SmartWealth https://smartwealth.sg Making Financial Planning Simple Mon, 26 Oct 2020 03:42:43 +0000 en-GB hourly 1 https://wordpress.org/?v=5.5.1 https://smartwealth.sg/wp-content/uploads/2019/11/SmartWealth-Icon-150x150.png SmartWealth https://smartwealth.sg 32 32 Compound Interest Rate Calculator (With Formula) https://smartwealth.sg/compound-interest-calculator/ Mon, 26 Oct 2020 03:42:43 +0000 https://smartwealth.sg/?p=3398 Use this compound interest rate calculator to marvel at the power of compounding. The Definition of Interest Rate There are 2 points of views that illustrate the use of interest rates – from a borrower and a lender. From a borrower’s point of view, the interest rate is charged by the lender for the use ...

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Use this compound interest rate calculator to marvel at the power of compounding.

The Definition of Interest Rate

There are 2 points of views that illustrate the use of interest rates – from a borrower and a lender.

From a borrower’s point of view, the interest rate is charged by the lender for the use of an asset – usually money.

It’s the cost of borrowing, and is usually an annual percentage on the amount borrowed.

On the other hand, from the perspective of a lender (can be you too), you’re “lending” money to a company, and in return you’re given an interest rate which reflects your “profits”.

What is Compound Interest

Compounding interest comes in when interest is calculated on both the principal amount and the accumulated interests from previous periods.

Some may call it “interest on interest”.

For example, you deposited $10,000 and was given an interest of 10% per year.

At the end of the first year, what you’ve accumulated in total would be $11,000 (10,000 + 0.1×10,000)

At the end of the second year, you’ve accumulated a total of $12,100 (11,000 + 0.1×11,000).

The compounding frequency need not always be annually either, it can be daily, monthly, etc. When it’s compounded at a higher frequency, the final value will be higher, when all else stays the same.

Simple Interest vs Compound Interest

In the calculation of simple interest, the interest given is merely a percentage on the initial principal.

For example in a fixed deposit of $10,000 that pays 1% per year, if it’s calculated on simple interest basis, the interest amounting to $100 would be paid out to you.

This would be very different if that amount of $100 can be reinvested back, and subsequent interest can be based on principal + interest. In that case, it would be on a compound interest basis.

How to Calculate Compound Interest (Formula)

Calculating compound interest is not a simple task.

A variety of mathematical formulas come in.

If you use the calculator above, it’s able to calculate various functions including having the compounding frequency differing from the regular investment frequency.

The formula used in the calculator is derived from this:

Compound Interest Formula
Future Value = P*(1+r/n)^(n*t) + A*(((1+rate)^nper – 1)/rate)

Where:
rate = ((1+r/n)^(n/p))-1
nper = p*t
r = annual interest rate
n = number of compounding periods per year
p = number of payment periods per year
t = number of years
A = regular amount added at the end of each period
P = initial investment

If you wish to read further on the formulas, you can take a look at this page.

Capitalise on the Power of Compounding

Compounding interest is often called the 8th wonder of the world (cheesy, I know).

But it does has its merits.

There are 3 factors that enhance this compounding effect:

  • higher interest rate
  • longer term
  • higher compounding frequency

If you can improve on these factors, your final value will more significant.

The investment term (e.g till retirement) and the compounding frequency (annually) are usually fixed. And that makes the most factor to be: interest rate.

That’s why you’d want to maximise the amount of returns you can get from your savings/investments, so that it can compound more.

And choosing the right type of investment vehicle is within your control.

The Different Types of Interest Returns You Can Get in Singapore

Because of the reasons outlined above, you may want to get the highest returns possible.

Is it always the best option?

Not all the time.

There’s always a trade-off between returns and risk.

Before we talk about it, here are some places where you can put your money in:

  • Savings accounts
  • Fixed deposits
  • Singapore Savings Bond
  • Endowment Savings/Retirement/Annuity Plans
  • Property investments
  • Stocks and shares
  • Etc

For potentially higher returns, there may be a higher degree of risk involved. Risk that can be volatility (up and down in value) or a potential loss of capital.

The question: can you stomach that risk?

That’s why risk profiling and asset allocation are important, so that you can find out what assets to invest in.

On the flip side, if you’re very conservative, it doesn’t mean that the savings account is best for you (for money in excess of your emergency funds), as the erosion of money (inflation) is invisible but deadly.

So finding the right balance is a tough act.

Having said all that, there’s another factor that influences your choice of investment option.

Knowing What You’re Investing For

This’ll allow you to know 2 things: your objectives and the investment horizon (how long you intend to stay invested).

For example, if you intend to save for your kid’s education, you may not want to put a huge percentage of funds into volatile/risky investment options because when the time comes, there’s a risk of a drop in value. What happens to your kid’s university fees then?

Another example: if you’re only a few years away from retirement, allocating a big portion of your funds into volatile/risky investments may not be the best idea. (If you’re not sure how much you should save/invest for your retirement, check out our retirement planning calculator).

When you know what your financial goals are, it’d be much easier to find the best investment vehicle.

Learn more about the 2 biggest financial goals that Singaporeans have: funding for their kid’s education and retirement planning.

