Retirement planning or legacy planning is a popular concept in Singapore when we talk about financial planning and focuses on ensuring that you have enough financial resources to support your lifestyle after you retire from work.
This may include setting up an investment portfolio, contributing to your CPF account, and managing your expenses. On the other hand, legacy planning is the process of organizing your personal and financial affairs to ensure that your assets are managed according to your wishes after your death or incapacity. This may include creating a will, establishing a trust, making a CPF nomination, setting up a lasting power of attorney, and engaging in advance care planning.
While retirement planning can help you achieve financial security during your lifetime, legacy planning focuses on what will happen to your assets after you die or become incapacitated. Both are important considerations when planning for the future, and they may overlap in some areas, such as managing your investment portfolio and determining your inheritance priorities.
Legacy Planning in Singapore
Despite the growing importance of legacy planning, many Singaporeans have yet to take proactive steps to secure their financial future and ensure their wishes are carried out after they’re gone. The lack of will writing is a significant concern, as evidenced by a 2020 Straits Times survey revealing that nearly half of Singaporeans do not have a will in place. This statistic is particularly concerning among younger generations, indicating a potential gap in awareness or preparation for legacy planning.
While the wealth management industry in Singapore is experiencing growth, with rising affluence and increased awareness of financial planning, there remains a significant proportion of high-net-worth individuals (HNWIs) who have not engaged in legacy planning. Research by Asian Private Banker in 2019 found that 57% of HNWIs in Asia, including Singapore, haven’t done any legacy planning, suggesting a lag in implementation despite growing interest.
Charitable giving presents another aspect of legacy planning, with Singaporeans displaying a culture of philanthropy that could extend to legacy giving through charity bequests. However, a report by Legacy Giving Singapore revealed that only a small fraction of respondents knew how to make a legacy gift or had considered doing so, indicating a need for education and awareness campaigns to encourage more legacy-giving opportunities.
The high life expectancy in Singapore, currently at 84.8 years old, underscores the importance of comprehensive financial planning and legacy arrangements to ensure long-term security. With people living longer, there is a greater need to plan for the future and ensure that assets are managed and distributed according to one’s wishes.
Government initiatives such as the Central Provident Fund (CPF) and encouragement of silver volunteering also play a role in shaping attitudes towards retirement planning and legacy considerations. However, more efforts are needed to raise awareness and educate individuals about the importance of legacy planning, ensuring that they have the necessary tools and resources to plan for their future and leave a meaningful legacy behind.
How much Networth to Engage in Legacy Planning in Singapore
In Singapore, legacy planning (which involves organizing the transfer of assets, wealth, and estate planning to future generations) is typically relevant for individuals with significant wealth. While there is no strict minimum wealth requirement, legacy planning is often recommended for those with assets of around SGD 1 million or more, including property, investments, and other assets. This threshold is not a fixed rule, but it is a general guideline for individuals who may need more complex estate planning to manage inheritance, taxes, and ensure the smooth transfer of their wealth.
However, the need for legacy planning can vary depending on individual circumstances, such as:
- Property ownership: If you own multiple properties or have high-value real estate, you may want to consider legacy planning to ensure proper succession.
- Family dynamics: Families with complicated relationships, multiple heirs, or blended families may require more detailed planning to avoid disputes after death.
- Tax optimization: Individuals seeking to minimize estate taxes and maximize the wealth passed on to heirs may engage in more sophisticated legacy planning.
- Business ownership: Business owners with substantial assets tied to their businesses often need legacy planning to ensure the smooth continuation or transfer of ownership.
Legacy planning can involve creating a will, setting up trusts, appointing executors, and arranging for tax-efficient transfers of wealth. Even if you don’t meet the “millionaire” threshold, it’s advisable to consult a financial advisor or estate planner if you have considerable assets or specific wishes regarding your legacy.
Embarking on Your Legacy Planning Journey
In Singapore, it is never too early to start legacy planning. The earlier you start, the more time you have to review and adjust your plan as your circumstances change over time. As a general rule, it is recommended that individuals start thinking about legacy planning when they have significant assets, have dependents or family members they wish to provide for, or when they reach a certain age, such as in their 40s or 50s.
However, it is also important to note that unexpected events can happen at any age, and therefore, everyone should have at least a basic plan in place. For instance, having a will, CPF nomination, and LPA can help ensure that your assets are managed and your wishes are fulfilled in the event of incapacity or death.
Legacy planning is an essential component of financial planning that must not be overlooked, regardless of an individual’s level of wealth. While legacy planning has often been associated with the ultra-rich battling over inheritances and business interests, it is a vital process for everyone to ensure that their assets are managed according to their wishes in the event of death or incapacity.
5 Key Areas of Legacy Planning in Singapore
Legacy planning in Singapore encompasses a multifaceted approach to ensure one’s assets, preferences, and well-being are safeguarded and managed effectively. At the core of this planning is the creation of a will, a legally binding document that delineates how an individual’s assets and possessions should be distributed upon their passing. Additionally, a will appoints a legal guardian for any minor children and designates an executor to oversee the execution of the will’s provisions. This foundational step lays the groundwork for orderly asset distribution and minimizes potential disputes among heirs.
