Wills and Trusts are often associated with estate planning. These are also often associated for the rich rather than for the poor. Is this true?
Actually, everyone does some form of estate planning. When you open a joint-account with your spouse or purchase a property with your spouse jointly, you are already doing some estate planning. So, what exactly is estate planning?
Estate planning is the identification of the best methods for the holding of assets, the transfer of assets and the distribution of assets. It is often thought that estate planning is only meant for the dying or for the very rich. Actually estate planning can only be done when one is alive, are of sound mind and it is even more important for the very poor. Why is this so? Simply because if you do not do any estate plan when alive, the authority has an estate plan for you when you are dead. The default estate plan, known as the Intestate Succession Act (ISA) comes with numerous flaws. The ISA is not able to help you ensure the Administrator will not embezzle your hard earn assets that are meant for your family. The ISA is also not able to determine the guardian of your children. Moreover, the ISA just assumes all your assets have some market value which can be sold and distributed according to the stipulated percentages. But as many investors would know, sometime investments are in the red and the last thing you want is for it to be sold at distressed price. Thus, estate planning ensures these risks are mitigated if not eliminated.
The very rich has access to financial and legal advice on the best method to transfer their wealth to the next generation because financial institutions have incentives to ensure these wealth remains intact so that they could continue to earn their management fees. However, the poor do not have many assets in the first place. Yet it does not mean that the poor does not need to have an estate plan.
In Singapore, estate planning is a subject that is seldom touched on. Most financial advisers sell life insurance and investment products because commissions for these can be large. The poor can have a large estate using estate creation technique through life insurance but such life insurance, known as term insurance, gives low commissions.
One reason why estate planning is seldom discussed is because estate planning involves thorough investigations and planning. It is also a fallacy that estate planning means just writing a Will. The Will is merely a tool. There are many estate planning tools like Living Trusts, Testamentary Trust, Lifetime Transfers, Corporate Structures, Buy-Sell Agreements, Insurance Wrappers (or sometime called Portfolio Bonds) and Lasting Power of Attorney (under Mental Capacity Act 2008). Like all tools, it is a means but not an end. If the tool is used incorrectly, it becomes a useless and dangerous tool. It is important to have a valid and practically useful Will. Most people who have their Wills written are either invalid or practically useless. Many of my clients learn the hard way when they speak to me about how their Wills were written in a practically useless manner. Here are two real life examples (with details modified to protect their identities).
My client, Elena (not her real name) approached Jason (not his real name) who is a lawyer to draft a Will. Elena instructed Jason that she would like her assets to go to a few people and one of them is her sister. In the Will, nothing was mentioned about giving any money to her children. Privately, Elena told her sister that the monies to be given to her sister is actually meant to be given to her children who are all still young and unable to own assets currently. This arrangement was not mentioned in the Will.
One year later, Elena told me this. I immediately realized that she had committed two mistakes. Since she only wanted her sister to act as a trustee for her children, she should have mention it in her Will through a testamentary trust that her children are to inherit some monies from her and her sister appointed as trustee until the children are of legal age. The “private” arrangement is dangerous because her sister has no legal obligation to hand over the money to the children. The second problem is she did not provide anything for her children in the Will. Under the Inheritance (Family Provision) Act., provisions are required for spouse, disabled children, sons below 21 years and unmarried daughters. Thus, Jason provided a “junk” Will which is practically useless and contestable. If Jason is thorough in his fact finding, he would have discovered that Elena has children who are still minors. His investigation as to why nothing was left to her children in the Will would have uncovered the “private” arrangement Elena has with her sister.
In the second case is John. John is also my client who approached Danny, a lawyer to have a Will drafted. John wants to have his asset distributed in equal proportion to his children. John’s Will is considered quite simple. Danny assumes John’s children are all minors. Thus, in the Will Danny wrote that all assets are to be distributed in equal proportion to the “surviving” children. However, Danny did not realize that John’s children are all grown up with families on their own. Danny should have conducted a more thorough investigation as to the age of John’s children and whether did he wished to have assets pass to the next generation should one of the beneficiaries predecease the testator (John). Thus, Danny provided a Will that may not be suitable to John’s wishes. John did not realized the implication of such a clause and thus paid a fee for nothing.
So what exactly when wrong in the entire process of Will writing for these two cases? For both cases, the lawyers did not conduct a full fact find analysis to study the testators’ situations and provide suitable recommendations. Both lawyers just took instructions from their clients and drafted the Will in accordance to those instructions. There was no effort made to determine suitability. In this modern case, consumers are no longer looking for professionals who simply take instructions. Professionals must create value by providing a higher level of service by understanding clients’ needs and provide suitable recommendations.
Professional estate planning practitioners have the duty to conduct thorough investigations for their clients through a systematic process consisting of fact finding, analysis and suitable recommendations. This can take up significant amount of time. That is why most Will writers simply take instructions from their clients without much value provided. By the way, it is not necessary to approach lawyers for writing Wills. It is more important to ask the Will writer or his company how many Wills have already been written and how many have passed the test of Grant of Probate.
Finally, we need to point out that both lawyers charged rocket bottom prices for their Wills. As the saying goes, “pay peanuts and you get monkeys.” If you wish to have an estate plan, make sure your estate planner is willing to conduct a thorough investigation into your situation and at the same time insists you have no desire to bring home a monkey.
This article first appeared on INVEST magazine February 2010 issue. The softcopy of the article from the magazine is as attached below.
Feel free to contact us if you would like to engage us for estate planning.
|< Prev||Next >|