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3 Segments of “Investments” You Should Focus On to Earn More Money https://smartwealth.sg/investment-segments/ Fri, 23 Oct 2020 06:30:54 +0000 https://smartwealth.sg/?p=3363 In Singapore, there’s a saying: “Money No Enough”. How do we make more of it then? With so many options out there, how do you narrow down your focus? Here are 3 investment segments to pay attention to, and they’re not your typical ones. If you do it right, you’d have no problems to make ...

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In Singapore, there’s a saying: “Money No Enough”.

How do we make more of it then?

With so many options out there, how do you narrow down your focus?

Here are 3 investment segments to pay attention to, and they’re not your typical ones.

If you do it right, you’d have no problems to make more.

Read on to find out what they are!

The Importance of Having (Enough) Money

Money pays for almost everything:

Liability Curve

Including all your daily expenses and many more..

It’s also a sign of being able to provide.

Not just for ourselves, but to provide the best for the people around us – core reason why we want to have enough money.

While I may not believe in providing everything to the child (and thus, have a possibility of spoiling him), the basics and some comfort are needed, including options such as if he wants to study overseas in the future.

So there’s a constant strive for more money.

Why Is It So Hard to Make Money in Singapore

.. or in any part of the world.

I believe in the notion: for the majority of us, we’re able to make however much we want because we have the capability to do so.

But some of us have a hard time doing it, there are whose who are doing relatively well but can’t seem to achieve more, and then those who seem to be able to do it effortlessly.

Why is it so?

After giving some thoughts to it, I believe the reason is this:

We’re easily distracted.

Let me expand on this with 2 examples:

Example 1: Internal Distractions

These are the distractions that hit closer to home.

We usually give ourselves a lot of reasons (and excuses) why we’re not earning enough such as:

  • the job market isn’t good
  • economy isn’t doing very well
  • foreigners are taking away the higher income jobs
  • company’s prospects aren’t great
  • can’t take the risk of jumping ship
  • and many more

Some may be valid, but the majority aren’t because they’re out of our control.

And when we constantly feed ourselves with so many excuses and paying attention to them, it becomes a self-fulfilling prophecy.

This leads us to: don’t do the things we’re supposed to do, even when it’s within our control.

Example 2: External Distractions

In this modern tech world, we’re bombarded with so many advertisements and marketing messages, that suck away our attention.

At every moment, we’re connected with this e-world through our mobile devices, tablets, and computers.

It’s extremely easy for companies to push marketing down now than ever before.

For example, we’re exposed to many advertisements on Facebook and Youtube, telling us how to make more money.

It may not even be just courses, but can be products and services to help us get more on the dollar. And to create an even bigger lure, the outcome is made simple and easy to achieve.

What happens then?

The phenomenon: Shiny Object Syndrome.

For the consumer, it’ll seem like there’s a lot of ways to make easy money. So he takes that first step with 1 method, and if it doesn’t work after awhile, he jumps to the next method, and so the vicious cycle continues.

Other situations include time and effort spent on lower priority activities that can only move the needle slightly.

If you’re experiencing such symptoms, it’s time to call for SOS.

These are some examples of distractions that can happen. I’m sure there are many more out there.

When we have too many of these happening at once, we may not be able to prioritise well because we’re giving considerable thought to every option. This drains your thoughts away from the real priorities, which tend to be much simpler.

The Key Is to Have Hyper Focus

To overcome all these is to practise the opposite of being distracted – focus.

Identify the core areas to focus on, and go long and hard at it.

Sounds easy, but you know doing is hard.

We’re all intelligent human beings. But the ability to think can also be a setback.

For example, we may try to plan everything perfectly, so that there won’t be any failures. Even when we come up with a plan that has an extremely high degree of success, we still carry worries and doubts along with us.

And these cause us to not take action, which is what matters the most.

For those who are very successful, they usually stick to just one thing, and make it great.

So what should you focus on?

There’s only a few things..

The 3 “Investments” You Should Concentrate On

To achieve a greater income, there are only a few things to zoom in on.

It may seem simple, and it is. But the execution takes a lot of determination.

1) Career

The first thing that most of us start with.

Sure, at the start, you may jump around to see what you really want.

But there comes a time when you want to settle down.

This is when you shouldn’t see your work as a job, but as a means to build your career.

If we see it as a job, we tend to do just the minimum, work from 9-5pm, avoid responsibilities, do only what’s required, etc.

But if we see it as a career, we invest a lot more into doing valuable work for the company.

Here are some investments you can do for your career:

  • be extremely good at your job
  • further studies
  • find a role with growth opportunities
  • look for a company with growth potential
  • learn and upskill in different areas that are related

Why do you want to do this?

Because companies exist for a reason: to be profitable.

If you’re making a positive impact, it’s inevitable that they’ll reward you back in order to retain your service.

Because if you’re jumping ship, they’ll lose ultimately.

This’ll translate to higher pay, more bonus, and promotions.

In short, get great at your job till you’re irreplaceable.

2) Real Businesses

It doesn’t matter if it’s physical or online, a side hustle or a full blown one.

If you find one opportunity that you think can work, give it further thought and action.

