The only certainty in life is death – yet death is something we avoid thinking about, let alone bring up in conversation. Viewed as an uncomfortable subject, we are reluctant to approach the topic of our mortality, delaying any association with it until it is too late. However, the grim reality is that death is something we cannot run away from, and how we live the rest of our life depends on how we approach death.
Living a ‘good’ life is difficult to define, but part of doing so is ensuring that you leave behind a legacy, not a mess. In the case of your personal finances, this is where estate planning plays a pivotal role.
Estate planning may be something you have heard in passing, but never given much thought to. Simply put, estate planning helps ensure the distribution of assets according to your wishes when the rightful time comes. It typically consists of Wills, Trusts and LPAs, and while each has its separate purpose, they work together to form a holistic and exhaustive estate plan.
Wills
Did you know Prince, best known for his song Purple Rain, failed to leave behind a will? You would think that a wealthy celebrity like him would have made sufficient arrangements for his family, yet nothing was done. This caused problems for the court in the distribution of his $300 million estate, leading to disputes emerging between his likely heirs.
A will is able to prevent confusion and disagreements over your inheritance amongst your family after your death, as it is a legal declaration by you with regards to the distribution of your assets (movable and immovable) after your death.
But what would happen without one? In Singapore, you will be known as having died ‘intestate’ and the Intestate Succession Act (ISA) will take effect. The state thus has control over your assets and will distribute it in accordance to its laws, which may not be the best fit for your family’s financial circumstances. Your assets will thus not be distributed in the manner you deem fit, making your hard work over the years almost worthless.
Beyond the distribution of financial assets, a will allows you to appoint your executors and guardianship over ones children, especially crucial for families.
LPAs
However, in the unfortunate event that one is mentally incapacitated, be it through an accident or illness, the Will does not take effect, but rather the LPA. An LPA allows one to appoint trusted individuals (donors) to make personal welfare and financial decisions on their behalf. Without an LPA, families may have to spend thousands of dollars and endure long waiting times to apply and get access to their finances.
Closer to home, the Yang Yin saga in 2016 brought to light the importance of LPAs – Yang Yin manipulated an elderly woman who eventually suffered from dementia to sign an LPA, allowing him to have control over her assets valued at over $40 million. He was found to have misappropriated the funds and neglected his duties as part of the LPA. The LPA was eventually revoked and Yang Yin was jailed, but not after much drama and legal costs for the family.
This incident not only brought to light the serious impact an LPA can affect, but also the importance of choosing the right individuals who only have your best interests at heart and one that you have communicated your last wishes to.
Trusts
Trusts are at times misunderstood and used interchangeably with wills, but it is in fact, a legal arrangement involving 2 parties, whereby one person (a “trustee”) holds legal property for another person (a “beneficiary”). Commonly used in succession planning for families and businesses, the trustee has the authority to handle and administer the finances to the beneficiaries when they deem the beneficiaries to be financially mature.
For business owners, the importance of succession planning cannot be denied. Due to the lack of discussion and various other factors, local family business Eu Yan Sang had bulk of the family business sold after the death of their second-generation leader. Under the current strong leadership, most of the business has returned in the hands of the family. However, not all businesses may be as lucky as them, and arrangements should be made to avoid similar situations.
Having read some examples on the importance of such legal arrangements, and perhaps some of us having seen others experience similar incidents, the message to do up an estate plan is clear. However, it is estimated that only about 15-20% of Singaporeans have drawn out their will, and even less so for trusts and LPAs. Though most have the intention of doing so, procrastination or a lack of time often gets in the way. We tend to put it at the bottom of our priority list, thinking to ourselves “I’m still young, there’s still time”, forgetting that tomorrow is never a guarantee.
If you are currently in good health and the right state of mind, you should take advantage of it and make the necessary financial arrangements in case any unexpected situations. Having a comprehensive estate plan may not lessen the grief on our families, but it will surely help to ease some of the emotional turmoil and reduce disputes that can drag on for years.
Yes, the unpredictability of life may be viewed a burden, but it is also a blessing for it reminds us every now and then to step back and look at the bigger picture and make the most of our lives.
About PFPFA
PFPFA is a licensed financial adviser specialising in a wide range of financial solutions for individual and organisational clients alike. Our solutions cover investment services, insurance solutions, estate and business succession planning and many more.
The ethos of our company is to build lasting relationships with individuals, families and businesses across Asia and generations, so as to deliver the finest solutions to suit our clients’ ever-evolving needs.
We endeavour towards continuing our dedication to helping our clients have an enduring peace of mind by securing their future, and to elevate the benchmark for excellent financial advisory by continuously pushing for innovative solutions that best suits ever-changing market needs.
