I like to do a simple case study based on an inquiry from one of my readers. The inquiry received is summarized as follows:
Hi, I’m Madam Yap.
I’m retired, divorced, and now living a simple and happy life.
Since retirement, I haven’t had any income. Today, I receive monthly allowances from my daughter, who is working in Singapore. She is married with 2 children. I use the monthly allowances given to support myself and my mother, who is now living with me in a landed house that is jointly owned by me and my daughter.
In addition to my mother, daughter, and 2 grandchildren, I have 2 brothers, who live closeby.
Today, I have EPF, CPF, PRS, 3 unit trust funds, and 3 life insurance policies. But, I do not have much savings in my bank accounts in Malaysia and Singapore.
So, what is the best way for me to do estate planning?
Here, I would share three simple things that Madam Yap can do immediately so that she could add financial certainty to her loved ones.
First, Madam Yap can name her beneficiaries to inherit her EPF, CPF, PRS, all her unit trust funds and life insurance policies with their nomination forms. Thus, in her case, Madam Yap could update her nominations by considering the below:
1. Did Madam Yap cancel her nomination of any assets to her ex-spouse?
Don’t be surprised. It is common to find divorcees who have forgotten to cancel their nomination of their assets and life insurance policies to their ex-spouses.
So, Madam Yap should check the nomination status for her assets and all of her life insurance policies to avoid leaving behind any assets to her ex-spouse which may most likely be against her own wishes.
2. Is her mother capable of taking care of herself physically and financially?
Madam Yap may intend to nominate her mother to inherit some of her assets. I understand this is because she wants her mother to be cared for in the event of Madam Yap’s passing.
However, leaving assets behind may not be a good solution, if her mother is not physically mobile and is not capable of managing her own financial affairs. So in the case for Madam Yap, her best bet is to bequeath her assets to her daughter, who is more financially capable, and entrust her to take care of her mother.
#2: Will Writing
Second, Madam Yap should write a will to administer her estates, which include her portion of home ownership and her cash. In addition, she could nominate a list of secondary beneficiaries to inherit all her EPF, CPF, PRS, unit trusts and her life insurance policies, in the event of a simultaneous death with her daughter.
Let’s examine the following:
1. Her Portion of Home Ownership
Ideally, it is prudent to nominate her daughter as the primary beneficiary of her portion of home ownership. This is because her daughter shall become the sole owner to the landed house upon Madam Yap’s passing and hence, enabling her daughter to administer this property in accordance with her wishes, be it to sell it off, rent it out, or leave it vacant for the time being. That would be flexible.
Now, here is something to be considered.
Madam Yap’s daughter is likely to nominate her husband to inherit her interests in the property in her own will. As such, it will be most practical for Madam Yap to nominate her son-in-law to be the secondary beneficiary of this property. So, if both Madam Yap and her daughter pass on together, her son-in-law would be the sole beneficiary to the property and thus, avoiding the many complications, which could arise from joint-ownership of a property.
This should be first communicated with her daughter.
2. Her Cash
Madam Yap could nominate her daughter to inherit all her cash savings.
3. EPF, CPF, PRS, Unit Trust Funds and Life Insurance Policies
From above, let’s assume, Madam Yap had checked all of her nomination status and updated them. Her daughter is nominated to be the primary beneficiary to all her assets and life insurance policies via their respective nomination forms.
But, what if Madam Yap passes on together with her daughter?
In her case, Madam Yap could nominate her secondary beneficiaries in her will, which may include the following:
– Her son-in-law.
– Her brothers.
– Her mother (depends on practicality)
– Her preferred charitable or religious organizations.
If Madam Yap wishes to use all proceeds (cash, EPF, CPF, PRS, unit trusts and life insurance) to support her mother, she may form a testamentary trust under her will, appoint a trustee and instruct him to distribute the proceeds in installment amounts to take care of her mother.
The trustee to be appointed can be either her brothers or a trustee company. In my opinion, if Madam Yap is close to her brothers, it could be more practical for her to appoint her brothers to be the trustee as it is more cost-efficient.
As you can see, Madam Yap may need to appoint the following:
1. Primary Beneficiaries (most likely, her daughter)
2. Secondary Beneficiaries
to administer her estates efficiently.
Before appointing them, it is better for Madam Yap to communicate her wishes and intentions clearly with her daughter and all her trusted relatives. This could help them to understand what is to be expected and thus, prevent unnecessary conflicts and arguments in the future.
So, there you go, the 3 simple strategies you can implement right away to boost financial certainty to your loved ones.
Ideally speaking, it is wiser to have a professional estate planner to assist you in this area so that your assets could be managed and distributed more efficiently. You can start by filling up your details below to book yourself a short 30-minute consultation session to find out the latest practices to best protect your assets.