If you become the expert in that business, you’d know the strengths and the weaknesses, on a deeper level. If there’s something you don’t know, either learn it or hire someone competent to do it.

Ultimately, you’d be able to identify gaps in the business.

But the requirement is that you need to be fully committed to it, and not half-bake it. It also helps to push away resistance like fear, worry and doubts.

The businesses that tend to succeed are usually those with an immense amount of action taken, and go through a lot of setbacks.

At the end of the day, the profits will show.

3) Investment Tools

When you’ve done either of the above, you should have excess cash flow, especially for those who are employed.

For the self employed/business owner, it makes sense to reinvest into your own business, unless you’re diversifying.

Your career and/or business will give you the greatest return on investment. That’s because you should already be an expert at what you’re doing, and then more.

But with excess cash, what can you do with it?

Let’s look at an example: stock investing.

To get good at it, time and resources are needed to understand that particular stock, as if you’re the owner of that business.

These may be needed:

  • study financial statements
  • identify any inefficiencies
  • visiting factories and offices to understand it more
  • basically think like a CEO

Then perhaps you’d have an idea what the company is worth, and whether you should buy, hold or sell.

The question is:

Do you have the time and resources to do it?

If yes, sure, go ahead.

If the answer is no, does it mean that you shouldn’t do anything with the money you’ve earned?

Definitely not.

Attention to career and/or the business should hold a higher priority because:

The rate at how much you save will always be a percentage of your income, e.g 30%, and even so, it might not be the same amount you’re planning to invest.

And especially at the early/mid stage of your career, the savings/investments you’ve accumulated won’t be great. The size of it is still heavily dependent on the amount you put in – primarily from the income generated from career/business.

So is it worth to spend time to push your investment returns up a few percentage points?

Probably not at the beginning. Time should be spent more on building the career/business – the money making machine.

But this dynamic may change when you hit a critical mass of savings/investments you’ve accumulated, then it could be time to pay more attention to it.

In any case, if you don’t have the time or don’t wish to concentrate on investment options, consider something passive or outsource this component.

What’s Next?

In summary, earning money is important.

To generate more of it, we should steer away from distractions and focus on the things that move the needle the most.

And that’s usually your career or your business, unless you’ve already accumulated a substantial amount of wealth.

To get more returns on your residual savings/investments, you can consider passive options (and don’t stress over the details) or outsourcing that component.

Generally, one of the most important concerns adults have in Singapore is retirement – whether they would have enough in the future.

When you start planning for your retirement early, it’s much more achievable because of the power of compounding.

So, do learn more about how to plan for retirement in Singapore.

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Universal Life Insurance Plans in Singapore: Ultimate Guide (2020) https://smartwealth.sg/universal-life-insurance-singapore/ Wed, 26 Aug 2020 07:45:54 +0000 https://smartwealth.sg/?p=3116 If you’re a high net worth individual, you might’ve heard about the universal life insurance. It’s generally more complex than the regular insurance plans, and it’s not that straightforward. But it could be something to consider if you’re looking to maximise the wealth you’ve accumulated and leave a legacy. So, read on! Maximising Wealth + ...

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If you’re a high net worth individual, you might’ve heard about the universal life insurance.

It’s generally more complex than the regular insurance plans, and it’s not that straightforward.

But it could be something to consider if you’re looking to maximise the wealth you’ve accumulated and leave a legacy.

So, read on!

Maximising Wealth + Leaving a Legacy

What are you living for?

Are you trying to earn more money or wanting to leave more for your family when you’re gone?

How about both?

When you’ve reached a certain stage in life, you tend to think more about the inevitable, which is when estate and legacy planning comes into the picture.

With all the wealth you’ve accumulated, you’ll think about how can it best be grown and impact the lives of your loved ones further.

The universal life insurance could just be the answer.

Other Types of Legacy Plans to Consider

There’s more than one way to leave a legacy.

But first, in a healthy financial portfolio, all the basics have to be catered for already.

First, ensure that you have sufficient life insurance coverage in the form of term insurance or whole life insurance.

Then the next biggest areas would be your own retirement and/or children’s education.

Once you have the basics done up, only then should you look at legacy plans.

Apart from universal life insurance, there are 3 other types of legacy plans to consider.

1) Term Insurance Till Age 99

Term insurance have all along be known as temporary insurance because the coverage only lasts for a fixed period of time.

Although it’s relatively cheaper, when the coverage period ends, the plan terminates, and usually nothing is paid out.

But when term insurance till 99 years old came out, everything changed.

Coupled with a “guaranteed survival payout”, it’ll ensure that even if you hit 100 years old, the plan will still pay out – you’ll get something back.

Such plans are solely meant for your family members, as you’re likely not to see any proceeds.

2) Single Premium Whole Life Insurance

In a regular whole life insurance, it provides life insurance coverage mainly in the form of death, total and permanent disability, and critical illness, as well as cash value.

But there’s a special category which caters to legacy building.

The single premium “jumbo” whole life plans.

These plans are funded in one lump sum at the beginning, and usually only come with death coverage.

So if you have a set amount of money to leave for your kids, such plans will give a death benefit of multiples of that amount. That’s the primary reason for those looking at these plans.

