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The importance of legacy planning

Retirement 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.

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.

Legacy planning in Singapore involves creating a comprehensive plan that covers five key areas.

  1. Firstly, individuals need to create a will, which is a legal document that outlines how their assets and possessions should be distributed, appoints a legal guardian for their children, and names an executor who will carry out their will.
  2. Secondly, making a CPF nomination ensures that CPF savings are distributed according to an individual’s wishes.
  3. Thirdly, establishing a lasting power of attorney allows someone trusted to make decisions on an individual’s behalf if they lose mental capacity.
  4. Fourthly, setting up a trust can provide a mechanism to manage a family’s wealth and protect personal assets. By implementing rules on when and how beneficiaries receive their inheritance, a trust can also assist with succession planning. Finally, engaging in advance care planning ensures an individual’s healthcare and personal care preferences are documented and followed in the event of serious illness.

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.

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