What else do you need to know about estate planning?
It is important to have a clear idea about how your wealth will be distributed after you die. If you put off this essential task you are doing a disservice to your loved ones. Additionally, you are setting the stage for disputes and confrontation between the people whom you care about the most.
Estate planning involves arranging your financial affairs in a clear and unambiguous manner. When you are no longer there, who will get the car you own? How will your real estate holdings be distributed? What will happen to the money in your savings accounts and to your shares?
After you have decided how your wealth will be shared between your beneficiaries, the first step that you will probably take is to write your will.
Is it compulsory to make a will in Singapore?
A will is a legal document that contains your instructions about the distribution of your property and the care of any minor children. While most people would like to leave clear directions about the manner in which this should be done, it is not essential that you make a will.
What happens if you die without making a will? The legal term for this is “dying intestate.” In this situation, you will be subject to Singapore’s intestacy laws.
Upon your death, your estate will be distributed by the Public Trustee, which functions under the Ministry of Law. But the Public Trustee can act only under certain conditions. For example, if your estate is worth more than S$50,000, the Public Trustee cannot play a role.
In this situation, your relatives will need to apply to the court for Letters of Administration to deal with your estate.
Is a will sufficient or should you create a trust?
Although both a will and a trust can be used for estate planning, you should not confuse one with the other. A will is a legal document that leaves instructions about the distribution of your assets.
A trust, on the other hand, requires you to transfer your assets to a trustee who then manages these assets based on your instructions. The trustee works for the benefit of the beneficiaries.
Creating a trust is a useful estate planning tool, especially in certain circumstances:
- In case family members are likely to dispute a will, a trust can be a good solution. Creating a private trust will ensure that not even the beneficiaries will know of its existence until their entitlement arises.
- When a person dies, the executor of the will needs to apply to the court for a Grant of Probate. This is a court order that authorises the executor to deal with the estate according to the directions in the will. The procedure can be lengthy and cumbersome.
Probate formalities can be avoided by creating a trust. Assets in a private trust do not form part of a person’s estate and are not subject to probate.
- A trust can distribute assets in a lump sum or in regular instalments. This provides great flexibility and the opportunity to control payments in the manner that you want.
Lasting Power of Attorney explained
Many elderly people suffer from dementia and other age-related diseases. If this happens, they can find it difficult to look after their financial affairs.
It is possible to protect yourself from such an eventuality by making a Lasting Power of Attorney (LPA). This is a legal document which allows you to appoint a person, known as a “donee” to make decisions on your behalf.
While having an LPA in place ensures that you are taken care of if you lose the mental capacity to handle your own affairs, it also has another important advantage. It makes matters easier for your relatives and loved ones when you need their help for your day-to-day activities.
Of course it is critical that you appoint a trustworthy and reliable person as your “donee.” It is possible to appoint more than one “donee”. The “donee” will handle your personal welfare and also the matters relating to the management of your bank account, your finances, and your property and assets.
The LPA comes into effect only after it has been established that an individual has lost the mental capacity to function independently.
What if a person who has not made an LPA loses the ability to function independently? In this situation, an application will have to be made to the court for a proxy decision maker to be appointed. This person, who is known as a deputy, will make specific decisions on behalf of the individual who is no longer self-sufficient.
An estate planning exercise offers great benefits
Putting your final wishes down in a will or creating a trust can save your children and other loved ones a lot of trouble. It is useful to get professional help of the highest calibre for this exercise so that there is no ambiguity in the legal documentation that is created. Even if this requires a certain amount of expenditure, it is money well spent as it will ensure that your estate is handled exactly in the manner that you wish.