The secondary reason: there’s also a surrender value, in case you have an urgent need for money.

3) 3-Generation Lifetime Income Insurance Plans

The above 2 plans are mainly geared towards leaving more money for your family, and require health underwriting.

But what if you want more money to supplement your retirement income?

That’s when 3G lifetime income plans come in to cater for 3 generations.

They can supplement your retirement income, provide income for the next generation, and also provide a death benefit for the 3rd generation.

If you think you don’t need the income, it can also be “reinvested”, so that your future generations can be impacted more.

So those are other plans out there, but today, we’ll look at universal life.

What Is Universal Life Insurance and How Does It Work

The Universal Life (UL) is a plan that provides life insurance coverage as well as a savings/investment component.

Although it may seem like a whole life insurance, it’s very different because it offers a higher degree of flexibility.

Such plans are often proposed by the banks (with premium financing) and are marketed to higher net worth individuals.

There are 2 main components in a UL insurance: cost of insurance and the savings/investment element.

The insurance element usually only provides death coverage – when death happens, your family will get a multiple of what you put in.

As for the saving/investment element, it’ll differ between the type of plan chosen. And it can also supplement retirement if needed.

Overall, it’s like an all-in-one plan.

But not all universal life plans are the same.

The 3 Types of Universal Life Insurance Plans

There are mainly 3 types of universal life plans out there:

  1. Traditional
  2. Variable
  3. Indexed

The main difference between them is how they generate the cash value.

The following is just an overview and is made to be simple for understanding purposes.

1) Traditional Universal Life Insurance

In a traditional UL, the premium (after charges) goes into a “fixed income” account.

One important factor in a traditional UL is the interest crediting rate which determines how much the cash value will grow.

To illustrate, an insurance company will declare a crediting rate (prevailing crediting rate). The rate is not guaranteed and will subject to change, from time to time.

After deducting all charges including the cost of insurance, the remaining amount will be credited into the account, and that’s how the returns are generated for you.

In the initial years, there’s usually a guaranteed crediting locked rate, which will mean that even in bad times, the rate will still be given to you.

However after that period, it’ll revert to the prevailing crediting rate.

Having said that, it’s good to know that there’s usually a minimum crediting rate (e.g 2%) throughout the coverage period.

2) Variable Universal Life Insurance

The variable UL is like an investment-linked life insurance plan.

Its performance solely depends on the investments or funds that were selected.

As the name suggests, the performance of these investments are volatile and are not guaranteed.

The cost of insurance still applies.

3) Indexed Universal Life Insurance

The indexed UL is a combination of the traditional and the variable UL.

So there’s usually the “fixed income” account and an investment account where the performance depends on various market indices.

The allocation of these accounts and the market indices depend on the insurer.

For example, it can be 30% in the “fixed income” account and 70% in the investment account.

As for the market indices, it can be 60% in S&P 500 Index and 40% in Hang Seng Index.

The Disadvantages of Universal Life Insurance

For the wealth accumulation portion of a UL plan, it depends on your preferences on which type suits you better.

The different types of UL do come with their own pros and cons.

But we should steer to the bigger picture question: what is your objective for having such a plan?

If your objective is to also leave a legacy, do take note of this: the cost of insurance rises as you age.

That doesn’t really matter much in the earlier years because the cost is relatively cheaper (as the probability of dying is lower). And there are usually no-lapse guarantees in the initial years – the policy doesn’t lapse when you don’t have enough cash value to pay for the insurance charges.

But the no-lapse guarantee period eventually ends.

So in the future (e.g 85 years old) and the market hasn’t been doing well, your cash value might not be enough to pay for the charges, which will cause your policy to lapse. And there’s a possibility that you (or your family) don’t get anything back.

Sure, there are still other options like including no-lapse guarantees for life and the ability to add on more premiums to extend the life of the plan, but these increase the costs on your end.

So because of these reasons, if you’re looking to leave behind for the next gen, consider other legacy plans too.

What’s Next

The type of universal life insurance plan will strongly depend on your preferences, risk appetite and circumstances.

It’s not easy to pinpoint whether it’s suitable for you by not understanding your situation.

As a start, you’ll need to make sure your basic financial planning is already in place, and then go through some form of estate (and legacy) planning.

If you’re leaving this sum of money to your children, do know that the policy might have the possibility to lapse in the future if there isn’t sufficient cash value.

And for that reason, take a look at other legacy plans such as the term till 99 years old, single premium whole life insurance and the 3-generation lifetime income plans, as they could offer a higher degree of certainty.

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3G Lifetime Income Insurance Plans in Singapore: Ultimate Guide (2020) https://smartwealth.sg/3g-lifetime-income-plans/ Fri, 21 Aug 2020 06:53:30 +0000 https://smartwealth.sg/?p=3097 How do we benefit ourselves, our children, and our grandchildren with a single plan? A 3-generation lifetime income insurance plan. It’s one type of plan that can have a strong impact on the people around you – enabling them to do more even when you’re not around anymore. Read on to find out more! Leaving ...

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How do we benefit ourselves, our children, and our grandchildren with a single plan?

A 3-generation lifetime income insurance plan.

It’s one type of plan that can have a strong impact on the people around you – enabling them to do more even when you’re not around anymore.