1. CPF Nomination
In tandem with drafting a will, making a Central Provident Fund (CPF) nomination is essential to ensure that CPF savings are distributed according to the individual’s wishes. This nomination offers clarity and specificity regarding the allocation of CPF funds, providing peace of mind and avoiding ambiguity or contention among family members.
2. Lasting Power of Attorney
Beyond asset distribution, legacy planning extends to matters of decision-making autonomy and healthcare preferences. Establishing a lasting power of attorney empowers a trusted individual to make critical decisions on behalf of the individual should they become mentally incapacitated. This legal instrument grants the appointed attorney-in-fact the authority to manage financial, legal, and healthcare affairs by the individual’s best interests.
3. Setting up a Trust
Moreover, setting up a trust can serve as a strategic tool for managing family wealth and protecting personal assets. By creating a trust, individuals can stipulate specific conditions for the disbursement of assets, thereby facilitating effective succession planning and mitigating potential tax liabilities. Trusts offer flexibility and control over the distribution of assets, allowing for tailored solutions that align with the family’s long-term objectives and values.
4. Advance Care Planning
Lastly, engaging in advance care planning is integral to ensuring that an individual’s healthcare and personal care preferences are documented and respected during times of illness or incapacity. By articulating preferences regarding medical treatments, end-of-life care, and other critical decisions, individuals can maintain autonomy and dignity while providing clarity and guidance to loved ones and healthcare providers.
In essence, legacy planning encompasses a comprehensive framework encompassing legal, financial, and personal considerations. By addressing key areas such as will creation, CPF nomination, lasting power of attorney, trust establishment, and advance care planning, individuals can proactively safeguard their legacy and provide for their loved ones with clarity and confidence.
The Consequences of Neglecting Property Legacy Planning
Legacy planning is a crucial aspect of financial and personal preparation that often gets overlooked or delayed by many individuals. However, failing to engage in legacy planning can lead to a multitude of problems and challenges for both oneself and loved ones. Here are some significant issues that may arise if legacy planning is neglected:
Firstly, without a will in place, the distribution of assets and possessions may not align with one’s wishes. In the absence of clear instructions provided by a will, state laws will dictate how assets are divided among heirs, potentially leading to disputes, delays, and unintended beneficiaries. This lack of control over asset distribution can cause family discord and strain relationships among loved ones.
Secondly, the absence of a CPF nomination means that Central Provident Fund savings may not be distributed according to one’s preferences. This can result in delays in accessing funds and uncertainty regarding their allocation, adding unnecessary stress and financial hardship to family members during an already difficult time.
Thirdly, failing to establish a lasting power of attorney leaves individuals vulnerable in the event of mental incapacity. Without a designated attorney-in-fact to make important decisions on their behalf, individuals may have their affairs managed by a court-appointed guardian, potentially leading to decisions that do not align with their wishes or best interests.
Furthermore, the lack of trust can expose assets to various risks, including creditors, legal claims, and taxation. Without the protective measures provided by a trust, assets may be vulnerable to depletion or mismanagement, jeopardizing their intended purpose and diminishing their value for future generations.
Additionally, neglecting advance care planning means that personal preferences regarding medical treatments and end-of-life care may not be known or honored. This can result in unwanted medical interventions, prolonged suffering, and emotional distress for both individuals and their families.
Overall, the failure to engage in legacy planning can lead to significant emotional, financial, and logistical challenges for individuals and their loved ones. By addressing these issues proactively through legacy planning, individuals can ensure that their wishes are respected, their assets are protected, and their loved ones are provided for in accordance with their intentions.
Legacy planning is not a one-time event but a continuous process that requires periodic review and adjustment as circumstances change. Failing to have a legacy plan in place can result in the management of assets going against an individual’s wishes after their death. Without a will, for instance, the distribution of wealth and property could be passed to individuals who lack the maturity to manage it properly or even to unintended third parties in the event of children’s divorce.
In addition to the financial impact, the absence of a legacy plan could also impose an emotional burden on loved ones, potentially leading to hard feelings and difficult conversations among family members. Therefore, by engaging in legacy planning and other retirement strategies, such as bucketing and decumulation, individuals can take control of their financial future, ensure their wishes are fulfilled, and provide peace of mind to themselves and their loved ones.
It is advisable to review and update your legacy plan regularly, especially when significant life events occur, such as marriage, divorce, the birth of a child, or the death of a loved one. By regularly reviewing and updating your legacy plan, you can ensure that your plan continues to reflect your wishes and goals and that your loved ones are taken care of according to your wishes.
Disclaimer
Every effort has been made to ensure the accuracy of the information provided, but no liability will be accepted for any loss or inconvenience caused by errors or omissions. The information and opinions presented are offered in good faith and based on sources considered reliable; however, no guarantees are made regarding their accuracy, completeness, or correctness. The author and publisher bear no responsibility for any losses or expenses arising from investment decisions made by the reader.
