What You Need To Know About Estate Planning

“I don’t need Estate Planning because I have only one flat and some cash and shares.”

“There is no more estate duty in Singapore, so Estate Planning is not relevant to me.”

“Estate Planning is meant for the rich, so I don’t need Estate Planning as I am not rich.”

“My business is doing fine and since I am a sole proprietor, my son will take over my business. Therefore, Estate Planning is not relevant to me”.

The above comments are common objections to Estate Planning. These objections come about because many of them are not aware of what Estate Planning is all about. In fact, many Financial Advisers might not even be aware of what Estate Planning actually involves. Today I would like to tell you more about the four needs of Estate Planning, and hope you will go away learning the absolute importance of Estate Planning.

First, let us define what Estate Planning is: It is one aspect of financial planning and involves the process of planning for the accumulation, conservation and distribution of an individual’s estate in order to achieve the objectives of the individual both when he is alive and after his death.

Therefore, simply put; Estate Planning accumulates the estate and at the same time conserves the value of the estate to distribute the assets to meet the estate needs of the individual.

Estate Planning is necessary for individuals regardless of wealth, as long as the individual has assets or has loved ones.

The estate needs of the individual upon his demise can be summarised into four main areas. They are the:

• Provision for Contingencies before Death;
• Provision for Immediate Liquidity;
• Provision for Dependents and Gifts; and
• Preservation/Enhancement of Estate.

Provision for Contingencies before Death

No one knows how and when he will die. It is important to ensure that sufficient funds be set aside to meet for any medical expenses that may arise. In the event of that the individual survives for many years, he has to ensure that he has the necessary funds for his retirement.

Prolonged illness and mental incapacity may result in an individual not be able to perform or execute his daily transaction, especially in the area of money management. It is important to arrange for a Lasting Power of Attorney (LPA) to ensure that someone that you trusted can execute the transaction on your behalf.

Provision for Immediate Liquidity

The estate of an individual can only be utilised by the personal representative for payment of legitimate liabilities and distribution to the rightful beneficiaries upon the issuance of the Grant of Probate/Letter of Administration by the Court. The time required for the issue of the Grant of Probate/Letter of Administration may take a few months to a few years. During this period, liquidity is required to meet the expenses of the administration and dependents. So, it is important that Immediate Liquidity is provided during this period.

Immediate expenses normally incurred by a deceased include medical fees, funeral expenses, family allowance, mortgage instalments, car instalments, estate duty, legal fees and contractual obligation made by the deceased while he is alive.

Provision for Dependents and Gifts

It is everybody’s wishes that their dependents are provided for after their demise. It is important that the estate is sufficient to meet the needs of the dependents and also to provide for any gifts that the deceased would like to provide.

The common approach used is to pass on the estate to the spouse and/or children. With the changing environment that we live in, many of us would prefer to look into an alternative form of providing for our dependents. Some of the common approaches include providing loved ones with a regular income instead of a lump sum, providing the use of the estate without transfer of beneficial ownership instead of outright transfer and setting up of a trust to ensure that dependents are provided for.

Preservation/Enhancement of Estate

In order to meet the objectives of the individual upon his demise, the value of the estate must be able to meet his estate needs upon death; to provide for estate duty, immediate liquidity and provision for dependents and gifts. Many a time, the current value of the net worth when an individual is alive is sufficient to provide for these needs. However, the value of the estate upon death is insufficient to provide for these needs. It is common for an estate to reduce from 30% to 70% upon death.

Therefore, it is important to ensure that the current value of the net worth is preserved and if necessary, enhanced in order to meet the needs of the estate.    

In summary, Estate Planning is an essential part of financial planning. If you would like to ensure your loved ones are taken care of, or if you would like to decide in advance how to your estate should be distributed, then you should make an estate plan.

Sincerely yours,
Stephen

Related Read:

WHAT YOU NEED TO KNOW ABOUT WILL AND LPA

ESTATE SETTLEMENT PROCESS OF A MUSLIM ESTATE