Read on to find out more!


This page is part of the 3G Lifetime Income Plan 2-Part Series:


Leaving a Legacy Behind

There comes a point in time when you’re self-sufficient.

You have your all basic financial needs planned out – adequate life insurance coverage, a sizeable amount of retirement funds, and children’s education catered for already.

And then you ponder about the inevitable – death.

Apart from advance care planning and estate planning, you start to think about your children and their grandchildren.. how do you want to leave a mark behind?

This is where legacy planning comes in.

It ensures that the money you’ve worked so hard to earn over the decades can be properly passed down to the next generation and the generations after.

But it doesn’t end there.. you also want to maximise this amount of wealth, so that they can be impacted even further.

That’s why legacy plans are in demand these days.

Other Types of Legacy Plans Available

For the purpose of leaving a greater legacy than before, there are various tools available to you.

These legacy tools are unique from each other and will suit the different needs of individuals.

1) Term Insurance till 99 Years Old

There’s the regular term insurance that everyone knows about, which usually provides coverage until a fixed age (e.g 65, 70, 80).

Such plans are meant for income protection.

Meaning if death happens prematurely, the insurance proceeds can relieve the financial burden faced by the family members.

But these plans expire when the coverage period ends, and you don’t get anything back.

So with the introduction of term till 99 years old, the needs of income protection and leaving a legacy can be fulfilled.. simply because the chance of claiming is almost certain.

2) Single Premium (Jumbo) Whole Life Insurance

Typically in whole life insurance, it’s usually funded by regular premium (i.e pay for 25 years).

It provides income protection as well as cash value.

So how are single premium jumbo whole life plans different? They’re funded with just one lump sum at the beginning and it only has death coverage.

The main objective is such: if you have a set amount of money that you want to leave for your loved ones, you can put it into such plans. And when death happens, they can receive a multiple of that amount you’ve put in.

3) Universal Life Insurance

Universal life insurance plans also provide some form of coverage and to cater to accumulation needs.

There are 3 types of universal life plans – traditional, indexed, and variable.

The difference between them is the way they accumulate cash value.

They are usually funded with a single premium and/or regular premium, depending on your needs.

Universal life products are slightly more complex and contain more variables.

One downside is that they might not have a guaranteed life coverage (i.e till 99 years old), which can be a crucial factor if you’re thinking of leaving it for your next gen.

The plans mentioned above are generally geared towards leaving more for your loved ones, because the death benefit.

That’s where 3G lifetime income plans differ.

Purpose of a 3G Plan

Why is it called a 3-Generation plan? Because the benefits span across the 3 generations.

purpose of 3g insurance plans

There are 3 main objectives:

For 1st Gen (you): Supplementing your own retirement income
For 2nd Gen (your child): Providing additional income for your child when you’re gone
For 3rd Gen (your grandchildren): Providing a death benefit payout to the grandchildren when your child passes away in the future

Let’s take a look at the mechanics of how it works.

How Does a 3G Lifetime Income Plan Work

Here’s an explanation of how it works, and I’ll give you the specifics after.

If you have an excess sum of money that you don’t know what to do with it, but you know you want your daughter to have it one day..

You can put this amount into the 3G plan, with you as the policyowner, and your daughter as the life assured (because your daughter would likely to outlive you; get the most income).

After 5 years, you can receive a regular income. If you don’t have any use for this income at that point of time, you can just leave it inside to be “reinvested”. The income left inside can still be withdrawn out in the future if you need it.

Let’s say your daughter is old enough (e.g 35 years old), you can transfer ownership to her.

She can now receive the income (if she doesn’t need the income, it can still be left in the plan).

Hopefully by then, she has her own family with kids (your grandkids). The policy will still benefit them as if she were to pass away, there’ll still be death benefit payout.

So that’s an overview of how a 3-Generation plan works.

An Illustration with Numbers

Let’s look at the specifics. These numbers are entirely illustrative and should never be taken as a recommendation.

Profile of Policyowner:

  • Name: James
  • Age: 40 Age Last Birthday
  • Gender: Male

Profile of Life Assured:

  • Name: Jessie
  • Age: 5 Age Last Birthday
  • Gender: Female

Details of the Plan:

  • Amount set aside into the plan: $500,000
  • The income will only be paid out after 5 years from the start of the policy. It will be paid out until the Life Assured turns 100 years old or when death occurs.
  • The total monthly income: $1,750
    • Guaranteed monthly income: $650
    • Non-guaranteed monthly income (illustrated at 4.75%): $1100

Benefiting the 1st Gen

Assuming this income is withdrawn by James till Jessie turns 50 years old, and then ownership is transferred to her.

Total income withdrawn by James: $840,000 (1750*12*40)

Benefiting the 2nd Gen

Jessie then continues to withdraw out the income till when she’s 85 years old.

Total income withdrawn by Jessie: $735,000 (1750*12*35)

Benefiting the 3rd Gen

And if Jessie dies at 85 years old..

Death benefit that can be paid out to her children: $1,494,500 (comprises of guaranteed and non-guaranteed) and the plan terminates.

If the income is instead “reinvested” throughout and not withdrawn, the surrender value and death benefit will be much higher.

