Estate planning is a commonly misunderstood aspect of financial planning, with people asking me “Is it the planning of real estate?”. When done right, what estate planning really means is when we are no longer around to express our love to the people dearest to us, a legacy of love is left behind for them in the form of our wealth.
Put simply, estate planning involves preparing for the distribution of one’s wealth in the event of death. It helps ensure that you can give away:
- whatever you have
- to whoever you want
- however you like
- in an orderly way;
and keeps you and your loved ones away from unnecessary court costs and professional fees.
Here are the critical estate documents anyone should create:
What can go wrong if you don’t have a Will? You may leave behind assets which beneficiaries may quarrel over or an undesirable person may be the lawful beneficiary. Assets can also be distributed using half the time taken if it was according to the Intestate Succession Act (on average 6 months vs a year).
If you own joint assets (e.g. real estate, bank account), a Will caters for situations if both joint tenants or accountholders pass away at the same time.
For married couples, a guardian can be appointed in a Will, to care for the child if both parents were to pass on at the same time.
2. Nomination for CPF accounts and life insurance policies
Nomination forms can be obtained from CPF Board and your life insurance company. You will be able to name your intended beneficiaries and the amount of share each of them gets.
Asset distribution is also the fastest using this document, just that it only applies to CPF accounts and life insurance policies. Probate costs associated with Wills, which could be upwards of $1K, can also be avoided.
3. Lasting power of attorney (LPA)
This is not an estate planning tool per se. But this is definitely one legal document everyone should have to protect themselves and their assets if one becomes mentally incapacitated.
With an LPA, you are able to decide your future right now so that if you lose your ability to communicate, your appointed loved ones can help manage your legal and financial affairs in your best interests.
We all know that we don’t live forever. But with careful and responsible planning, we can protect and provide for our loved ones even when we are gone.