DO I NEED ESTATE PLANNING?
Many would say I am not very rich so why would I need to do estate planning?
Others may say I have drawn up a will or created a trust so I have done my estate planning. Still others think that since my main assets are just my HDB flat and CPF monies, CPF nomination would suffice.
Are the above true?
The answer is YES and NO because it depends on several factors.
Before I go into discussing the FACTORS involved, I suggest we align our understanding of estate planning.
What is estate planning to you?
Many would say that estate planning is preparing your wealth for distribution for the eventual; DEATH, which is correct.
To me, a more specific definition would be;
Estate planning is the act of preparing to give away WHATEVER you have, WHENEVER and HOWEVER you like, to WHOEVER you want, in an ORDERLY way, before one’s passing on.
What constitute the WHATEVER you have?
This is your gross assets or wealth that you have accumulated during your lifetime and when upon your passing becomes your estate.
In one’s wealth or estate, there are three MAIN ASSET CLASSES as follows:
These 3 asset classes represent the financial aspect of estate planning.
Issues which may arise from the financial aspect of a deceased estate is TAXATION. While it is true that Singapore has abolished estate duty since February 15, 2008, it has become increasingly common for a Singaporean to acquire assets like real properties, stocks and shares outside of Singapore.
Hence, what are the tax implication? For example, US situated assets in excess of USD 60,000 estate duty ranges from 18% to 40%.
Now you might be wondering if estate duty would significantly reduce the size of an asset which you have worked so hard to acquire?
In certain countries, they practice not estate tax where money is taken out of the estate but inheritance tax where the beneficiaries have to pay the tax before an asset can be release for transfer. This becomes even more onerous. One such country is Japan.
The other issues that may arise from the financial aspect of estate planning which issues can arise from the following:
Factors which may affect the valuation of an asset includes:
So how can I protect the value of my assets from significant reduction at death?
To summarize, the financial aspect of estate planning is to avoid the pitfall of how taxation, economic and market uncertainty may greatly reduce the value of an asset being pass on at death to an heir.
As one wise saying goes…
“The best investment decision you have made may be the worse estate planning decision you have made”.
What is the WHENEVER & HOWEVER you like?
Other factors include:
What is the WHOEVER you want?
In short, whoever means who you want to benefit from your estate?
It can be PEOPLE or ORGANIZATION/S or both whom you like to benefit from your estate.
When people are beneficiaries one main issue which may arise is about the MATURITY of that beneficiary to manage wealth, a.k.a financial literacy or if the beneficiary is financially savvy?
For instance, would any of your sons head straight to Lamborghini or Ferrari showroom when he receives a large inheritance? Would your daughters’ future husband be someone who would not squander her inheritance? Would the assets you left your wife be managed prudently?
Even if the person you have appointed to inherit a particular asset is mature in handling the asset, the next question is if he is INTERESTED to inherit the asset? As an example, your second son is mature in handling finances. But is he interested to running your business?
Other issues which may have to be considered under the social aspect of estate planning are
The foregoing discussion of the three broad aspects of estate planning namely,
is by no means exhaustive.
But you would have gotten the sense of the wide and deep implications if one has not prepared a plan to give away WHATEVER you have, WHENEVER and HOWEVER you like, to WHOEVER you want, in an ORDERLY way, before one’s passing on.
So, the answer to the question, “Do I Need Estate Planning” becomes clearer now.
Do your loved ones a favor.
While you have worked long and hard for your wealth to be pass on to your loved ones, avoid or minimize the the pitfalls causing complications, confusion and conflict between beneficiaries or heirs by doing your estate plan or wealth distribution plan and appropriate arrangements.
Contributed by: Francis Hoan, Financial Advisory Director representing Financial Alliance Pte Ltd.
The author of this article does not have professional qualifications in the field of legal and tax accounting field. The content is developed based on research work. The views presented are purely from a financial planning practitioner’s perspective. For actual advice in the areas of legal, tax and estate duty implications, you should consult your lawyers and accountants. Any data presented is correct only at the time of writing.
Important: The information and opinions in this article are for general information purposes only. They should not be relied on as professional financial advice. Readers should seek independent financial advice that is customised to their specific financial objectives, situations & needs. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
More than 35 years experience in financial product sales and advisory. 17.5 years with a leading insurance company and the next 17.5 years with an INDEPENDENT Financial Advisory firm.
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