Estate Planning: What you need to know to preserve your assets

Estate planning is the process of anticipating and arranging, during a person’s life, for the management and disposal of that person’s estate (including any property) during the person’s life and at and after death, or in the case of incapacitation. While estate planning is not exactly a topic that anyone likes to talk about — given the taboo of making plans based on the demise of a loved one or yourself — it’s nevertheless an important process to go through to ensure your loved ones are protected. Just think, how many times have you heard about or seen a family going through difficulties due to the failure of creating an estate plan?

Estate planning also factors in strategies to properly plan for retirement and legacy-making. That said, 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 a client’s situation. In this article, we reveal how estate planning can help you better leave your assets for the next generation.

How do you begin planning for your estate?

Estate Planning can be broadly categorised into three components:

1. Estate creation
2. Estate preservation and
3. Estate distribution.

#1. Estate creation

There are two groups of people, each with different needs:

Group 1: Individuals who have amassed sizable assets

The first are people who have have amassed sizable assets, including multiple properties, over the years. Their focus will be how to better utilise their assets for their golden years. In particular, they will look at how to manage their money and assets to get a better yield without compromising their nest egg.

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 pass away prematurely.

Estate creation is vital to protect the family’s capacity to remain financially independent, instead of leaving them to rely on family, relatives or charity. This requires assets that are free from debts, loans paid off and funds for the interim following premature death or incapacity. Where outstanding loans are concerned, there’s insurance protection available for the unpaid amounts, so the debts won’t be passed on to your loved ones, or are minimised, in unforeseen circumstances.

 

#2. Estate preservation

Estate preservation is a process which reduces leakages in the estate when the person is deceased. In Singapore, the 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 medical bills amounting to six figures would shrink estate funds. Certain investment products may also be frozen upon the holder’s death and its value potentially lost in an economic downturn. Properties collateralised with the bank, as in the case of a home equity 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

Writing a will is the third and final step. This ensures that the efforts that you have gone into estate creation and preservation are realised after your passing, and 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.

For instance, this would prove problematic if your intention for estate creation and estate preservation had been to provide for 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, which is essential to get the best possible price and outcomes for your assets.

 

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

It is also very important to execute a Lasting Power of Attorney (LPA) 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 an LPA 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 an LPA 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.

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Have you done your estate planning? Share the process with us in the comments below or on our Facebook community page

If you found this article helpful, 99.co recommends Lease Buyback vs Rightsizing to a 2-Room Flexi HDB flat: Which is better for retirement? and How your HDB sale proceeds might get “taken” by CPF.

Looking for a property? Find your dream home on Singapore’s largest property portal 99.co!

 

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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.