Estate planning – Creating, preserving and distributing your estate in Singapore when you pass

Yue-En Chong

7 years ago

Reading Time: 5 minutes

Why do we need Estate Planning?

Estate planning is not exactly a topic that anyone likes to talk about, given that it may be taboo as we are making plans based on the demise of a loved one or yourself. Or, we might think about it when we hear about or see someone going through difficulties due to the family’s failure of creating an estate plan. However, it is an important process to go through to ensure your beneficiaries are protected.

It has also become more popular in recent times due to increasing affluence in Singapore and also, increasing awareness. Estate planning includes factoring in strategies to properly plan for retirement and legacy-making.

How do you begin planning for your estate?

This article hopes to advocate the importance of estate planning and, if need be, engage an experienced person to help before it is too late. Estate planning is somewhat difficult to comprehend and requires an adviser of substantial years of experience to be able to come up with a good solution to the client’s situation.

Estate Planning can be broadly categorised into three components:

Estate creation
Estate preservation and
Estate distribution.

#1 Estate Creation

There are two groups of people that require different needs.

Group 1: Individuals who have amassed sizable assets
The first are people who have worked many years and have amassed sizable assets. Their focus will be how to better utilise their assets for their golden years. They will look at how to manage their money and assets to get a better yield without compromising their next egg.

Many DIY-ers prefer to invest in properties for their next generations. There are now more alternative investments and estate planning tools available like Universal Life insurance and Legacy plans to create more value for their estate. It takes away little from the estate (e.g. insurance payments) but creates a lot more (e.g. coverage payout) for the estate in the end.

Group 2: Individuals who do not yet have sizable assets except their home
The second group are those who just started out a few years and do not have many assets except their home, which is likely mortgaged, along with car loans, bank loans and possibly business loans. These people have an urgent need, not only to pay off their loans but also, create more assets for their loved ones should they unknowingly become incapacitated or prematurely leave this world.

Estate creation is urgent to protect the family and their dignity to be financially independent, instead of leaving them to rely on family, relatives or charity. You need assets that are free from debts to do this and to have enough extra funds for the family to survive at least until the family gets back on their feet.In addition, those with business loans need cash to pay off the outstanding bank loans. It will, therefore, be prudent to have insurance protection for these outstanding loans in planning for your estate.

#2 Estate Preservation

Estate preservation is a process which reduces leakages in the estate when the person is deceased. Estate duty tax has been removed for death on and after 15 February 2008, which is a big plus not only for the estate of the deceased but it also reduces much paperwork.

Examples of leakages

There are, however, still other leakages that need to be taken to account, like probate fees (those with wills), administration fees (those without wills), hospital costs and last expenses costs like hospice care and caregiver costs.

Large leakages like medical bills can be mitigated

Big leakages like a huge medical bill of a few hundreds of thousands would effectively shrink the estate funds. Hence, a good hospital plan or provision to cap the hospital expenses with lower government subsidised wards would limit the leakage. This could be covered by the Advance Medical Directive.

Those with huge stocks or are shareholders should beware, as upon demise, their stocks and shares may be frozen and its value potentially lost in an economic down turn. Houses which are collateralised with the bank for business or for general loan may also be liquidated upon the demise of the person, leaving the family with less than what the estate is actually worth during mortgagee’s sale.

The above are some examples of the leakages and losses that the estate might suffer without proper estate preservation strategies.

#3 Estate Distribution

Importance of drafting a will to distribute your estate

The purpose of writing a will is the third and final step to ensure that the efforts that you have gone into Estate Creation and Estate Preservation is realised after your passing and to ensure that your Estate is distributed according to your wishes and intentions.

Without a will, your Estate will be distributed according to intestacy laws defaults which might not be in line with your intention. Distributing according to intestacy laws means that if you are married, half of your assets would go to your spouse and the remaining half be equally divided among your children.

This would prove problematic if your intention for Estate Creation and Estate Preservation had been to provide for your retired, elderly parents or a sibling who might be disabled and in need of financial support.

Choosing the right executor is added assurance

A will also allows you to select a trusted person to distribute your estate to ensure that all your beneficiaries would get their share of your estate as you had intended. It is important that you choose someone whom you trust to be the executor as he/she would have the authority to dispose of the estate. This means that choosing an executor who is perhaps, able to understand the property market or the stock exchange, is essential in order that he or she sells your assets at the best possible price.

Pair your will with a Lasting Power of Attorney (LPA)

It is also very important to execute a Lasting Power of Attorney for purposes of Estate Creation and Estate Preservation. One other key purpose of Estate Creation is to hedge against the situation where you have lost mental capacity and a long deliberating illness drains your asset pool. While your insurances might cover your medical expenses, your asset pool will still slowly depreciate as monies are expended for your upkeep.

In the event that you already have some long-term investments in place, the last thing you want is to have the Court ordered Deputy terminating them early causing you to lose all the benefits that you had accumulated under your Estate Creation. However, appointing a Donee using a Lasting Power of Attorney and entrusting your Donee with specific powers of investment would allow your Donee the power to continue your investments until such time where they have to be sold.

The drafting of a Lasting Power of Attorney that gives specific powers to specially selected Donees and the writing of a will are work best left in the hands of professional lawyers, who can advise you on the best possible solution.

Conclusion

Estate planning is important to protect your loved ones and ensuring that they can continue living with little disruption upon your unfortunate demise. It goes hand in hand with the writing of a will and a Lasting Power of Attorney.

Get in touch with Yue-En for matters on Wills, Probates & Trusts

If you wish to get advice for matters on wills probates & trusts, you can have Yue-En call you on the phone within 1-2 days with an Asia Law Network’s Quick Consult for a flat fee of S$49.

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This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.