Estate Planning is a subject that is seldom talked about.
Common perception about estate planning is that it is either for the rich or for the dying. Since most people thinks they are neither rich nor dying, this subject is totally neglected. Contrary to popular believe, estate planning is as important to the poor and to the living. Here are some reasons why estate planning is important.
If you do not do any estate planning, someone will automatically do it for you. They are the government authorities and the law. Under the law, for a person who dies without a Will, he is said to die Intestate. In this case, the Intestate Succession Act comes into effect. Therefore, everybody’s estate plan has already been done for them by default. The problem is that the default plan is flawed in many counts.
The Intestate Succession Act assumes all of a person’s assets are divisible and has some reasonable market value. This is far from reality. Many assets have no market value and may not be easily divisible. Therefore, proper estate planning is required to give these kind of assets to the right persons because the default estate plan is unable to handle such situation.
Third-party policies that parents buy for their children such as whole life, ILPs and education policies do not necessarily automatically go to the life assured (children). Instead, on death of the payer (parents), the entire policy goes to the Estate of the payer. Only proper estate planning can ensure that the life assured gets to own these policies.
In addition, there is no proper way to measure the market value of such policies since there is no secondary market that can be used as a benchmark to value these policies. I don’t know how these policies are going to be distributed fairly under Intestate law since the latter always assume an asset has some market value.
If your children become an orphan, government authorities will decide who shall be their guardian. The duty of the guardian is to take care of your children emotionally and physically. Who is this guardian? Is it your mother, mother-in-law, neighbour or the orphanage? You cannot be absolutely sure who and whether your children will be well taken care of. Will they be safe from harm? Can you be very sure your daughter will not be taken advantage of by this unknown guardian? If you do proper estate planning, you can decide who shall be the guardian whom you trust. In case the guardian dies or is incapacitated, you can even have a backup guardian.
If your “default” estate plan (i.e. Intestate Succession Act) leave some money to your orphaned children who are still minors, someone will have to take care of these assets on their behalf until they are of legal age. So who is this person? Again you can never be absolutely sure. All your assets like properties, cash, investments and those insurance policies you bought meant to supply your children with sufficient financial resources to live and have a good education now solely rest on this unknown person to manage these assets. Have you considered the possibility of this person squandering your children’s money away? Or perhaps have you read of certain professionals taking their clients’ monies and fleeing the country? This is not another TV show. It happens all the time. You just need to read the newspapers. With a proper estate plan, you can decide exactly who shall be the Trustee of your children’s assets.
If you do not have a Will, two sureties are required if there are minor beneficiaries or if the estate is worth more than S$250,000. Each surety must have assets worth the total value of the deceased’s estate. We are living in a practical world. Nobody will be keen to be a surety. The surety is fully liable for any improper administration of the estate but the surety gets no remuneration for doing so. Since the surety only gets liability with nothing in return, I really wonder who will be so silly to become a surety.
You may need a systematic estate plan to cancel existing debt. The most common debt is the mortgage. Say if you and your wife borrow jointly and severally from a bank to purchase a property. If one borrower dies, the debt does not disappear as the surviving borrower is now fully liable for the mortgage. You need to ensure that your surviving spouse has sufficient cash to pay off the loan. Even if you have bought a mortgage reducing term (MRTA) it is not enough. The MRTA pays the death benefit but who will get this sum? The death proceeds of a single-live MRTA goes to the estate of the policyholder and not necessarily to your spouse. Only through proper estate planning can you be sure that your surviving partner gets sufficient money to pay off the loan.
If you are an entrepreneur or a professional who can be sued for negligent or is personally liable for loans guarantee by yourself, you can protect your assets from creditors only if you do proper estate planning early. Nothing can be done once you are in trouble because any attempt to defraud your creditors is considered illegal.
If you have invested in large amount in overseas such as United States, you are still liable for estate duty above US$60,000. The estate duty is around 55%. Estate planning can help to reduce or even eliminate this tax.
Finally if you are a family man, our asian traditions placed great responsibility on you to provide the family leadership. If you have an estate plan, you are only demonstrating your keen interest to ensure your family is well taken care of even if you are not there for them. Not having an estate plan is not much different from a gambler who is least concern for his family. Not having an estate plan is like saying you take a bet that you will never die although statistically speaking, the chances of death of a human being is 100%. The question is only when.