Singaporeans have an impressive average wealth of ~S$400,000
So how do we pass on this wealth when we die? We take a look at 4 of the more common ways.
Legacy Planning –What is it ?
It is a financial strategy used to prepare and distribute one’s assets to their chosen beneficiaries (e.g. loved ones or charitable causes) after their death.
People used to think that legacy planning is only for the wealthy because majority of us in the past usually had very little money left by the time we died. But today, a $400k wealth means that the average Singaporean is definitely not poor by global standards. This means legacy planning has now become an essential last piece of the puzzle for us.
Let’s look at 4 ways to leave an inheritance behind.
#1: Property
Can be transferred to beneficiaries with a Will.*
Beneficiaries can choose between renting out the property for a regular stream of rental income, or selling the property for a lump-sum payout.
*Only applicable for sole ownership/tenancy-in common scheme properties; if property is held under joint-ownership, the property will be transferred to remaining surviving owner(s) and cannot be transferred to others even with a Will
The Bad
If beneficiaries already own property(ies), then they must sell the inherited property (HDB), or pay Additional Buyer Stamp Duty (ABSD) to retain it (private property).
Proceeds from rental/sale of the property are taxable – Income tax on rental income, and Seller’s Stamp Duty** upon property sale. **If property was purchased less than 3 years before being inherited and sold
If the property is not sold off, the beneficiaries cannot buy a HDB flat.
Disputes may arise if beneficiaries cannot agree on what to do with the property:
Beneficiary A (who owns a property) has to sell it, but Beneficiary B (who does not own any property) wants to keep it.
Beneficiaries cannot agree on the selling/rental price of the property.
Outstanding mortgage and/or regular maintenance payments of inherited property can become a liability for beneficiaries.
Renting/selling the property might be difficult when demand is low.
#2: Retirement Savings (CPF, cash and cash equivalents)
The Good
Distribution and transfer made simple with a Will/ CPF nomination.
Beneficiaries can directly use the inheritance without restrictions.
Inherited savings and not taxable.
The Bad
The amount of inheritance we leave will be unknown as it depends on how much money remains when we die. And some of our loved ones may even end up receiving nothing.
If we wish to leave a specific amount of inheritance, then we can no longer spend that money. This will leave us with less money for our retirement
#3: Participating (PAR) Policy & Investment-linked.Policy (ILP)
The Good
Distributing to beneficiaries is straightforward with policy nomination.
Beneficiaries can directly use the inheritance without restrictions.
Insurance payouts and not taxable.
The Bad
A PAR policy may be terminated/death coverage significantly reduced if a claim is made in the event of disability or illness. Then there will be little or no inheritance available for the beneficiaries when we die.
An ILP might get terminated due to insufficient cash value, or its death coverage has to be significantly reduced due to high mortality charges. Then there will also be little or no inheritance available for the beneficiaries when we die.
#4: Term Policies
The Good
Arguably the cheapest way to leave an inheritance.
Distributing to beneficiaries is straightforward with policy nomination.
Beneficiaries can directly use the inheritance without restrictions.
Insurance payouts and not taxable.
The Bad
Premiums are payable even after retirement, so long as the policy is in-force
The good intentions of Legacy Planning can be severely eroded if we fail to do it correctly. Because several considerations need to be made:
➢ Potential costs incurred by our beneficiaries.
➢ Taxability of the proceeds.
➢ Liquidity of the assets.
➢ Stability of the value of the assets.
➢ Return on Investment (ROI) of the assets.
Hence it is important to enlist a professional to help to create a well-suited legacy planning strategy for you. Don’t let your last act of love for your beneficiaries, turn into a nightmare for
them.
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