As a wealth manager who has helped clients and their families manage and plan their personal and family finances, I would highlight estate or legacy planning in addition to retirement planning as two areas for setting your financial life goals.
Plan for incapacity. While many focus on their young and elderly dependents when they think of estate planning, I would suggest that incapacity planning for oneself should take a higher priority. Mental incapacity planning involves setting up arrangements or structures such as trusts to prepare for any unfortunate event of mental incapacitation. When dementia or Alzheimer’s strikes, your pre- designated decision makers will kick in and take over the management of your finances.
This type of planning involves drawing up a Lasting Power of Attorney (LPA) while you are still healthy. You may also appoint a corporate trustee as your professional LPA done to ensure the proper usage of funds for your living needs when you are mentally and physically incapacitated.
When you have a trust that is triggered only in the event of your incapacity, your trustee can access your financial resources for your benefit. Think of it this way: If you have to be in intensive care or a long-term care facility, who will pay for your bills and manage your assets? When you fund your Trust, the trustee can do that. Without a trustee, your family would have to turn to the courts to appoint a professional to oversee your assets. This is a lengthy process and could cost you more than $5,000. For many business owners and investors, delays or an inability to enter into legal contracts may disrupt your business or investments.
Providing for dependents when you are no longer around
Another important area of estate planning is leaving at least enough for your loved ones when you pass on. To do so, estimate the amount each dependent would need in his or her lifetime. Ensure that your estate — which is made up of the assets you leave behind — is sufficient to provide for each dependent. Include non-day-to-day expenses such as educational expenses for your young dependents and potentially large medical bills for all of your dependents. Remember to cater for caregiving expenses and ageing-related expenditure for your older dependents, such as home-nursing or nursing-home costs.
If you have family members with special needs, you should also supplement your SNTC Trust (which you may have had set up with the Special Needs Trust Company) with a suitable private Trust.
I have found that insurance solutions are probably one of the most cost-effective ways to provide the estate amount that your dependents would need to carry on with their lives with as little lifestyle disruption as possible. Life insurance creates an immediate estate when you, as the insured, passes on. Depending on the type of insurance and coverage structure, this can result in a deceased’s estate valuing a few times more than his net worth while he is alive.
Write a Will or set up a Testamentary or Living Trust
Suppose you have not written a Will or have written one without including at least a substitute executor and a substitute group of beneficiaries. It is time then, to write your Will or rewrite one that includes these substitutes. An estate with a valid Will but without an executor is deemed as a “Letters of Administration” case. The court would need to select an administrator to handle your estate. This process delays estate distribution and involves legal fees that easily amount to a few thousand dollars.
If you have young or elderly dependents, staggered rather than lump sum distributions of inheritance is advisable. Use testamentary trusts or living trusts, depending on the circumstances. Discuss the suitability of these in your estate plan with a qualified financial advisor who has practical and professional experience with both wills and trusts.
Doing this would safeguard your young vulnerable dependents from financial predators and investment scams, or their own reckless spending. Instalment distributions can help them avoid spending the whole sum immediately and as a result develop irresponsible money habits during their less-mature life phase.
A special note to business owners: Put in place a succession plan and structure for your business to carry on without you. Alternatively, prepare arrangements for you to exit your business in the event of your disability or passing. Involve experienced qualified professionals such as financial advisors who specialize in estate planning and Trusts in the process.
Many well-known business families fail to do so and pay the price. These include Singapore’s one-time iconic Teochew restaurant Swatow and Hong Kong’s famous roast goose specialist Yung Kee Restaurant. These families have seen their family wealth decimate either by distressed sale of business assets or by bitter feuds among family members.
With these strategies as part of your financial goal setting, you will brace the year with a greater peace of mind.