Personal Financial Planning – Estate Planning

Estate planning addresses lifetime needs like permanent mental or physical disability and post-death arrangements.
The objectives are unique to the individual but generally include:
– Distribution of property in accordance to one’s wishes
– Sufficient liquidity to pay off debts
– Appointment of executors
– Security for dependents
– Contingencies
The 4 step process:
(1) Determine goals
(2) Preparation of plan
(3) Implementation of plan
(4) Reviewing of plan
Determine Goals
A lot depends on one’s attitude towards security, philanthropy, risk, work and money. Important areas to consider are:
– Any known problems with a particular property (Do not leave the burden behind)
– Unresolved family issues (Relationship problems, children from other relationships, etc)
– Financial security for dependents
– Views towards chartiy
– Attitude about extraordinary life sustaining medical treatment
– Contingencies in the event of mental or physical incapacity
Preparation Of Plan
The following tools are used for the plan.
(1) Wills
A Will has to be in writing and signed together with two disinterested witnesses.
Important provisions in the Will:
– Appointment of Executor
– Maintenance for Spouse or Child
– Avoid uncertainty (eg, wording of “equal distribution to ALL grandchildren”, the eventual number of grandchildren cannot be determined conclusively)
Failure to provide the above will may result in the Will being invalid or contested.
Other areas to note:
– Where should the Will be kept
– Ensure the Will is most current by clearly dating the Will and destroying earlier originals
– Designation of Guardians
– Residuary estate acquired in the future
– Tax apportionment as to which beneficiaries’ assets to bear the burden of outstanding debt
– Contingent Beneficiaries and Executors
(2) Trusts
It is created by a trustee having the legal ownership to manage a property for the benefit of someone else.
– Protection from creditors
– Privacy
– Bypass the Probate process
– Professional management of institutional trustee
– Irrevocable
– Professional trustee fees
(3) Insurance
– Creation of Statutory Trust through Section 73 of the Conveyancing and Law of Property Act
– Provision of liquidity
– Financial security for dependents
– Long term care (Eldershield) and Disability Income Insurance in the event of mental or physical disability
(4) Powers Of Attorney
To authorize another party to act on behalf of the donor.
– For property: So that the property may still be sold if necessary to raise funds in the event of mental or physical incapacity
– For healthcare: An enduring power of attorney allows another to make decisions in relation to medical issues
(5) Advance Medical Directives
It is a legal document signed by a person in advance of his suffering a terminal illness that he would not wish to be subjected to extraordinary life-sustaining treatment.
(6) Charity
Leave a legacy by giving directly or creating a trust for relief of poverty, education, religion or community benefit.
Implementation Of Plan
It is recommended and in some case necessary to engage professionals to implement the plan.
– Lawyer: To advise on the legal issues, validity and enforcement of the arrangement.
– Insurance Specialist: The available types of insurance to best suit the needs and advise on the claiming process.
– Trust Service: To act as a trustee or executor.
– Accountant: To provide tax advice and information with regard to assets in the estate.
Reviewing Of Plan
The plan will need to be reviewed with changes in personal and financial circumstances as well as changes in the the law affecting estate matters. An outdated plan may no longer be valid.
Other Areas To Note
(1) Use of joint ownership with survivorship
Jointly held property will be passed on to the surviving owner. It will not need to wait for the probate process and will not incur administrative transfer cost. Examples are joint bank accounts and joint ownership in real property.
(2) Domicile
The place an individual considers his permanent residence. That country’s law will determine if the Will is valid, the tax laws and where to file the probate. Owning properties in other countries may be subjected to the laws there.
(3) The Interstate Succession Act
Passing on without a valid Will will result in the estate being distributed in accordance with this Act. The process takes longer as the letter of administration needs to be applied, Administration Bond filed, sureties appointed, Renunciation and Consent Form may need to be completed, etc. This is a lack of Estate Planning and it is not the recommended approach.
Reasons cited for failing to plan include:
– The subject of death is difficult to deal with
– Other priorities in life such as career
– Unconcerned what happens to their estate after death
Overcome the obstacles and ensure estate planning objectives are met. Do not leave an unnecessary burden.