These Singaporeans did not do legacy planning right and their families had to pay the price

Many of you might have purchased properties as assets to be passed down to your children and loved ones.

Some of you might have done so via a trust, to be passed on to your children (who may still be minors) in future.

However, the Ministry of Finance announced earlier this year that from 9 May 2022, any transfer of residential property into a living trust will now be subject to an additional buyer’s stamp duty (ABSD) of 35 percent (though you can?get ABSD remission if you meet certain criteria ).

This means more cost to you if you intend to pass down your wealth this way.

What would be the viable options for you if you want to leave a legacy for your loved ones?

This is where holistic legacy planning comes into play.

Families of different backgrounds use legacy planning to preserve their wealth and protect their families in the long run.

As long as you own assets, be it properties, investments, or even cash and you want to pass them on to your loved ones, good legacy planning can make a difference in how your wealth is being distributed when you are no longer able to control your wealth (whether due to death or loss of mental capacity).

And a wrong move can cause your loved ones to bear the expensive consequences.

Unnecessary expensive burdens will be borne by your family without good legacy planning

I have seen friends and clients’ families suffer from the consequences of the lack of legacy planning. Often, people feel that it’s not necessary, or they have confidence that their families would be able to settle it harmoniously when they pass on.

But life is not a fairytale, and when money is involved, it can widen the cracks in any family.

Here are some common scenarios I have observed from the people around me (names have been changed for privacy reasons).

1. You are not sure if your children will squander away your wealth after you pass on

Nick and Jess had two children. Lucas and Lily. While Lily was a responsible person, Lucas was more likely to spend his money at Genting than save it for his future. The couple both passed away while their children were both young adults.

They failed to set up proper legacy planning for their children. According to the law, both children received an equal distribution of assets.

As the couple left their assets to heirs outside a trust, these assets are often liquidated and distributed in a lump sum.

Years passed, Lucas wasted his inheritance on luxuries and entertainment while Lily utilised it responsibly.

Over time, Lucas pressured Lily to give some of her inheritance to him because the money was actually from their parents and he is still her brother.

This puts Lily in a very awkward position as she deserves her share of the inheritance but at the same time if she feels the responsibility to take care of her brother. Their relationship was significantly strained over this matter.

Nick and Jess could have implemented planning arrangements through wealth distribution methods via a trust. This can protect Lucas from his immaturity and also Lily from the stressful and awkward situation.

2. What if someone whom you don’t intend to pass on your wealth to inherits your assets?

Here is another case that we can take heed from, too.

Fred (not his real name) was a dear friend of mine. As his close friend, I knew that his inheritance outcome was not the most ideal situation for him.

Fred and Katie were in the midst of finalising their divorce. As Fred and Katie’s relationship did not end on good terms, Fred had expressed his intentions to only pass on his wealth to his three children.

However, Fred did not provide a written will. Fred got into a car accident. Unfortunately, he did not survive the crash before finalising his divorce.

Without a will, according to the?Intestate Succession Act 1967 , when an individual dies leaving a spouse and children, the spouse will inherit 50% of his assets and their children will share the remaining 50% equally.

Fred could have prepared a will so his wealth will be channelled to those to whom he wants to distribute his wealth – in this case, his children. Katie benefitted from this misfortune as she was entitled to half of her late husband’s net worth, which was not what Fred would have wanted.

3. What if someone you don’t trust has to make important decisions on your behalf?

Last but not least, this scenario may be ‘far-fetched’ but you must consider the possibility of losing your mental capacity in your lifetime.

You might feel that the chances of losing our mental capacity are low. But in reality, it could happen to the best of us, especially in old age.

This lesson was learnt from what had happened to a family member, Kevin (not his real name) and what his eldest son had to endure because of a lack of legacy planning.

Adam is currently taking care of his father, Kevin, who lost his mental capacity at the prime age of 65. Kevin was diagnosed with Alzheimer’s disease — which is fairly common for his age bracket.

Adam is experiencing a lot of difficulties because Kevin didn’t grant anyone the lasting power of attorney (LPA) to make decisions on his behalf. This includes legal decisions about finances, property, healthcare and even personal care.

This puts Adam in a difficult position as he had to apply to be appointed as his father’s deputy in court in order to act on his behalf. This process is expensive and time-consuming for Adam.

Meanwhile, the court had to appoint a professional deputy to make decisions on Kevin’s behalf, someone who does not know Kevin like Adam does.

Kevin could have granted the lasting power of attorney to Adam, someone he truly trusts to act on his behalf in any legal matter. This eases a lot of processes as Adam would be able to act and control Kevin’s wealth with his best interest at heart.

Keen to read more the step-by-step guide to wealth and legacy planning?

Find the full article here https://www.thefinlens.com/blog/legacy-planning-estate-planning