How to Minimise Your Legacy Risks – 3 Things You Can Do That Won’t Cost You A Bomb
You have gotten all your plans in place. If you fall seriously ill or an unexpected death happens, you have that lump sum prepared for you and your family. In fact, your financial portfolio is so perfect that it wards off financial planners as they have no reason to increase your coverage.
- All debts and loans covered? Ticked!
- A sum of money for the kid’s future? Check that off!
- Continued allowance for aged and healthy parents? Yup!
- More than enough money to provide for “Dear” until the kids grow up? Absolutely!
Great? Perfect? Nothing to worry about?
While the purchase of the insurance policy will guarantee an inheritance, it may not create a legacy you desire. When it comes to “Estate Planning”, the only thing that matters is how you will be remembered. In GEN, we call it the “legacy risk”.
So, how do you minimise legacy risk?
Here are 3 things you can do immediately that won’t cost a bomb.
1. Nominating Beneficiaries for your CPF and Insurance Policies (If you don’t intent to write a will)
Many young and single professionals that I have helped tend to ignore the value of making nominations as they do not mind having it distributed by “default” as according to the Intestate Succession Act *, 100% of their assets are distributed equally to their parents.
I would like to suggest otherwise. Besides having parents as beneficiaries, there are, in my view at least 4 other important considerations even if you want to leave everything you have to your parents. As such, I would strongly encourage everyone to nominate beneficiaries to your own policies and CPF accounts and decide on who you want to pass these monies to. It is legally recognised, you do not have to meet a lawyer and best of all, it is free of charge.
All you need are two witnesses, your beneficiaries’ personal details and you are ready to Nominate.
Note: Nomination of Beneficiaries and CPF Nominations are only used to distribute your life insurance proceeds and CPF Accounts respectively. It does not help to distribute other assets you may have.
2. Writing a Will (Especially if you have young children)
The question in many people’s minds are “I have already done up my CPF Nomination and Nomination of Beneficiary, do I still need to write a Will?”
When you begin to set up your own families and/or have more assets – eg. property, cars, shares etc, having a Will naturally changes from a “good to have” to become a “must have”. This is because as your personal financial situation increases in complexity, it is normal to have better structures to keep things simple and organised.
For most Singaporeans, you will fall within these categories:
1) If you are single, all you have will be given to your parents
2) If you are married without children, half of what you have will be given to your parents, and half will be given to your spouse
3) If you are married with children, half of what you have will be given to your spouse, and half of what you have will be given to your children.
If you do not like what you see, then it is important for you to write a Will. Even if you are fine with this arrangement, I do encourage married couples to think about how they want their monies to be distributed if something happens to both of them at the same time. If you have children, who is going to take care of them? These are some concerns that can be addressed by having a Will.
A Will is a document that states who you want to give your assets to and it will only take effect upon death. You can write your own Will, but it is best to have a lawyer to draft it so that it is legalised and no one will be able to dispute its validity.
Here are 3 Tips to help you as you think about setting up a Will.
Tip 1: Have your financial planner involved in the process. He or she will likely help you fill up the details about your insurance and investments which will save you a lot of time.
Tip 2: Ask yourself what are your “Top 3 Concerns” and communicate that to your estate planner. This will prevent you from over-thinking in trying to set up a “perfect” Will and end up procrastinating on a decision.
Tip 3: Clarity trumps Persuasion. Writing a Will is an act you do for others, not yourself. It is more important for your loved ones to know what you want rather for yourself to be convinced that what you do is correct.
3. Lasting Power of Attorney (LPA)
What I’ve talked about so far are tools to help you to distribute your assets when you are no longer around. What about the situation when you are around but is no longer able make decisions on your assets and on your daily basic welfare needs (eg. what to eat, what to wear, handling my mails .. etc. )? That lack of planning at this part can also be a significant legacy risk.
The Lasting Power of Attorney (LPA) is a legal document which allows you to appoint someone you like and trust to help you make decisions if you lose your mental capacity one day.
Like a Will, many people may not have done up a LPA as the process can be quite overwhelming.
(See it with your own eyes here: Setting up an LPA)
As such, it will be a good idea to get professional assistance especially when there are many lawyers who are able to can help you set up an LPA and Will at the same time.
Memories Not Money
Recently, someone asked me: what is the difference between inheritance and legacy?
I suggested that one is money and the other is memories.
My inspiration to write this article came as I reflected on how often clients did not take up my suggestion to explore having their estate planning needs (i.e. the “financial effects of dying”) reviewed. I’ll accept their reasons about being young, being too busy or perhaps, they are happy with the default. And they are correct because those were my reasons too.
Recently, I moved past my own excuses and reviewed my estate plans. It’s a great feeling knowing I’ve addressed something I know I should have addressed earlier but had procrastinated in taking action. Even for a financial planner, addressing the “what if’s” can be daunting because of the emotions involved.
If you feel that the time is right and ripe for you to address this issue, you can click here to download this guide to get your planning process started before you arrange that appointment with your financial planner or lawyer.
(NOTE: Get our Guide to Minimising Your Legacy Risk to help you with your Legacy Planning. Get your Guide here)
Have fun planning!
* It is worth noting that the Intestate Succession Act does not apply to Muslims. The distribution of property of a deceased Muslim domiciled in Singapore at the time of death is governed by Muslim law and the Syariah Court.
Article by Lois Chua, ChFC