In this sixth and final article in the Planning for Your Retirement series, we will be exploring estate planning – one of the most important aspects of financial planning that is often overlooked by seniors and younger people alike. Indeed, everyone needs to plan and take action while you still have mental capacity, as you never know when something may happen.
Estate planning concerns your loved ones upon your eventual passing and how you can provide them with your hard-earned assets – leaving a legacy for them, a final act of love.
So, what happens to our assets when we pass on? How would these assets be distributed and who gets what? These are important questions that should be decided by none other than you and distributed in accordance with your wishes. Without proper planning, we could be leaving a financial mess for our loved ones to pick up after our passing.
Distribution of assets upon death – or estate distribution – need not be difficult. A better understanding of the estate rules governing common assets such as property, CPF savings, life insurance, and the benefits of having a will, and taking action thereafter, can ensure that our assets will go to our intended beneficiaries without unnecessary hassle.
How your share of the property gets transferred upon death depends on how it is being held, whether joint-tenancy or tenancy-in-common.
Take, for example, Mr and Mrs Tan who are joint tenants of a property, and if, say, Mr Tan passes on, the surviving spouse (Mrs. Tan) will inherit and become the sole owner of the property. As the property is under joint-tenancy, Mr Tan cannot create a will to distribute away his share. However, if the property is held under tenancy-in-common, Mr Tan could write a will to distribute away his share to others. Most properties are held under joint-tenancy.
In the event of the demise of both joint tenants, HDB flats can only be retained if the beneficiaries (for example, children in the case where both parents pass on) fulfil certain eligibility criteria including Singapore Citizenship or Singapore Permanent Residency, are at least 21 years of age, and do not currently own another HDB flat. If not, it must be sold.
2. CPF savings
You should make a CPF nomination to specify how your CPF savings should be distributed. In the absence of a CPF nomination, your CPF savings will be transferred to the Public Trustee’s Office for distribution to your family under the Intestate Succession Act or the Inheritance Certificate (for Muslims). Your CPF savings cannot be distributed via a will.
With a CPF nomination, CPF Board would be able to locate all your nominees easily. This will help in the process of disbursement which could be completed within 3 weeks or up to years if the Public Trustee is unable to locate all your potential beneficiaries or reach an amicable settlement between your next of kin. For your loved ones, it may not be so much about the money inherited, but the expediency of settling such matters could help bring about closure sooner.
What does a CPF Nomination cover?
Not all assets involving CPF are covered by a CPF nomination. Those assets not covered must be addressed separately.
Source: CPF Board
What are the different types of CPF Nomination?
Before making a CPF nomination, do note there are 3 types to choose from depending on your needs.
- Cash Nomination – this is the default option. In this nomination, your nominees will receive the CPF savings in cash. Since 2020, you can make your CPF Nomination online.
- Enhanced Nomination Scheme Nomination – Your nominees will receive the CPF savings in their CPF accounts. You can decide to transfer your CPF savings to their:
- MediSave account – for their healthcare needs; or
- Special account – for their retirement needs.
- Special Needs Savings Scheme Nomination – this allows parents to nominate their special needs children to receive the CPF savings on a monthly basis. To make this nomination, you would need to work with the Special Needs Trust Company (SNTC) and the CPF Board. More information on this scheme here.
3. Life insurance policies
If there are no beneficiaries named in your insurance policies, the proceeds can be distributed by way of a will or, in the absence of a will, by Intestate Succession Act.
With effect from 1 September 2009, you can make a revocable nomination or a trust nomination on your insurance policies for your beneficiaries.
- A trust nomination – it is irrevocable and is meant to benefit your spouse and/or children.
- A revocable nomination – can name any person as a nominee and can be revoked anytime by you.
However, if you have named beneficiaries in your insurance policies before 1 September 2009, there could be some potential issues:
- If the named beneficiaries are a spouse and/or children, your policy is now under Section 73 of the Conveyancing and Law of Property Act. This essentially means that you have created a statutory trust. Under this statutory trust, your beneficiaries have full ownership rights to your insurance policy and benefits paid even while you are still alive. This cannot be revoked unless the named beneficiaries give their consent.
- If the beneficiary is anyone other than spouse or children, there may be issues regarding its validity. Hence it may be prudent to remove the named beneficiary and do a revocable nomination or distribute it by way of a will.
Other than the circumstances explored above, the deceased’s estate of a non-Muslim will be distributed either by way of a will or, in its absence, according to the Intestate Succession Act.
Without a will, the distribution of a deceased’s estate will follow the priority as set out by the Intestate Succession Act (ISA).
* ”issue” – includes children and the descendants of deceased children.
Under the ISA, spouse and children take precedence over parents, siblings and other family relationships. While it may seem logical with some, such a distribution order can be problematic, such as:
- A married person with children hopes to leave behind something for his or her parents. Under ISA, the parents are excluded.
- A single person wishes to provide for both his or her parents and siblings. Siblings are excluded in this case.
These issues can be easily solved by having a will.
Benefits of a will
With a will, you can decide who your beneficiaries are and how much they get. You also control whom you trust to be your executors, trustees and guardians. Having a will can also avoid the potential conflicts and disharmony among loved ones who may dispute how the estate should be distributed. Lastly, the process of administrating the estate is generally faster with a will than without one.
Interestingly, many people do not have a will. Some common reasons are the high cost of writing a will, not knowing how to begin, and perhaps the time is not right.
With MoneyOwl’s online will writing service, which is complimentary with a promotional code, there is no reason to put off will writing any further. The guided will writing process will help you draft out your will in no time. Get it printed and signed before two witnesses (who cannot be a beneficiary or the spouse of a beneficiary) and your will is legally binding. If you need to make further edits, just come back and use the service again.
5. Lasting Power of Attorney (LPA)
Finally, do consider making a Lasting Power of Attorney while you have the mental capacity to do so. An LPA basically allows you to appoint one or more people [‘donee(s)’] to manage your personal welfare and property should you (‘donor’) lose mental capacity one day. The danger of not having a LPA is that your loved ones or caretaker would not have access to your financial assets and use them to take care of you without first applying to court for deputyship order. This can create a lot of stress and unnecessary burden for them.
A donee can be appointed to act in 2 broad areas, whether separately or jointly:
- Personal Welfare – such as, where and who should donor live with, healthcare matters, what to wear and eat.
- Property and affairs – such as dealing with the donor’s property, managing bank accounts, investing and making purchases of equipment for donor’s needs.
To make a LPA, you need to:
- Fill up a form from the Office of Public Guardian. From now till 31 March 2023, the LPA application fee is waived for the most common LPA option (Form 1).
- Engage a certificate issuer to sign as a witness and certify that you understand the implication of an LPA. A certificate issuer could be an accredited medical practitioner, a practising lawyer or a registered psychiatrist. The average fee charged by an accredited practitioner is about $50.
- Send the form and certificate back to the Office of Public Guardian for registration. If there are no valid objections in the six-week waiting period, your LPA will be registered. The stamp of the Office of Public Guardian will be impressed on the registered LPA. The Office of Public Guardian will send it back to you for safekeeping.
We have come to the end of the 6-part series on Planning for Your Retirement. We hope that this series has given you some ideas on how to prepare for your retirement with greater confidence.
If you have enjoyed this series and would like to learn how to apply this to your own retirement plan, do consider taking up our Comprehensive Financial Planning Service. We will help you to customise your retirement plan around the three must-haves in retirement while integrating them with national schemes like CPF LIFE, MediShield Life and CareShield Life. Your dedicated client adviser will be well equipped to address concerns you have on any aspect of your retirement plan and guide you along the way to achieving greater peace of mind.