Estate Planning Tools

In the last 2 weeks, we learned a lot of things about estate planning. Now, we'll talk about the estate planning tools:

1. Will: A Will is a legal document that instructs the administration and distribution of what a person owns - assets among his beneficiaries after his death. The person who makes a Will is called the ‘Testator'. 'Beneficiaries' are those who inherit or benefit under the Will. The 'Executor' is the person nominated by the Testator to administer and distribute his estate upon his death. Usually, the same person is appointed as Executor and Trustee (a person who has the power to hold the estate of the deceased upon his death).
2. Trust: A Trust is a legal arrangement where an individual transfers assets to a third party, known as a Trustee. The Trustee can be yourself when you are alive or your trusted loved ones upon your death or disability. The Trustee can also be a professional Trustee. The Trustee is bound by a deed to hold and manage the assets for the beneficiaries. The individual who transfers the assets into a Trust is known as the settlor. The Trustee takes legal ownership of the assets entrusted to him/her by the settlor, but the beneficial interests still lie with the beneficiaries.
3. Advance Medical Directive (AMD): An AMD is a legal document that a person signs in advance, informing that he does not want any life-sustaining treatment to be used to prolong his life if he becomes terminally ill, unconscious or when death is imminent. The AMD can be made by anyone aged 21 years and above and of sound mind. The AMD form is a legal document that must be completed and signed in the presence of two witnesses before it is returned to the Registrar of AMDs. The patient’s doctor must be one of the two witnesses, while the other witness must be at least 21 years old. In addition, both witnesses must not have any vested interests in the patient’s death.
4. Lasting Power of Attorney (LPA): An LPA is a legal document that allows a person who is 21 years of age or older (‘donor’), to voluntarily appoint one or more persons (‘donee’), to act and make decisions on his behalf as his proxy decision maker if he should lose mental capacity one day. Donees can be appointed to cover two broad areas: personal welfare as well as property & affairs matters. LPA enables you to safeguard your interests by naming a proxy decision maker (someone you consider to be dependable, competent, and capable) to act and make choices on your behalf if you become vulnerable and lose the mental ability to make your own decisions.
5. Life Insurance: Life insurance is a legal contract between the insurance company and owner of the insurance policy. On the condition that the owner pays the premium, the insurance company will pay the sum assured to the rightful owner/ beneficiaries of the policy if an unplanned risk (for example, death, critical illness or total permanent disability) happens. Life insurance creates and guarantees immediate cash inflow to your estate for your loved ones upon your death. This is important because in the absence of the insurance proceeds, a family typically has to liquidate certain assets, if any, to fund their livelihood when the breadwinner of the house dies.
6. Central Provident Fund (CPF) Nomination: CPF nomination allows you to allocate your balance CPF funds to your loved ones upon death. Many are unaware that CPF funds do not form part of the estate that can be distributed according to a Will. If you do not submit a CPF nomination, the funds will be allocated in accordance with intestacy regulations. It will take time to discover the legally-entitled beneficiaries, and the Public Trustee's Office will charge a fee to make the distribution.
7. Buy-Sell Agreement: A Buy-Sell Agreement is a legally binding agreement between co-owners of a business that governs the situation if a co-owner dies, is forced to leave the business, or chooses to leave the business. This agreement may be thought of as a sort of premarital agreement between business partners/shareholders and is sometimes called a “business will”. An insured Buy-Sell Agreement (triggered buyout is funded with life insurance on the participating owners’ lives) is often recommended by business succession specialists and financial services consultant to ensure that the buy-sell arrangement is well-funded and to guarantee that there will be money when the buy-sell event is triggered.
8. Shareholders' Agreement: Any company having more than one shareholder should have a Shareholders’ Agreement that sets out the rights and responsibilities of the shareholders. It will provide for the manner in which corporate decisions are to be made, the protection of minority shareholders, operational and financial issues and the situations in which a shareholder may sell his shares. From the estate planning angle, Shareholders' Agreement will ensure your share interest in a company is protected if you were to die prematurely or lose your mental capacity through the clauses on the transfer and transmission of shares.