Another great point of such a plan is that it’s scaleable – up or down.

Features of a Good 3G Plan

While there are many insurance companies that provide such plans, they might not have the same features.

Usually, it’s best if you do a comparison.

But here are some features that you may want to look out for.

1) High “Day-One” Surrender Value

3G plans are for the long haul.

If you’re thinking of surrendering/terminating the plan in the short term, then it’s not suitable for you at all.

Reason: in an early termination, your surrender value might be lower than the “principal” you’ve put in.

On the insurance company side, they take a long term stand with such plans. An early break will also negatively impact them.

Of course, this surrender value would grow, but it takes time.

Having said all these, if the need really arises because of unfortunate events, there is an option to surrender. But take note, the “day-one” surrender value could just be 80% of your “principal”.

2) High Guaranteed Income

The income you’re entitled to receive is comprised of guaranteed and non-guaranteed income.

Although both make up the income portion, my personal opinion is that the guaranteed income holds more weight.

Why? Such plans are meant to be held for a very long time, and so there are uncertainties such as whether insurance companies can generate returns to payout what was initially illustrated. The non-guaranteed portion is heavily dependent on that.

Which is why the guaranteed portion provides greater certainty.

This is also not to say that the non-guaranteed income doesn’t matter. It matters too. I just see it as a bonus.

3) Guaranteed Issuance

If you have medical conditions and applied for insurance, you’ll know that it can be a big hassle.

Health declarations need to be made and medical reports need to be shown. And at the end of the day, you might still get exclusions or get rejected.

So with these lifetime income plans, they only provide negligible death coverage. The whole point of it is to cater more for wealth accumulation purposes.

Therefore, they’re usually guaranteed to be issued. Means, it’ll get approved no matter what kind of health conditions you have.

So if you do have serious health conditions, other legacy plans such as the term till 99 or the jumbo whole life plan might be out of the picture, and so 3G plans can be the next best alternative.

4) Ability to Make Withdrawals

As mentioned, the 3G plans are meant to be held for the very long term.

And surrendering in the short term will not be beneficial to you.

However, if you’ve “reinvested” the income that was supposed to be paid out, you can make withdrawals on them along the way.

This allows you to still retain the plan but just make the withdrawals for liquidity purposes.

5) Ability to Name Your Child as Life Assured

Most plans last till at least age 99, no matter whether you’re young or old.

In order to extract the most value, the plan should allow you to name your child as the life assured, and you as the policyowner.

This ensures that the plan will last for a longer time.

When your child turns of age, and you don’t need the income anymore, you can simply transfer the ownership to him/her.

What’s Next?

In the grand scheme of things, there are several tools out there to address the concern of leaving a greater legacy behind.

A 3G lifetime income insurance plan is just a tool.

If you want to know more, find out which is the best 3G lifetime income insurance plan in Singapore.

Apart from that, if you do want to leave a legacy for your loved ones, take some time to know more about estate planning which deals with everything when death inevitably happens.

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Advance Care Planning (ACP) in Singapore: An Introductory Guide https://smartwealth.sg/advance-care-planning-singapore/ Thu, 13 Aug 2020 07:42:04 +0000 https://smartwealth.sg/?p=3081 Heard about Advance Care Planning (ACP) in Singapore? You should. Because it’s for everyone, and not just the weak and old. It’s meant to plan for future healthcare needs, but it’s much more than that. In this article, I talk about ACP in a broader view. So, read on! What is Advance Care Planning (ACP) ...

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Heard about Advance Care Planning (ACP) in Singapore?

You should.

Because it’s for everyone, and not just the weak and old.

It’s meant to plan for future healthcare needs, but it’s much more than that.

In this article, I talk about ACP in a broader view.

So, read on!

What is Advance Care Planning (ACP)

As the name suggests, ACP is the planning for future health and personal care if you become very ill one day.

This is important because if you’re not able to communicate due to a lack of mental capacity, how would your loved ones and healthcare professionals know your desired care preferences?

That’s why it’s supposed to be done at this present moment when you still have the mental capacity to do so. And it should be done at any stage in life, even when you’re young and healthy, because anything can happen at anytime.

Advance care planning requires conversations with loved ones and care providers, and documentation – non-legally binding or legally binding – so that in the future when the need arises, your preferences are already made known.

Benefits of Advance Care Planning

There will come a time when all of us will deteriorate.

The question is when. It can also be progressive or sudden.

These are uncertainties that you’ll face. And it doesn’t just affect you but the people around you too.

Planning for your future care needs will have these advantages:

  • Your personal core values and beliefs are still intact when your loved ones and doctors are deciding the type of treatment needed
  • Reduces the stress on your family members as it takes away any guesswork
  • Have someone appointed to act on your behalf on important matters so your family wouldn’t argue
  • Withdrawing the use of extraordinary life-sustaining treatment when the time comes
  • etc

The 3 Main Tools to Help in Advance Care Planning

Advance care planning need not be complex, and can be a simple process.

So, how do we start on this journey? What does it involve?

