Some people have the misconception that they are too young to make a will or that it may bring bad luck upon creation. However, estate planning also takes lots of time and consideration; and it is a more complicated process than one may expect. If you leave it until it's too late, your loved ones would have to struggle to deal with getting your final affairs arranged properly while grieving for you.
From what is estate planning to the various factors that goes into such an undertaking, we lay it all out for you.
Estate planning sorts out how you would want your money, assets, and estate to be distributed after you die. It is to make sure that the the money you leave behind get into the right people's hands. However, despite the importance of estate planning, only 10 to 15 per cent of the Singapore population have made a will.
If you're one of the remaining 85%, and you're looking to change that soon, here are a few components to take into consideration when you are doing your own estate planning preparation.
Creating a will and conducting proper estate planning ensures that all Central Provident Fund (CPF) savings are claimed. They decide who gets to receive what asset and arrange a faster distribution of the estate.
Generally, CPF savings are not included in the will. To distribute the CPF savings after death, one must make a CPF nomination to nominate those who you want to receive your CPF funds. A CPF nomination can be changed by making a new nomination online or in person. If there is no will or CPF nomination, the State will be in control of your assets under the Intestate Succession Act.
Without Estate Planning, your assets will be distributed to beneficiaries after creating an estate bank account to pay off all the liabilities.
Since 15 February 2008, the assets and savings in your Estate cannot be taxed by the government after you passed away. However, the Estate must still pay your income tax in the work year of your death.
Advance Medical Directives
Advance Medical Directive (AMD) is a document you prepare in advance if you do not want the doctor to use any extra life-sustaining treatment to continue your life when you are ill and incapable of making rational decisions. To be able to sign an AMD, one must be at least 21 years of age and mentally sound. Like wills, they must be signed in front of 2 witnesses.
Lasting Power of Attorney
A Lasting Power of Attorney (LPA) appoints people to represent and make decisions for you if you become incapacitated mentally. It protects your assets from being misused by irresponsible guardians. To be eligible for an LPA, one must register at the Office of the Public Guardian (OPG). The LPA Form 1 application fee waiver for Singapore citizens has been extended to 31 March 2023.
Typically, assets will be distributed according to the will. However, with insurance policies where there is a specified person who is entitled to receive the proceeds, the matter will be further complicated.
Furthermore, the benefits of a life insurance policy with a trust nomination cannot be disbursed according to the deceased’s will. To distribute the proceeds through the will, you will have to override the insurance nomination depending on whether it is a trust nomination or a revocable trust nomination.
Thus it is generally better to specify the beneficiaries and the continent beneficiaries in your life insurance policies than for it to be paid out through the will. If the will is not made, the insurance proceeds will also be distributed following the Intestate Succession Act.
Creating A Will
A will is a legal written document that states how you would like your money to be distributed after your death. Inheritance and assets can only be given to humans and do not go into effect until you pass away.
Here are the requirements to create a will that is legally binding:
- The testator must be at least 21 years old
- The signature of the testator must be at the foot of the will
- The signature of the testator must be witnessed by 2 or more witnesses
- The witnesses of the signature must also sign the will in the presence of the testator
- The 2 main witnesses must not benefit from the will
Components Of A Will:
All Assets and Liabilities
In most cases, even after you die, family members are not responsible for the liabilities left behind except for credit card debts, loans, taxes, and debts from illegal sources.
It is also important to note that assets in a joint account or houses cannot be added as assets, and debts in joint accounts would also have to be paid off. The Right of Survivorship allows the surviving owner(s) of a joint ownership to own the property if one becomes deceased and cannot be distributed under a will.
In your Schedule of Assets, you could also include alternative investments such as wine, art, and jewellery such as gemstones to be distributed after you pass away.
Inheritance of Assets
When inheriting properties, there is no buyer stamp duty payable when the property was a residential property and if it was inherited by the Intestate Succession Act or the Muslim Law Act.
Who Is Receiving What And How Much
It is important to note that a minor beneficiary cannot inherit the estate until they become legal age. Until then, it may be passed on to a guardian, which you will have to specify in your will:
- Who is Going to Care for Your Dependents
- Who is Going to Carry Out the Will
- Lawyers and Accountant
Those who were responsible for advising you with the legal matters and financial matters should also be included in the will.
You should also take note to put down into writing the cancellation of any previous wills or methods to deal with the remaining assets you own:
- A Revocation Clause to Cancel any Previous Wills
- A Residuary Clause to Distribute any Remainders
A trust is a legally binding agreement that protects assets and how they are going to be used in accordance with the intentions of the owner. They can be used both during and after death. The terms for management of the assets, the distributions to beneficiaries, and the disposition of the assets are outlined in a trust. There are many different types of trusts, each with different purposes and benefits.
Revocable trusts can be altered, changed, and ended at any time the grantor desires. They continue to be the owner of the assets and are in control as long as they are alive for tax purposes.
Irrevocable trusts are when the grantor gives up the ownership of the assets when they transfer them to the successor. They cannot change or end the trust and are not managed by the grantor. Thus, the income from the assets is not taxed.
Special Purpose Trust
Special purpose trusts are arranged for special circumstances or to fund for charitable purposes.
Charitable trusts are provided with special benefits according to the tax law. Depending on the laws, regulations, and the structure of the trusts, the grantor may be eligible for tax deduction or even tax income.
Administration of Muslim Law Act
Every Muslim is encouraged to start estate planning and to write a will according to Holy Quran. Some of the regulations and requirements for writing a will under the Muslim Law Act differ.
- Must be signed with a witness of 2 male Muslim adults
- Cannot make a Will in the favour of someone who is a beneficiary and are only for non-beneficiaries
- Cannot write more than a third of their assets in a Will and two-thirds should be for their beneficiaries
- The asset must be lawful under Muslim law
Advisors Alliance Group (Representing AIA Financial Advisers Pte Ltd)
As you can tell by now, estate planning is a lot more complicated than simply making a will. It includes CPF nominations, LPA, AMD and more. In order not to miss any of these out, you should definitely approach the experts when you want to get your estate planning properly done.
Advisors Alliance Group is an authorised representative group of AIA Financial Advisors and their staff is well-versed in financial and estate planning. They provide risk management, wealth management, estate & legacy planning, and will & trust advisory services.
You can find out more about them here.
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