Do I need estate planning?

When you hear the words "estate planning" or "legacy planning" you'd usually think that wealthy individuals are the only ones who need it. You may feel: "I don't have so much money that I'd need formal ESTATE PLANNING". But you couldn't be more wrong. Regardless of how much money you have, you need to think about what will happen to your assets and who should receive the things you own after you pass away.

An estate plan can be as simple as having a Will and nominating a beneficiary for your CPF monies, or as complicated as having several trusts for different purposes, in addition to your Will. This series on Estate Planning hopes to give you a good understanding of this seemingly complicated and taboo subject and provide a comprehensive framework for you to begin this process. Once you've done some preliminary work, you should consult a qualified estate planner to go about implementing your estate plan.

What is estate planning?

One very?succinct?definition of estate planning is this:

Giving the RIGHT ASSET,
To the RIGHT PERSON,
At the RIGHT TIME,
Using the RIGHT TOOLS

In fact, it has been said that until you have completed your estate plan, your financial plan is just incomplete and open-ended. This is simply because you have not considered how to adequately dispose of your assets and to ensure that the loved ones you have left behind are well taken care of.

Another simple and practical way to think about estate planning is this: Imagine that you are going away for a business trip for about 3 years and during this time frame, you will not be able to get in touch with your family members. Given this scenario, what are the things you'd want to put in place before you depart for this trip? A simplified list might consist of:

• Will your family have enough money for the 3 years you are not around?
• Who will take care of the bills (mortgage payments, loan repayments etc)?
• Will your spouse need help to look after the children in your absence?
• Where are the documents to take care of your investments?

Now, imagine that this trip had to be extended from 3 years to an indefinitely long time........

How would those you had to leave behind deal with matters? This scenario truly illustrates the issues that your loved ones will face as a result of your inadequate estate planning. On top of having to deal with the loss of someone precious to them, they will have to additionally deal with the complexity of unravelling the financial situation you had left behind.

Objectives of an Estate Plan

So what are the main things we are trying to achieve in our estate plan? Some key objectives are to:

• Maximise the gross and net estate value available to those you leave behind
• Minimise the leakage from your estate through debt, expenses and taxes

There are additional things to consider as well:

• Domicile: This primarily affects how a person's estate is to be handled, and which laws and taxes apply to the estate. Generally, for most Singaporeans, this will be Singapore. However, for permanent residents (PRs) and foreigners, it is likely to be their country of origin, where they hold citizenship. This is an important consideration if your domicile is a place with high (income, capital gains, estate & inheritance) taxes.
• Jurisdiction: This refers to the jurisdiction of laws (and taxes) that may apply to the asset in question. For example, if a Singaporean owns real estate in the US or UK, then the respective country's laws will apply to how that asset is to be distributed and its tax implications.
• Ownership: This point refers to how the asset in question is owned, which has implications on how it can (or cannot be distributed). For example, a property held in joint tenancy cannot be distributed by a person's Will. It will automatically be transferred to the surviving owner. However, again, there are exceptions to this rule.

There has to be a better way

So it seems that estate planning is really quite complicated. Is there a better way to begin thinking about your own estate plan? Fortunately, there is a better way. It is simply called Estate Planning. In this series, we will provide a comprehensive framework to help you develop an estate plan so that your loved ones will not be left in the lurch in the event of your untimely demise.

In the next post, we will describe the 7-Steps to Prepare an Estate Plan. If you have any pressing questions, feel free to contact us here or post your queries in the comments section and we will try our best to address it there. Thanks for reading.