There are 3 tools that can help:

  1. Advance Care Planning (Workbook)
  2. Lasting Power of Attorney (LPA)
  3. Advance Medical Directive (AMD)

Throughout the conversations in ACP, topics of LPA and AMD will come up. They’ll be important components as well.

Let’s go into more details on these tools.

1) Advance Care Planning (Workbook)

For this part of ACP, it’s non-legally binding.

For those who are relatively healthy, ACP can be done informally.

It can even be just having conversations with your family members.

But penning down your preferences might serve as a reference in the future for your loved ones or healthcare professionals, as such matters may be forgotten over time.

This is where the Advance Care Planning Workbook comes in.

It guides you to make a complete self reflection on your care needs. This information can then be shared with your loved ones and/or doctors, so they’re aware of it.

To formalise this, an ACP discussion can be done with a facilitator. For patients with more complex conditions, it’s more advisable to approach a facilitator.

The facilitators will follow through with everything. And your preferences can also be recorded in the National Electronic Health Record system.

Another benefit is that you’re able to appoint a Nominated Healthcare Spokesperson (NHS). This is someone who understands your care preferences and act as your voice when you’re unable to make decisions (i.e lose mental capacity) on matters pertaining to healthcare.

The appointing of a NHS may seem like an overlap with your donee in the Lasting Power of Attorney (LPA), but they’re not mutually exclusive. Both the NHS and donee should be the same person, if not there may be conflicts.

More details on the LPA soon..

2) Lasting Power of Attorney (LPA)

how does lasting power of attorney work

In a Lasting Power of Attorney (LPA), you (as a donor) are able to appoint a donee(s) to act in your best interests when you’re mentally incapacitated – temporary or permanently.

An LPA is a legal instrument, and thus is legally binding.

The donee(s) is able to act in areas of personal welfare and/or property & affairs matters.

The powers of the donee may overlap with the Nominated Healthcare Spokesperson (NHS) of the ACP, and that’s why the donee should also be the NHS.

Can you make do with just one? Let’s take a look..

If you’ve done an ACP and have a NHS (but no LPA), and you lose mental capacity, property matters such as accessing of bank accounts to pay for medical bills can’t be done by your family members. A court order has to be made which will incur more time and can be very expensive.

If you’ve done an LPA (but not ACP), and you lose mental capacity, how would your donee know of your care preferences? Sure, your donee has the power to act on your behalf, but he/she may be acting blindly.

And that’s why, both should complement one another.

3) Advance Medical Directive (AMD)

When you’re already at the brink of death, and have no chance of surviving, would you still want to prolong the imminent?

At that stage, you probably don’t have the mental capacity to make known that you want to throw in the towel too.

This doesn’t just affect you, but the people around you too.

Can your loved ones throw in the towel for you? They probably can’t bear to do so, which can cause further financial and emotional burdens.

Even if they want to help you throw in the towel, euthanasia is illegal in Singapore.

Which brings to the option of the Advance Medical Directive.

The Advance Medical Directive (AMD) is a legal document that specifically tells the doctor not to use any extraordinary life-sustaining treatment to artificially prolong your life, when you’re terminally ill and unconscious.

The AMD can only be signed in advance when you’re mentally capable.

This allows you to die naturally and in peace, when it’s really time to go.

AMD is like a “living will” and although Advance Care Planning seems similar too, it’s non-legally binding. So you can see it this way: ACP kicks in when things doesn’t get too serious until when it does, AMD can come in.

The Importance to Plan For Other Aspects

ACP usually comes into play when you’re “neither alive nor dead”.

It is harsh but it can very well happen.

There are 2 aspects that interplay with one another: financial planning and estate planning.

So what if you’ve done proper advance care planning (i.e letting know your loved ones about what types of care should be administered), but when the time comes, you don’t have proper hospitalisation coverage or life insurance coverage to get the desired treatments.

That’s why financial planning is an important area. Without it, you can’t do much.

The other area is estate planning.

When you’re critically ill, there’s a greater chance that you’d be taken out of the picture. At that point of time, do you think you’re capable to make all the necessary arrangements such as CPF nominations, insurance policy nominations and making a Will? Once you’re mentally incapacitated, all these can’t be done anymore.

And if you die without making a Will, your assets will be distributed according to the law, and not according to your wishes.

Therefore, financial planning, estate planning and advance care planning integrate with one another.

What’s Next?

ACP is non-legally binding; LPA and AMD are legally binding.

They’re not mutually exclusive and are meant to work with one another.

Don’t delay to put in place these tools because time is limited, and it’s running out as we speak.

In the meantime, do look into other areas of financial planning – having adequate life insurance coverage and a solid hospitalisation plan.

And also take a look at estate planning, to map out what’s going to happen when death inevitably happens.

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Understanding Lasting Power of Attorney (LPA) in Singapore https://smartwealth.sg/lasting-power-of-attorney/ Tue, 11 Aug 2020 07:19:21 +0000 https://smartwealth.sg/?p=3077 The Lasting Power of Attorney (LPA) is such a powerful instrument. If you lose mental capacity and you don’t have an LPA, it’s going to cost your family time and money. But with this simple document, obstacles are eliminated. And it’s affordable to make one. Here’s all you need to know about making a Lasting ...

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The Lasting Power of Attorney (LPA) is such a powerful instrument.

