The 7 Steps of the Estate Planning Process
Step 1: Gathering Information About Your Estate
This is the first step that your estate planner will you, he or she will ask you about the details of your estate. You can make this a lot easier by helping him or her list down all the properties you own, remember all your assets have to listed, not just your tangible property but your intangible property as well.
- Estimating Your Estate value – Your estate planner is doing all this info collection so he or she can make an estimated value of all that you own. If you have debts and mortgages, then you should inform your estate planner about these because they will decrease the value of your property or properties. If you practiced good asset management, then these issues wouldn’t be much of a problem because you would have a concrete plan to pay them off. Now, properties you co-own with someone also need to be discussed since they have their respective rules governing them that will take effect once you pass on.
- Cross-Border Planning – If you own properties outside of Singapore, you need to be aware that most countries still have their estate duty intact. Take for example the United Kingdom, where many Singaporeans own properties; the state enforces a 40% inheritance tax on all properties inside their borders whether they be foreign or local. So if you own a property in England for example, then take this into account that the government will get 40% of the inheritance you leave behind inside their jurisdiction. Japan has the highest inheritance tax rate, a hefty 55% to be exact.
- Knowing Your Financial Health – Your estate planner can create a balance sheet to illustrate your financial health by comparing your present estate with rest of your properties. By doing this, you can spot financial gaps that can cause a shortfall between what you want to leave behind and what your family actually inherits. You can then determine if you can give enough provisions to your heirs and even your future descendants.
Step 2: Getting Your Information And Objectives
Your estate planner needs to determine the following facts about you:
- What is your age?
- Are you a native of the country or an expatriate?
- What do you do for a living?
- Are you single? Married? Or a widower?
- Do you plan to provide long-term provisions?
- Are you planning to give to charitable institutions?
The purpose of this is to make sure that your objectives for creating the estate plan are met and for your estate planner to clear out problems that can arise in the future. Such problems can include ex-spouse problems if you’re divorced, and civil law jurisdiction of countries like South Korea, Japan, Taiwan, continental Europe and Latin America for foreign nationals.
Step 3: Identifying Your Beneficiaries
Who are your loved ones? Do you children from past marriages? Do you have step-children that you want to provide for? What if you have children born out of wedlock, can they be made beneficiaries? How old are your children or grandchildren? There are so many things to consider lah. It’s important that you discuss these information with your estate planner. In naming your beneficiaries you have to make sure that they are ascertainable, this is especially true for having a class definition of beneficiaries instead of naming one outright. Before you go naming your 5th descendant as part of your plan you have to make sure first that they pass through the test of certainty, otherwise your gift to a purported member will be invalid.
- Here are other considerations you need to think about:
- Are they adult beneficiaries who are married?
- Are they in a rocky relationship?
- Are they financially mature?
- Are they spendthrifts?
- Do they have addictions?
- Are they beneficiaries of life insurances?
- Are they liable for bankruptcy?
It’s good to note that you can also name companies as your beneficiaries and not just individuals. You can also name a charity as your beneficiary. And on the fun note you can also name yourself, or your spouse as beneficiaries of your trust. In naming your heirs, you can have primary and secondary beneficiaries. Naming distant relatives as beneficiaries in case your main beneficiaries dies is a good way to prevent reversion of gifts. Reversion of gifts should be something you avoid because it typically ends up in complex legal entanglements.