash if necessary.
Your personal assets include cars, jewellery, your home, and club membership. These assets are not as easily converted into cash but can still be used to pay off debts and other obligations.
Your insurance pay-outs include endowment, whole life, term, investment-linked and group term life plans. These pay-outs can be used to cover funeral expenses and other debts.
Your CPF savings include your Ordinary Account, Special Account, Medisave and Retirement Account balances. These savings can be used to pay for medical expenses and other debts.
Liabilities include everything you owe, such as your home and car loans, credit card debts, and other family debts. It's important to understand your liabilities so that you can make informed decisions about your estate planning.
When it comes to home or property ownership, you will need to understand the nature of your ownership as it affects your net value.
There are three types of ownership: sole ownership, tenancy-in-common, and joint tenancy. Each type of ownership has different implications for the management of your property and financial affairs in the event of your death.
Sole ownership gives you the authority and the right to decide how the asset can be transferred. Tenancy-in-common allows you to transfer only the portion of the asset owned by you. The remaining portion of the asset remains with the joint owner. Joint tenancy automatically transfers ownership and control of the asset to the surviving owner.
It is important to understand the implications of each type of ownership so that you can make informed decisions about your estate planning.
Steps to estate planning:
2. Deciding how to distribute your estate
When deciding how to distribute your estate, you should take into account who your beneficiaries are and what they need. Your beneficiaries could be your family members, a favourite cause or charity, or any other individuals or organizations you choose.
You can distribute your estate by giving each beneficiary a percentage of your estate or allocating specific assets to individual beneficiaries. For example, you may want your spouse to have the money in your savings account and your children to have your unit trusts. You should consider what each beneficiary needs and make a decision accordingly.
Making a decision about how to distribute your estate ahead of time will take care of your loved ones after you pass away. It is important to consider all of your options and make a decision that is best for everyone involved.
Other factors to consider
When planning your estate distribution, there are a few key factors you should consider.
The first is who or what matters to you. This may be your children, aged parents, grandparents, or someone close to you. It could also be a cause you care about.
The second factor to consider is what your beneficiaries need. They may need financial support, or you may need to consider who will care for them if you have young children.
The third factor is any debts you may have. Your debts will need to be repaid and, if there are not enough funds, assets may be sold to cover the debt.
The fourth factor is whether you have an overseas portfolio. If you do, you need to check how foreign laws and the laws of your domicile will affect your loved ones' ability to take over your assets, and the taxes they may need to pay.
The fifth and final factor is how you want to transfer your funds. A Will is the most common way, but there are other options to consider as well. By taking all of these factors into account, you can avoid burdening your loved ones financially.
Steps to estate planning:
3. When should you review your estate plan?
You should review your estate plan at least once a year, and also when circumstances change.
Changes in your life
Review your plan when there are major changes in your life, such as:
Birth of a child
Significant changes in the value of your assets
If you legally change your name
Other changes in life stage and circumstances e.g., divorce, your child is no longer a minor
Changes to anyone mentioned in your Will'
You will also need to review your estate plan in these situations:
Where a beneficiary passes away
If a named executor or trustee is unable to carry out their duties
If anyone mentioned in the Will legally changes their name
Death of your child's appointed guardian
If any of these situations occur, it is important to review your estate plan to ensure that it still meets your needs and the needs of your family.
Consequences Of Not Doing Estate Planning
Forced liquidation of assets
Assets like properties will need to be sold before the proceeds can be split. They could be sold at unfavourable prices due to bad timing or rushed timeframe.
Heirs cannot manage your portfolios
Without a plan from you, your heirs will not know what to do with your portfolio
Family not knowing of your assets
If you do not have an inventory of your holdings, they may not be aware of all the assets you have.
Overspending on your funeral
With no instructions from you, your family may feel obliged to upscale your funeral thinking that's what you want.
Family has to pay debts
If you are co-signers to loans or credit cards, they will be responsible for the debts you leave behind.
Though it may seem daunting, estate planning is something that everyone should do. By taking the time to plan your estate, you can ensure that your loved ones are taken care of after you pass away. There are a number of factors to consider when planning your estate, but by following these simple steps, you can make the process easier for yourself and your loved ones.
We have gone through briefly in the article the various tools that are available and steps to estate planning. It is still recommended to seek legal and financial advice when it comes to estate planning as they can guide you through the entire process.
By Desmond Lin
Representing Prudential Assurance Company Singapore (Pte) Ltd
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Figures (CPF interest, contribution rates, etc.) are based on the prevailing rate and subjected to change. These figures are accurate at the time of the writing.