Estate planning is the process of making preparations and leaving behind legally-recognised instructions on how we want our affairs to be handled once we are no longer around.
As with many cultures, Singaporeans don’t like to think about death. Consequently, many people are woefully unprepared for what happens to their assets, liabilities and financial arrangements for their loved ones when they pass on, perhaps until something drastic happens:
Consequences Of Not Doing Estate Planning
Not doing estate planning can be costly for your surviving family members, including not being aware of bank accounts, life insurance policies, personal IOUs from friends, and not knowing how to manage a sophisticated investment portfolio.
The sections that follow provide a brief overview on estate planning for educational purposes but is not meant as legal advice. Please seek professional advice for your specific situation as part of your estate planning process.
What Happens Legally When You Pass Away
Before any distribution to beneficiaries can happen, the deceased assets have to first be used to settle any debts they are liable for. Not understanding this may lead to disappointment over the eventual size of the bequest left behind for loved ones.
Everything of monetary value that the deceased leaves behind makes up their estate. This includes bank accounts, properties and investments. The exception to this are your CPF monies and assets held in trust, both of which come under separate legal status and does not form part of one’s estate – and thus, cannot be touched by creditors.
The person designated in the deceased’s will to handle the estate is known as the executor, who is usually a trusted family member, friend, or lawyer. If the deceased did not make a valid will and has an estate not exceeding $50,000, the surviving family members may apply to the Public Trustee for them to administer the assets of the deceased according to the Intestate Succession Act.
Once someone passes away, all their assets will be frozen. The executor will then apply to be granted probate, which is a court order that empowers the executor to settle the deceased liabilities and distributed any assets that are remaining.
Funeral costs would take precedent. Following that, the executor will use the estate, including taking steps to liquidating investments, to pay off any outstanding debts. These include debts owed to the government (for unpaid taxes), financial institutions (for loans, mortgages, and credit card bills) and companies (for telephone and utility bills).
Only after the court is satisfied all debts have been paid can the remaining assets be distributed to the beneficiaries, in accordance to the will.
If the estate is found to be insolvent, where the debts of the deceased exceed their assets, then the order of debt repayment will follow the Bankruptcy Act, after funeral costs are paid for.
Will Your Family Members Be Liable For Your Debt?
In Singapore, surviving family members are not legally responsible for the debts left behind by the deceased, which will have to be written off by creditors.
The exception to this is when the deceased has a joint loan account with a surviving family member. That person will then take on the deceased’s debt responsibilities. These include joint personal loans or mortgages.
If there is joint homeowner or if someone inherits a property with a mortgage on it, they too would be responsible for that debt. They would then need to either pay it off to retain control of the property, or get a new home loan. If there aren’t any joint owners, the executor will need to sell off the property to pay off the mortgage.
In such instances, mortgage insurance will come in handy to settle the outstanding mortgage and allow the beneficiaries to keep the property. Having to sell the property at short notice rarely gets you a good price.
Its worth noting that if you sell the home for more than the mortgage, you get to keep the difference, but it you sell for less, the mortgage debt is considered as settled.
For HDB homeowners using CPF to service your mortgage, you already have a mandatory mortgage-reducing insurance, known as the Home Protection Scheme (HPS). It protects families from losing their HDB flat in the event of death, terminal illness or total permanent disability. HPS insures members up to age 65 or until the housing loans are paid up, whichever is sooner.
As mentioned earlier, your CPF monies do not fall under your estate. Thus, you will need to make a CPF Nomination to specify how you want your CPF monies to be distributed after your passing. The CPF Nomination covers your CPF savings in your Ordinary, Special, MediSave and Retirement Account. It also covers any unused CPF LIFE premiums which were used to pay for your CPF LIFE, as well as any discounted SingTel shares that you may have.
As stated in the CPF website, there are three options that you can choose for how your CPF nominees should receive your balance CPF funds. They are:
(1) Cash Nomination: This the default nomination type.
(2) Enhanced Nomination Scheme (ENS) Nomination: Your nominee(s) will receive the CPF savings due to them in their CPF accounts.
(3) Special Needs Savings Scheme (SNSS) Nomination: This scheme is applicable for parents with special-need children. It allows parents to nominate their children with special needs to receive their CPF savings due to them on a monthly basis. If you are considering this option for your special-need child, you can find out more from the Special Needs Trust Co.
As explained by the CPF Board, making a CPF nomination is neither a requirement nor even necessary. This is because similar to how your assets are distributed if you pass on without leaving a valid will, the entire savings in your CPF accounts will be distributed by the Public Trustee to your family members according to the intestacy law or the Certificate of Inheritance (for Muslims).
How To Start Doing Estate Planning?
If you haven’t already done so, you should take stock of your current assets and liabilities, and make a will that includes a plan to ensure your financial matters are handled in accord to your wishes.
For example, you might have assets like investments and property. You think it makes sense if you pass on to liquidate the investments so that your family can continue to live in the property. If you do not make that clear in your will, your executor might see the property (and accompanying mortgage) as a big liability and decide to sell it at a loss, while keeping your investments.
Contrary to what some might think, you do not need a lawyer to make a legally-valid will. In fact, you can even do it online, using services like MoneyOwl’s online will writing tool.
You should also also gather up your life insurance policies and retirement plans, so that your executor and family members can claim from the insurance companies. As you go through this process, you can also assess if the level of life insurance is sufficient for your dependants.
Proper Planning Prevents Problems
We spend lots of time when we’re alive trying to optimise our earnings and get the best bang for our buck. Now that we understand how our loved ones could stand to lose from a lack of estate planning and discussion about such matters, there is no better time than now to do something about it.