Never too young to draw up an estate plan

Singapore

ESTATE planning isn't just for the wealthy or for those senior in age. In fact, it is advisable to have a plan in place while you are in control of your finances and have a lucid mind.

"Having a will is probably one of the most important legal documents that people will ever sign, yet most people do not have one, thinking they are too young and healthy to worry about their estates. They may also think it is a taboo topic or simply do not have the time to think about it," said OCBC's head of wealth management Tan Siew Lee.

An estate plan helps set out how you want your estate - or assets - to be managed and transferred smoothly to the people or entities you wish to receive them.

"You are planning not just for your eventual demise, but in case you lose mental capacity and can no longer take care of your own finances and welfare while alive," said Lorna Tan, DBS's head of financial planning literacy.

In Singapore, a basic estate plan should include a will, a lasting power of attorney (LPA), and a Central Provident Fund (CPF) nomination.

Wills and LPA

The first step in drafting a will is to determine one's overall net worth by considering your cash and investment holdings, as well as loans and other liabilities, OCBC's Tan Siew Lee said.

A will should specify executors and trustees to ensure your wishes are carried out, guardians for young children below the age of 21, as well as beneficiaries for your assets and proportions for distribution. You can engage a lawyer to help draft your will or use an online will-writing service.

One should revisit their will document periodically, especially when life circumstances change, said DBS' Lorna Tan.

She added: "If you do not have a will, Singapore's intestacy laws 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."

An LPA is drawn up to appoint people entrusted to look after you and make decisions on your behalf, if and when you lose mental capacity. Without an LPA, families are not granted an automatic "right" to manage their loved one's affairs. This means some families may get caught up in unnecessary and lengthy court proceedings to gain control of accounts and assets including insurance proceeds.

There are no large-scale studies on the demographics of Singaporeans who have wills, but financial adviser and fund management company MoneyOwl said 48 per cent of clients who used its free will-writing service were between 20 and 40 years old, while the remainder are older.

New digital trust for CPF savings

CPF savings are excluded from your estate and therefore cannot be covered under a will.

This protects the savings from any creditor claims on outstanding loans that you may have after your passing. Instead, you can specify who will receive your CPF savings, and how much each nominee should receive.

Without such a nomination, CPF savings will be distributed by the public trustee's office to legally entitled beneficiaries, who are usually family members and next-of-kin.

However, even with the nomination scheme, concerns remain for certain CPF members.

For one thing, the distribution happens upon a member's demise, which means younger nominees, who are not yet financially mature, could be handed a large sum of money that they may not be able to properly steward.

Elderly beneficiaries may also run into issues because of poor memory and other mental incapacities. Lump-sum payouts pose risks too, such as the temptation to squander, potential for scams, or draw unnecessary attention.

A new digital trust that customises one's CPF distribution may address some of these concerns. Designed by estate and succession planning provider PreceptsGroup, ProviTrust allows a CPF member to appoint an individual or professional trustee to manage their CPF savings for the benefits of the named beneficiaries.

This gives the member flexibility in stipulating certain terms, such as staggered payments to specific beneficiaries. Upon one's demise, the nominated trustee will be legally obligated to safeguard the trust funds - comprising one's CPF savings - and carry out the terms of the trust.

There is also an option for you to give your trustee discretion on how to distribute the funds for the best interest of the beneficiaries. In this case, the trustee will be guided by a letter of wishes to distribute to the beneficiaries for their maintenance, daily living, medical and education expenses, and other costs.

For instance, in the case of a discretionary trust, the trustee will have the power to adjust the distribution between two daughters who are beneficiaries in the ratio of 6:4 instead of 5:5, due to one daughter requiring medical treatment for an unforeseen illness.

Ooi Sen Tee, a relationship manager with PreceptsGroup said many have a misconception that trusts are "the sole province of the wealthy". "In actual fact, it is to protect your loved ones. The need for a trust is not determined by the size of wealth. It is to ensure providence with a planned distribution," she said.

It costs S$800 to appoint an individual trustee under ProviTrust, while the professional trustee option will set you back S$2,000 and also includes an annual administration fee.

To be sure, CPF's nomination scheme, which is free, is likely sufficient for members who do not have vulnerable dependents and are otherwise not looking to customise their distributions.

Trusts and estate planning lawyer Tan Shen Kiat noted too that the enhanced nomination scheme, which provides for the distribution of CPF savings to nominees' accounts, is available for those seeking protection from creditors.

He added that the low- to middle-income populace may still find ProviTrust's service pricey, while those who are wealthy may not need such a trust service.

• The Money Playbook is a personal finance column that discusses how to take charge of your financial well-being.