For your family’s sake, it’s time to start thinking about how you want your assets to be divvied up after you’re gone.
For your family’s sake, it’s time to start thinking about how you want your assets to be divvied up after you’re gone.
Edwin* did not have a will when he passed away suddenly at the age of 42, so according to Singapore’s intestacy law – which determines how your assets are distributed if you pass away without a will – his wife, Daphne*, received 50 per cent of his assets, and the couple’s two children received 25 per cent each. Edwin’s elderly parents, who had looked after their son’s children but were not very well off, did not get a cent.
It’s a scary picture: Edwin certainly had not wanted his parents to be left with nothing, but that’s exactly what happened because he did not have a will.
KEON CHEE, director, Legasy Planners.
LIONEL CHEE, CEO, Aviva Financial Advisers.
LOH MEI KUEN, director, Advisor y, Providend Ltd.
No will? You’re not the only one
The majority of working Singapore adults don’t have a will – 87 per cent, to be exact, according to a 2011 survey conducted by established will-writing company Simply Wills.
“Most people don’t think that anything will happen to them,” says Loh Mei Kuen, director, Advisory, at Providend Ltd. “They don’t think that they will pass away suddenly because that’s something that only happens to other people. Some Singaporeans also have this perception that writing a will is complicated or time- consuming, or they think that they have nothing to leave behind.”
“Whatever your reason for not having written your will yet, it’s just irresponsible, in my opinion,” adds Keon Chee, director of Legasy Planners. “If you pass away without a will, can you imagine the mess your family will have to deal with? They’ll be wondering what your wishes were, what assets you owned, and whether they will have any assets to live on now that you’re gone. It would be an immensely stressful scenario and the legal battles that ensued would be costly.”
“There’s no excuse for not having a will, so just make an appointment to see a lawyer or a will writer,” Keon continues. “You could go any day and you don’t want to leave your family in the lurch.”
Don’t make these common will mistakes
Even if you and your spouse have a will, it doesn’t mean you should rest easy. People who have wills tend to make some common mistakes, so you should take a look at yours to make sure that nothing’s amiss.
Mistake #1: You fail to update or review your will
“Ideally, you should review your will every three to five years or whenever something major in your life occurs, for example, you have a new baby, you change your job, there’s a death in the family, or you start a new business,” says Keon.
“Divorce also counts as a major change because, where the law is concerned, divorce doesn’t revoke a will,” he adds.
Keon shares: “I have a client who had a will but then she got divorced. In that will she had left a sizeable chunk of her assets to her former husband. Because she was so upset by the divorce, she didn’t think about her will until we reviewed it a year later. She then rewrote her will, but had she not done so, and had she passed away, her ex-husband would have received a very generous gift, which is something she wouldn’t have wanted.”
Mistake #2: You don’t consider that you could pass away tomorrow
The other mistake people make when they prepare their will is that they think about what they’ll leave their spouse and children, 30, 40 or 50 years down the road, when they estimate they will pass away. But Keon says that, when you write a will, you have to make sure that the will works tomorrow.
He relates the story of a successful businessman, John*, who wrote his will in his 30s, dividing his assets equally between his wife and two young children. John thought that since a man’s life expectancy is about 80 years, it would be another 40-plus years before his will would be activated, by which time his kids would be middle-aged. His will was therefore written to anticipate his death about 40 years from the time he wrote it, something which Keon says is dangerous.
“Unfortunately, John passed away suddenly in his 40s, when his kids were still in their teens,” says Keon. “The gifts to his wife and children were therefore immediate gifts. Because his estate was worth close to $10 million, his children became multimillionaires when they turned 21, which is the minimum age at which a beneficiary can receive his gift. The way I see it, even though John had written a legally valid will, it was an ineffective will because it didn’t work the next day.”
What John should have done, says Keon, was set up a trust to hold his money. The trust would have ensured that his money would be given out in reasonable amounts over time to his wife and kids, instead of immediately in one massive lump sum.
Do you need a will or a trust?
Contrary to popular belief, trust funds aren’t just for the ultra-rich. Keon says that most middle-income families in Singapore would benefit more from having a trust than a will. “In my experience, a typical middle-income adult has a net worth of between $2 million and $3 million at death,” Keon points out. “That’s counting the home, investments, insurance policies and bank accounts.”
According to Lionel Chee, chief executive officer of Aviva Financial Advisers, trusts are typically used to allocate your assets to your chosen beneficiaries, according to conditions or prerequisites you have specified.
So, for example, you can choose to specify that your children must be of a certain age before they start receiving the funds. You can also specify that certain prerequisites must be met – for instance, that your children must already be holding a stable job, that they can only use the funds for specific purposes, and so on.
“Trust funds are held by a trustee, and it is the trustee’s job to manage the money until your children reach the age at which they are eligible to receive the whole lump sum,” says Mei Kuen. “Of course, until that time, they can get small payouts if needed, for their medical, living or education expenses.”
Opting to disburse the funds to your beneficiaries over time instead of as one big amount is helpful if you want to minimise the risk of your children squandering their inheritance, or to ensure that your assets can last a few generations, Lionel adds.
What to know when setting up a trust
There are a few important things to consider when deciding to start a trust. For one, it costs between $1,000 and $4, 500 to set one up, and it can be costly to maintain as most firms charge an annual fee to manage it.
Second, different types of trusts are available. Lionel suggests talking to your wealth manager or a professional trust firm so that you can figure out which one best suits your objectives.
Third, you will need to decide on a trustee, but choose carefully, Lionel advises: If you go with an institutional third-party trustee who is unbiased, they may not understand your family dynamics. If you select a family member or close friend who is familiar with your wishes, they may not have the time or desire to invest your assets efficiently.
Finally, when setting up a trust, you can also specify how you’d like your assets to be invested, for example, in low-risk stock options and investment-linked plans.
“Whether you choose to go with a trust fund or not, it is part of prudent financial planning to regularly check and update your will, the beneficiaries for your life insurance policies, and your investment portfolio,” says Lionel. “This will ensure that they are updated to reflect your objectives and wishes.” SH
Trust vs a will
There are quite a few dif ferences, says Lionel.
• A trust goes into ef fect as soon as you create it , and can be used to manage or distribute assets at any time before or af ter death. A will, on the other hand, takes ef fect only af ter death.
• With a trust , you will relinquish your legal ownership of any assets to a trustee. A will takes care of assets that are in your name (this means it cannot be used for assets that are jointly held or held by a trustee).
• A trust does not require a legal court to oversee the execution process. A will requires a court to validate it and oversee its execution.
• A trust is only for instructions regarding assets that are being held by the trustee, whereas a will can be used for other instructions such as appointing a guardian for your children.
Simply Her readers share. . .
“My husband and I wrote our will 10 years ago. We wanted to ensure that our two kids would be taken care of, financially, physically and emotionally, should something tragic happen to us. We even chose guardians for them. “Our children, who are now teenagers, know about our will, and are comfortable with our decisions. It’s important for every family to have a will so that you can control what happens to your property, assets and children af ter you’re gone.” – Florence Teo- Fauls, 42, part-time account assistant.
“I’ve been meaning to sit down with my husband to write our will, but I just haven’t got around to it yet . One of us is always too busy or we keep forgetting! I know those are poor excuses, but we will get it done soon. One of our lawyer friends suggested we talk to a solicitor and even told us what to put in our will.” – Jean Paixao, 28, ear ly childhood educator.
