Till death do us part

Estate plan­ning is cru­cial so our loved ones are not bur­dened if some­thing hap­pens to us.

BY: James Huan

Finan­cial plan­ning is about under­stand­ing the many invest­ment deci­sions that we make, and then bring­ing them together to fit in appro­pri­ately with the goals and respon­si­bil­i­ties we have in mind. Such goals and respon­si­bil­i­ties may how­ever fre­quently not just be finan­cial. Our plans should there­fore not end there. Estate plan­ning is about prop­erly struc­tur­ing our plans and mak­ing sure they all fit together to ensure that our loved ones are prop­erly pro­vided for if the worst should hap­pen to us.

What hap­pens when we pass away

Dur­ing our life­time, we accu­mu­late four basic types of assets. The first, the “busi­ness asset”, might com­prise a sole pro­pri­etor­ship, a share in a part­ner­ship or shares in a pri­vate lim­ited com­pany. The sec­ond, our “per­sonal assets”, include monies in the bank, our invest­ments, our col­lec­tion of stamps and coins, etc. The third are the “insur­ances” that are paid out upon our death. And the last asset will be our Cen­tral Prov­i­dent Fund, which can form quite a size­able pro­por­tion of what we own.

We all hope and assume that these assets will pass on to our loved ones quickly and effi­ciently when we pass away. In real­ity, the process may be com­pli­cated and pro­longed. Your assets may not end up with those you had in mind, and even if they do, they may not be in the pro­por­tion you imag­ined it to be.

Let us imag­ine that when we pass away, all our assets flow into a fun­nel, which we will call the “estate”. The idea is for our assets to flow down to our intended ben­e­fi­cia­ries. Before that can hap­pen, a good deal of money may how­ever “leak away”.

The admin­is­tra­tion of an estate will inevitably incur var­i­ous fees and expenses, such as pro­bate fees that come with apply­ing to the courts for the nec­es­sary legal papers. There will also be legal and account­ing fees involved in putting your estate in proper order for due admin­is­tra­tion and distribution.

Any out­stand­ing debts such as per­sonal loans, unpaid taxes and credit card bills will also have to be paid before your estate reaches your ben­e­fi­cia­ries. If you’ve given any per­sonal guar­an­tees, such guar­an­tees are not auto­mat­i­cally dis­charged and your estate con­tin­ues to be liable until a replace­ment guar­an­tor is found and your estate prop­erly dis­charged. Any such guar­an­tee called on your estate in the mean­time will reduce the size of your estate accord­ingly. If prior to pass­ing away, you own a strug­gling busi­ness, your estate may also suf­fer the liq­ui­da­tion losses that may be incurred in wind­ing up your business.

Med­ical expenses can also be a drain on the estate if not prop­erly planned for, espe­cially if the med­ical cri­sis suf­fered before death is a pro­longed one. This is unfor­tu­nately one area that many fail to prop­erly plan for, which is made all the more wor­ry­ing by the trend of increas­ing med­ical costs. In Octo­ber 2000, the Health Min­istry high­lighted that local health­care costs will tre­ble in 30 years’ time. Even then, this may be a “gross under­es­ti­ma­tion” as improve­ments in med­ical tech­nol­ogy con­tinue to lead to increased life expectancy.

With all the pos­si­ble “leak­ages” above, will we leave any­thing worth­while behind for our loved ones? And even then, will they be able to carry on liv­ing with the same stan­dard of liv­ing they were pre­vi­ously used to? And will the cor­rect peo­ple receive our legacy as we intend it to be?

Three areas of plan­ning

When we talk about estate plan­ning, it really goes much fur­ther than just writ­ing a Will. The fol­low­ing are the three areas we need to look at when we con­sider our own estate plan:

1. Asset preser­va­tion – The first is “asset preser­va­tion”, which looks at the var­i­ous ways to min­imise the leak­ages as men­tioned above. Where med­ical expenses are con­cerned, we should review our poli­cies to ensure that we have the cor­rect type of med­ical plans in place. This takes care of the med­ical bills if we ever need to be hos­pi­talised. Although we all have some form of insur­ances, many of us do not actu­ally have the appro­pri­ate med­ical insur­ances, or wrongly assume we have. This often comes as a rude shock when you attempt to make a claim, which is a pity con­sid­er­ing that med­ical insur­ances are actu­ally very affordable.

Our med­ical insur­ance plans should be struc­tured in such a way as to pro­tect us through­out our life­time. This is espe­cially impor­tant if the sick­ness is a pro­longed one prior to death, so that our legacy will not be dwin­dled away.

If you have given any per­sonal guar­an­tees, you should con­sider how such guar­an­tees can be dis­charged upon death. If you have given such guar­an­tees in your capac­ity as a direc­tor of a busi­ness, you can charge a fee for agree­ing to do so and then buy­ing appro­pri­ate insur­ances with the fee to address this con­tin­gency obligation.

2. Wealth cre­ation – After plug­ging the gaps above, we will need to ask: “If I were to pass away today, will I leave suf­fi­cient cash and assets to pro­vide for my estate expenses as well as my goals and respon­si­bil­i­ties for my loved ones?”

