The Importance of Estate Planning
You may not be a millionaire. But no matter your background, it’s important to have things set in place.
Firstly, it allows you to spend less energy thinking about the what-ifs of life. Secondly, you’ll feel better knowing that you have done what you can to ensure that your loved ones will be cared for.
That’s why estate planning is for everyone – not just the rich.
Estate planning is about setting out how you want your estate (or your assets) to be managed and transferred. And writing a Will is an important part of the plan.
This may seem daunting at first, but it need not be difficult if you approach it systematically using the following steps:
- Take stock of all the assets you own.
- Write your Will for the smooth distribution of your estate, and review it regularly. This includes your belongings and financial assets.
- Make your Central Provident Fund (CPF) nomination to specify who will receive your Central Provident Fund (CPF) savings, and how much.
- Ensure your family’s well-being with general protection, term or life insurance, and cover potentially high medical costs with health insurance.
Step 1: Take stock of all the assets you own
Make a list of all your assets, and check it twice. This can include your home, bank accounts, CPF savings, investments, insurance plans, jewellery, antiques, and anything of monetary value. Be sure to update the list regularly.
For many Singaporeans and Permanent Residents, our CPF savings are a major asset. CPF funds are not covered by a Will, so remember to make a separate nomination with the CPF board.
Finally, you should also consider your liabilities, which include everything that you owe, such as property and car loans, credit card debts, and so on. The net value of your estate takes into account your assets, liabilities, fees and expenses, and the nature of ownership (for owned property).
Step 2: Write your Will and review it regularly
You might wonder: Why write a Will when you can simply relay your wishes to your loved ones?
Well, the main benefits are that it provides clarity and prevents unnecessary delays in the transfer of your estate. A Will is a legally binding document that lets you state in certain terms how and to whom you wish to distribute your assets.
This will not only prevent misinterpretation but also reduce stress for your family at a difficult time. If you do not have a Will, Singapore’s intestacy laws (or for Muslims, Islamic inheritance law) will determine who gets what. The asset distribution may then not be aligned to your wishes, and the settlement could be a long-drawn process.
Here are two examples of what happens if you do not have a Will:
When writing a Will, the key decisions include things like:
- Who to distribute your assets to;
- In what proportion; and
- Who will ensure your wishes are carried out (executors and trustees)
You can approach a lawyer to help you draft a Will. But first, think through these in detail:
- Decide who gets what and how much
Make a list of beneficiaries, that is, the people (or even charities) receiving your estate. Next, decide what and how much to allocate to each beneficiary. You might wish to distribute your estate by proportion or allocate specific assets.
In planning how to distribute your assets, think about how you wish them to be used. You might, for instance, want your home to be kept for your spouse’s use, instead of being sold off. Or you might want to dedicate some money for a child’s university education, and a separate amount for supporting an elderly parent. These intentions will guide you in the decision-making process.
- Decide who will care for your dependants
Is there someone you trust to handle your assets on your behalf?
If you have a child aged under 21 years, you should appoint a legal guardian. for him/her in your Will to ensure your little one will be under good and responsible care.
If you’re single, you may wish to ensure that your parents, siblings and/or pets will be cared for.
Don’t worry about the finality of your decisions. You can and should review your Will regularly, especially when your life status changes.
For example, did you know that marriage revokes a Will that you made while you were single? However, having children has no effect on the validity of the will. Still, many people revise their Wills after the arrival of a new baby, to include him or her in their estate plan.
Changes can be made at any time, as long as you have the mental capacity to do so.
Step 3: Make your CPF nomination
Even if you already have a Will, you will need a CPF nomination if there are specific people or charities who you want your CPF savings to go to. In addition, there’s lesser administrative delay, and your beneficiaries save on the fee otherwise needs to be paid to the Public Trustee’s Office.
To make a nomination, simply fill in a CPF nomination form and submit it online, or in person at any CPF Service Centre if you’ve questions for the service officers.
If you do not have a CPF nomination, your savings will be distributed according to Singapore’s intestacy Laws (or Islamic inheritance law). Here’s what it could look like:
When making a CPF nomination, the key decisions include things like:
- Who to distribute your CPF savings to;
- In what proportion; and
- How your beneficiaries should receive the funds (known as the Nomination Payment Options):
- Default setting: One-time Cash payout By default, your beneficiaries will receive the CPF funds in cash, through cheque or GIRO. The funds will be paid at one go.
- Via CPF account
If you opt for the Enhanced Nomination Scheme (ENS), your beneficiaries receive your CPF funds via their own CPF accounts.
- Monthly payouts
If you have children with special needs, consider opting for the Special Needs Savings Scheme (SNSS), which pays out the CPF savings regularly every month.
As with a Will, don’t worry about the finality of your decisions. You can and should review your CPF nomination regularly, especially when your life status changes.
For instance, getting married invalidates the CPF nomination that you made while you were single? However, getting divorced has no effect on the validity of the CPF nomination as you may still wish to provide for your former spouse and children.
You can update your CPF nomination at any time, so long as you have the mental capacity to do so. Here are some reasons to make a new CPF nomination:
- One of your nominees passes away
- You get married, divorced or remarried
- You have children after your nomination was made
- You wish to add a new nominee
Step 4: Check that your insurance coverage ensures your family’s well-being
In this unpredictable world that we live in, there are many legitimate reasons to protect against life’s unannounced curveballs. Insurance acts as a financial safety net and keeps your loved ones from inheriting a pile of bills and debts should anything happen to you.
A comprehensive insurance policy covers the immediate bills and can help defray the cost of daily living expenses in adverse situations.
In practice, it can look a lot like this:
- Ensure your family’s well-being with general protection, term, or life insurance
- Cover potentially high medical costs with health insurance.
Look ahead confidently
Estate planning is ultimately about ensuring that the people you love get what you wish to give them. If you’re not sure how to evaluate your assets, seek help from a financial advisor. Make sure your Will is valid by checking with a lawyer. You might also want to look into other legal arrangements concerning your estate, such as setting up a trust or lasting power of attorney.
You may not be a millionaire. But no matter what postal code you stay at, it is important to have things set in place.
This article is Part 1 of 3 in a series about Estate Planning. For more in this series:
Part 2: What is a trust, and why bother setting up one?
Part 3: Why Lasting Power of Attorney is not just for the elderly
This article was produced in partnership with Curatedition.
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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.