In many Asian households, death is often a taboo topic that is not acknowledged until absolutely necessary. However, the termination of one’s life is a certainty that one has to face eventually. In fact, in the context of financial planning, the sooner one deals with the subject of death, the better.
Knowing how you want your affairs to be handled when you pass away is at the heart of a process known as estate planning. When you create an estate plan, you prepare legally recognized instructions on how you want your money and properties to be distributed once you become mentally incapacitated or leave the mortal plane for good.
Not making the necessary arrangements can prove to be very costly for the people you’ll leave behind. For example, if you don’t have a will, your assets will be distributed according to Singapore’s intestacy laws, and how the government handles your estate might not exactly align with your wishes. There’s also the chance that your family might not even be made aware of certain assets you own if you didn’t have a proper schedule of all your holdings.
Planning for the distribution and disposal of your assets before anything unfortunate happens makes things so much easier for your loved ones when something does happen. In this short guide, we’ll discuss four of the most common ways an estate is transferred after a person’s death in Singapore.
Estate transferring after a person’s death
Writing a will
Creating a will is probably one element of the estate planning process that is most familiar to Singaporeans. Simply put, a will is a document that details your wishes or instructions regarding how you want your estate to be distributed after your death. Your estate includes most of the assets you own at death, including all the monies in your bank accounts, your investments, your vehicles, your real estate property, and others.
Writing a will is especially important if you have dependents or loved ones who need to be taken care of when you’re gone. If you have children who are minors, elderly parents, or family members with disabilities or with special needs, you can set forth in your will how you want them to be cared for. In your will, you can also nominate an executor who’ll be able to carry out all the instructions you’ve set forth in the document.
When the time comes, this document will go into probate, meaning the will is going to be reviewed by the court so that the legal process of distributing your estate according to the terms detailed on your will can begin.
Make a CPF nomination
Creating a will is very important, but did you know that in Singapore, a person’s CPF savings are not considered part of their estate and are therefore not covered by a will? As such, the balances left in your Medisave account and in your Ordinary, Special, and Retirement Accounts may be distributed by the Public Trustee’s Office according to the Intestate Succession Act or the Inheritance Certificate (for Muslims).
This is why if you want your CPF savings to be disposed of according to your wishes upon your demise, you need to make a CPF Nomination. Simply visit the Central Provident Fund Board’s website to get the latest instructions on how to make a nomination.
Setting up a trust
Like a will, a trust is an estate planning tool that can help make sure your wishes are honored and that your estate is bequeathed to your heirs when you pass away. It provides an alternative means to distribute your assets and is specifically designed to protect your wealth and your vulnerable family members.
When you set up a trust, you appoint a trustee who will be given control or powers of administration over your estate. This person will be legally bound to manage your assets in ways that are most beneficial to your heirs. Whether you want to provide for the needs of your underage children, provide for an adult child who has a history of mismanaging money, protect your estate from creditors, or have your money invested for the benefit of your heirs, you can do these all when you set up a trust.
You have the option of setting up either a living trust or a testamentary trust. A living trust is active from the day you create it, and your assets are duly transferred to the trust. However, you as a settlor can revoke or end the trust whenever you desire. A testamentary trust, on the other hand, is set up using a will and only takes effect after a person’s death. It is not revocable.
Making a lasting Power of Attorney
Many people who plan ahead financially do think about death, but some don’t think about what would happen should they instead lose their mental capacity before death. Losing your mental capacity can have a tremendous impact on how much your family can manage your finances and assets. Take note that when you do lose your mental capacity, your loved ones are not automatically granted the right to decide on legal matters on your behalf, so they could face challenges in terms of attending to your needs and that of the family’s.
This is why it is important to create a lasting power of attorney (LPA). An LPA is a document that grants you the power to appoint one or more individuals who can act as your donees—essentially giving them power of attorney. These people will be able to make legally recognized decisions on your behalf, allowing you to protect your wealth and your family should you end up having an illness or getting into an accident that impairs your capacity to make your own decisions.
In Singapore, you can choose between two types of LPAs, namely the LPA Form 1 or the LPA Form 2. The first type allows you, the donor, to grant your donees general powers that come with fundamental restrictions. The second type of LPA, on the other hand, is more personalized and allows you to grant your donees more particular powers. As much as 98 percent of Singaporeans who have made LPAs have chosen the first type of document.
A person’s death is a subject that is difficult for a lot of people to confront, but it is something that can actually be taken into account matter of factly. Approaching the matter in a practical and non-emotional way will allow you to take the steps needed to prepare for your own eventual demise. Trust us, it will save your family a lot of headache and heartache down the line.