The estate expenses have been men­tioned above. The goals and respon­si­bil­i­ties that we may have for our loved ones on the other hand, will include the fol­low­ing. Will there be suf­fi­cient income for your depen­dents to carry on with the same lifestyle with­out hav­ing to down­grade? Will there be suf­fi­cient assets for your chil­dren to pur­sue a ter­tiary edu­ca­tion in the future? Will there be enough for you to leave behind a mean­ing­ful legacy?

If not, you will then need help to cal­cu­late the “short­fall” you may have in your estate and put in place the cor­rect type of insur­ances to imme­di­ately cater for this short­fall on your unex­pected demise. Term insur­ances are prob­a­bly the most appro­pri­ate for this as you can pro­vide for your short­fall with very afford­able insur­ance premiums.

Make sure that your invest­ments work for you, and make sure that they will even­tu­ally work for your loved ones as well.

3. Wealth dis­tri­b­u­tion – After con­sid­er­ing the above two areas, we can now con­sider how your assets should be dis­trib­uted. This is where your Will finally comes in. (FOR MORE INFOR­MA­TION ON WILLS, THERE IS ANOTHER DETAILED WILL STORY UNDER FINANCE)

Like it or not, each of us already has a Will in place. If you have a Will writ­ten, that Will applies upon death. If you do not, then your estate will be dis­trib­uted under the Intes­tate Suc­ces­sion Act. Under intes­tacy laws, there is a line of pri­or­ity of fam­ily mem­bers or rel­a­tives who may inherit your assets. So if you do not wish for the intes­tacy laws to decide how your assets are to be dis­trib­uted, you should have a Will writ­ten. In fact, every­one should have a Will writ­ten as it cov­ers so much more than just the dis­tri­b­u­tion of assets. Hav­ing a Will helps to ensure that the assets can be released to the ben­e­fi­cia­ries as quickly and effi­ciently as pos­si­ble. Fur­ther, you decide and nom­i­nate in the Will the “execu­tors” who will help admin­is­ter your estate, as well as who should be the guardians of any minor chil­dren. If these issues are prop­erly addressed within the Will, they need not be raised with the courts sub­se­quently, which saves time and money.

But before you go on to appoint these peo­ple in your Will, make sure you inform and obtain the con­sent of your execu­tors and brief them on their expected roles and respon­si­bil­i­ties so that they will be ready to attend to your estate and your chil­dren. Delays to the admin­is­tra­tion of estates can fre­quently be caused by unwill­ing and unpre­pared executors.

The same goes for your minor chil­dren. All of us have our own unique fam­ily back­ground and you will want to ensure that your choice of guardians will prop­erly look after the wel­fare of your chil­dren. As far as pos­si­ble, you may not want the courts hav­ing to make the choice for you and end up appoint­ing some­one not of your choice, sim­ply because the appointed per­son is a fam­ily member.

Do note that if you are Mus­lim, the dis­tri­b­u­tion of your estate will instead be gov­erned under Syariah laws and the rel­e­vant leg­is­la­tion (in Sin­ga­pore, this will be the Admin­is­tra­tion of Mus­lim Law Act). Even if you do make a Will, you can only will up to one-​third of your estate gen­er­ally, and only to ben­e­fi­cia­ries who will not already be a ben­e­fi­ciary under Syariah laws. Notwith­stand­ing this, it may still help for you to make a Will to spec­ify whom your execu­tors should be, as well as the guardians for your young chil­dren, for the advan­tages men­tioned above.

One other thing you should take time prepar­ing is a list of all the assets you may own, and to keep it updated there­after. The rea­son for this is very sim­ple and prac­ti­cal. It is fre­quently dif­fi­cult enough for us to keep track of what we have while alive. Can you imag­ine how dif­fi­cult it will be for our execu­tors after we are gone? Through no fault of the execu­tors, your assets may be left unclaimed because of this. Hav­ing an asset list helps avoid this. This is espe­cially impor­tant if there are over­seas assets.

In con­clu­sion, hav­ing a proper estate plan is so very impor­tant, more so for your loved ones than for your­self. Many do go through quite a bit of has­sle when the estate is in a mess. You may not hear many of such sto­ries, but the few that get high­lighted in the new­pa­pers show that the has­sle they expe­ri­ence is indeed real. Your fam­ily does not have to go through the same thing. As you con­tinue to invest and plan for your­self, con­sider again all that has been high­lighted and make sure they fit nicely together with your goals and respon­si­bil­i­ties. You have your own rea­sons to be invest­ing your hard earned money, so make sure those rea­sons are ful­filled regard­less of the sit­u­a­tion and circumstances.

James Huan is the head of legal and estate suc­ces­sion at Prov­i­dend Ltd. He is also a trainer at Prov­i­dend Cen­tre of Finan­cial Edu­ca­tion (PCFE), which brings finan­cial knowl­edge to peo­ple of all life stages and from all walks of life. Visit us atwww​.prov​i​dent​-cfe​.com or e-​mail us at info@​providend-​cfe.​com. 
 
(PHOTO CREDIT: HOME © Jenny Wood­worth | Dream​stime​.com)