The concept of estate planning may appear daunting at first. It’s a common misconception that asset distribution processes may be difficult. However, you may rest easy knowing that your top priorities and primary concerns will be met as you get help from an expert financial advisor and an estate planner.
Singaporeans, like most people in many other cultures, tend to avoid discussing death. As a result, a lot of us leave our loved ones without a plan for their assets, liabilities, and finances.
Therefore, it’s crucial to get everything in order while you’re still mentally and financially stable. Estate planning is essential not simply for the wealthy and the elderly, contrary to what most people believe.
After creating a wealth distribution plan, you may rest easy knowing you’ve taken the necessary steps to safeguard the financial security of your loved ones. Not to mention, you’ll also have an easier time assessing progress and making adjustments as you go.
What exactly is an estate, to begin with?
The decedent’s estate consists of all the assets that have a monetary value. This means that an individual’s estate is the economic worth of all their investments, assets, and interests. All of one’s possessions, both material and immaterial, such as land and real estate, investments, savings, collectibles, and furniture, are part of their estate.
Estate consists of:
- All the property registered in his or her name alone
- Share of joint assets left to the person after a death
- Bequests made within five years before the decedent’s death
- Bequests made at any time from which the decedent continues to receive benefits (such as receiving monthly rental income from a house that was donated to another decedent ten years earlier)
- Trust assets from which he or she directly benefits (such as a bank account set up for a minor child)
What is Estate Planning?
The purpose of estate planning is to avoid the court system’s involvement in distributing your assets and to ensure that your loved ones benefit from them in the way you intend to.
Doing so is a prudent way to make your wishes known to your beneficiaries and reduce the likelihood of family disputes and expensive legal proceedings over your estate. With meticulous planning, you can possibly grow your wealth by building an estate that will last for generations.
What happens if you die?
The assets of the deceased must be utilized to pay off the deceased’s debts before any distribution can be made to beneficiaries. It’s possible that this will reduce the size of the inheritance left to loved ones. CPF funds and trust assets are exempt from being included in an individual’s estate because of their unique legal position. Therefore, creditors are unable to take control of these.
With will:
An executor is the person designated in a will to manage a decedent’s estate. An executor is typically a member of the immediate family, a close friend, or a lawyer.
All of a person’s property is put to freeze once they pass away. An executor can only settle the decedent’s debts and distribute their residual assets after receiving a grant of probate from the court.
In most cases, the deceased’s funeral expenses must come first. The executor then uses the funds from the estate to settle the deceased’s debts, usually by liquidating off the estate’s investments first. Unpaid bills to the government (taxes), banks (loans, mortgages, credit card bills), hospitals (medical bills), and private businesses (telephone, utility bills) are all part of the debts.
Once the court determines that all debts have been paid, then the assets can be distributed to the heirs as stated in the will.
If the estate is bankrupt because the deceased person’s obligations outweigh their assets, the Bankruptcy Act will dictate the order of debt recovery once funeral expenses are covered.
Without a will:
The Intestate Succession Act (ISA) governs what happens when someone dies without a valid will. It will specify who will be in charge of the estate and how much each beneficiary will get. There is a different rule for distribution that supersedes the ISA for Muslims.
When someone dies without a will, their possessions are put on freeze. The next of kin must apply for a Grant of Letters of Administration in order to have the assets released. It’s a legal document that appoints a relative to handle your affairs after you die. He or she is responsible for assembling the estate’s resources, paying off any outstanding obligations, and distributing what’s left to the rightful heirs.
Up to four administrators may be appointed by the court, but they must coordinate their efforts to distribute the estate’s assets. The heirs of an estate valued at less than $50,000 can petition the Public Trustee to have the estate distributed in accordance with the Intestate Succession Act.
Will your loved ones have to help you pay off your debts?
In Singaporean law, a decedent’s heirs are not obligated to pay off the deceased’s debts. However, this doesn’t mean you can ignore your overdue medical and credit card bills.
However, if the deceased co-signed a loan with a surviving family member, that person must now assume responsibility for the loan. Both home mortgages and credit card debt consolidation loans qualify for this.
Keep in mind that if you are a joint homeowner or inherit a house with a mortgage, you will be responsible for paying off the balance of the loan. They can’t just “walk away” from it, so they’ll have to either pay off the mortgage or acquire a new one if they want to keep the house. The executor will have to sell the property to cover the mortgage if there is no surviving co-owner.
Here is where mortgage insurance comes in handy, as it will be used to pay off the mortgage so the beneficiaries can keep the home. The best price for a property is rarely achieved through a forced sale.
The Home Protection Scheme (HPS) is a required mortgage reduction insurance for HDB homeowners who use their CPF to pay their mortgage. When a family member dies, becomes terminally ill, or becomes totally and permanently disabled, they won’t have to worry about losing their HDB flat. Members of HPS are covered for home loan payments or until age 65, whichever comes first.
The 5 Consequences of Putting Off Your Estate Plan
Your beneficiaries may get less if the value of their inheritance decreases.
Forced asset liquidation
The revenues from the sale of assets like real estate must be divided. Because of poor timing with the market or a pressing deadline, they may be sold below their true value.
Your beneficiaries won’t take control of your portfolio
If you don’t leave your beneficiaries clear instructions or a plan, they might not know what to do with your money or how to handle a complex investment portfolio.
Your loved ones won’t know about your assets
If you don’t have a list of everything you own (including personal IOUs from pals), your loved ones won’t find it all easily if something happens to you.
Spending too much on one’s own funeral
Your loved ones may feel obligated to throw you a huge party if you don’t tell them otherwise.
Your financial obligations will be shouldered by your loved ones
Family members might be held responsible for your debts if they are co-signers on your credit cards and loans.
The best way to get started with your estate plan
One: make a list of your possessions and debts.
First things first: compile a complete inventory of your possessions, both domestic and foreign, together with their current market valuations. Keep this list current at all times. Everything from your
- Properties
- Financial records
- Investments from your CPF (Central Provident Fund)
- Plans for retirement and medical insurance
- Any items or assets that have monetary value, such as paintings, jewelry, or antiques
Next, think about how much liabilities you have. This consist of all your debts, including but not limited to:
- Home mortgages
- Financing for automobiles
- Personal Loans
- Loans to Businesses
- Debts incurred due to the use of credit cards
- Cost of healthcare
- Expired tax obligations
What your financial responsibility is as a guarantor or co-signer
Your estate’s net worth considers not just the assets and liabilities but also the costs associated with owning the property and the tax status of those assets.
Next steps?
Get the help of a Certified Financial Planner to map out your estate. Due to the fact that everyone’s goals and circumstances are different, there is no universally applicable estate plan.
Having a will is almost always preferable to not having one. All you want is for your loved ones to be happy and secure after you’re gone. The expense to draft a simple will is in the hundreds rather than the thousands. The complexity of your will and other estate planning tools should reflect your unique situation and concerns.
These fundamentals can be accomplished with the help of a financial counselor as a starting point:
- CPF Nominations
- Nominations (Revocable, Irrevocable) for Insurance Purposes
- Lasting Power of Attorney
It’s just as crucial to share your wealth as it is to keep and develop it. We can never know what will happen next in life. Just do it already!