Recently, a 65-year-old friend who was doing his estate planning asked me how he could withdraw S$600,000 from his Central Provident Fund (CPF) because the daily withdrawal limit is now capped at S$50,000.
After I instructed him how to increase this limit, I asked him what the money was for – although to be honest, it wasn’t really any of my business.
His reply was interesting.
"Once the mortgage, which is her biggest financial burden, is settled, she can easily plan for other commitments like children’s education or her retirement."
Of course, his generosity hinged on him already having sufficient retirement funds at age 65 such that he could afford to give away S$600,000 – a situation which not many seniors can claim to share.
But it’s certainly a unique perspective on how to approach the issue of estate and legacy planning, and it set me thinking – how many seniors have given serious thought to how they wish their estate to be distributed after they pass on?
Advertisement
Estate planning checklist:
- Who do you want to appoint to manage and distribute your estate?
- What are the assets you want to distribute?
- Who do you want to distribute each asset to?
- What percentage of your assets do you want to distribute to each of your beneficiaries?
- When do you want to distribute your estate to your beneficiaries?
Drawing up a Will
The most common way of distributing your assets is by a Will. This has been covered in great detail previously in another article by an ex-lawyer writer.
There are only two points I would add.
1. CPF cannot be covered by a Will
Do note that your CPF funds cannot be covered by a Will because a Will is used to distribute your estate and if your CPF forms part of the estate, then creditors can claim the CPF money before the family.
So if the deceased had outstanding obligations like a mortgage or car loan, then funds would have to be used to pay these first, in which case the family or beneficiaries might receive very little or maybe nothing.
As such, your CPF money is protected by law and cannot form part of the estate. This is to ensure that the funds will be paid to whoever has been nominated, or if no nomination was made, then the family of the deceased.
2. Wills and CPF nominations are revoked by marriage but not by divorce
The second point is that both a Will and CPF nomination are automatically revoked by marriage or re-marriage, but not by divorce.
In other words, if a person gets divorced, any Will or CPF nomination made during marriage is still valid until that person re-marries or makes a new Will and CPF nomination.
Consider making a Lasting Power of Attorney
Wills only come into effect after a person passes on, but what if someone meets with an accident or suffers a stroke and as a result, loses mental capacity?
According to the Office of the Public Guardian (OPG), mental capacity is the ability of a person to make a specific decision at a particular time.
"Mental capacity is assessed on a case-by-case basis and cannot be assumed based only on the person suffering a particular medical condition. Furthermore, a person’s lack of mental capacity cannot be based only on age, how a person looks, his condition or any aspect of behaviour."
The Mental Capacity Act enables persons to plan ahead and gives them the power to plan ahead in case they lose mental capacity.
This is through the Lasting Power of Attorney (LPA) which is a legal document that allows a person aged 21 or older, known as the donor, who has mental capacity, to voluntarily appoint one or more persons, known as donees, to make decisions on the donor’s behalf if the donor should lose mental capacity in the future.
It should be obvious that donees should be people that donors trust to make the right decisions. More information on LPAs can be found here.
Don’t forget insurance policies
Insurance nomination is governed by the Insurance Act, which allows policyholders to nominate beneficiaries to receive the proceeds of your policies.
With proper insurance nomination, the insurance proceeds do not form part of your estate, which means your nominees can bypass the lengthy probate process and claim the proceeds in a shorter time.
Revocable Nomination
You can make a revocable nomination to anyone and revoke it in the future by a new revocable nomination or a Will. It is only applicable to the death benefits and not living benefits. For example, critical illness claims are paid to the policyholder.
Trust (Irrevocable) Nomination
You can only make a trust nomination to your spouse and children, and it cannot be revoked without the written consent from all the nominees. This is applicable to both living and death benefits. One major benefit of a trust nomination is the protection of the proceeds against claims from your creditors.
More information on insurance nominations can be found here.
Ultimately, the whole purpose of estate and legacy planning is to ensure that your assets are given to your intended beneficiaries. Leaving clear instructions will also avoid family squabbles over your assets after you are gone.
As such, it is best to consult a licensed financial professional who would be able to provide the proper advice and point out the pitfalls to avoid.