If you lose mental capacity and you don’t have an LPA, it’s going to cost your family time and money.

But with this simple document, obstacles are eliminated. And it’s affordable to make one.

Here’s all you need to know about making a Lasting Power of Attorney (LPA) in Singapore.

So, read on!

Too Long; Didn’t Read

how does lasting power of attorney work

In an LPA, a donor (the person who’s making the LPA) appoints a donee(s) to act on behalf of the donor if he/her loses mental capacity. The donee(s) is able to act in areas of personal welfare and/or property & affairs matters.

But of course, it’s not that straightforward.

What Is Lasting Power of Attorney (LPA)

A Lasting Power of Attorney (LPA) is a legal instrument that allows the donor (the person who’s making the LPA) to appoint a donee to make decisions and act on behalf of the donor when he/she is mentally incapacitated.

According to the Mental Capacity Act in Singapore, the definition of mental incapacity is when a person is unable to make a decision for himself in relation to the matter because of an impairment of, or a disturbance in the functioning of, the mind or brain. And it doesn’t matter whether the impairment or disturbance is permanent or temporary.

Some examples where mental incapacity can kick in:

  • Stroke
  • Mental illnesses
  • Dementia
  • Accident which causes head trauma
  • etc

And these are the areas where the donee(s) can be granted powers:

  • Personal welfare
  • Property & affairs matters
  • Both

Requirements to Be a Donor or Donee

Here are some requirements to be a donor:

  • Be at least 21 years old
  • Of sound mind
  • Must not be an undischarged bankrupt if you wish to grant powers regarding property & affairs matters

Here are some requirements to be a donee:

  • Can be one or more persons
  • Be at least 21 years old
  • Someone who is competent, reliable and whom the donor trusts
  • Must not be bankrupt if appointed to act for property & affairs matters

If there are more than 1 donees, they can either act together, or separately.

Even if there’s no one you can think of to act as a donee, there are professional donees (e.g lawyers or social workers) who’ll charge a fee to be appointed and render service.

Difference Between Power of Attorney and Lasting Power of Attorney

While the Power of Attorney (POA) and Lasting Power of Attorney (LPA) may seem similar, they’re entirely different.

In POA, there’s also a donor and a donee. However, it kicks when the donor still retains mental capacity, but lacks the “physical” capacity.

In other words, the donor can appoint someone to act on behalf of him/her such as handling personal matters like accessing bank accounts, buying and selling properties, etc, when the donor is unable to do so.

Here are some examples when a POA comes in handy for the donor:

  • going overseas but in the process of buying/selling a property
  • go into prison for the long term
  • getting placed in a nursing home
  • etc

In these cases, the donor might not be able to be physically there to attend to important matters, so the donee is there as a “replacement”.

Note: The POA will be invalid when the donor loses mental capacity or when death happens.

On the other hand, the LPA kicks in only when the donor loses mental capacity.

Is an LPA Necessary?

Is it a good idea to go through the hassle to get an LPA made?

Short answer: Yes.

But here’s the long answer..

In a scenario where you got into an accident, and slipped into a coma, there may be several matters that are required from you:

  • signing of authorisation forms
  • deciding on what type of treatment
  • accessing of bank accounts to pay for medical treatments
  • etc

But all these can’t be done by you because you lacked the mental capacity.

A next-of-kin can’t just do these in place of you.

This is because even if you lose mental capacity, your assets still belongs to you. No one in the family should have access to it, even though it’s for your own use such as the paying of medical bills.

And if you don’t have an LPA, a court order needs to be made and then someone has to be appointed to make such decisions for you.

In general, there are 4 disadvantages to not having an LPA:

  1. Arguments may arise between family members on the best course of action
  2. The person who’s appointed by the court may not act in your best interests
  3. With the court order, it’ll cost much more money; can cost $10,000
  4. The court may take a long time to appoint someone; can even take 2 years

Here’s a real life story of someone who didn’t make an LPA.

But if you have an LPA, getting a court order is not needed and thus, these disadvantages will be eliminated.

And it’s not even expensive to make one (more on that later).

Difference Between LPA and a Will

The Will is a written document that specifies your wishes only when death occurs.

The LPA comes in when mental incapacity occurs.

Death is straightforward. But when you’re in a situation where death doesn’t happen, yet you don’t have consciousness (like in the above examples), the Will doesn’t kick in.

That’s why an LPA fills this gap, and both go hand in hand.

There Are 2 LPA Forms Available

Form 1 and Form 2.

The main difference is that Form 1 is a standard form granting general powers with basic restrictions, while Form 2 is non-standard and is customisable.

You’re likely to make a Form 1 LPA as 98% of applications are Form 1 applications.

Here are more differences between Form 1 and Form 2:

Form 1Form 2
Standard formNon-Standard form
General powers with basic restrictionsCustomisable powers given
Can appoint up to 2 donees with 1 replacement doneeCan appoint more than 2 donees and more than 1 replacement donee
Application fee can be from $75 (waived for Singapore Citizens till 31 Aug 2020) but other charges may applyUsually drafted by a lawyer
Application fee can be from $200

3 Steps to Make an LPA in Singapore (And the Costs Involved)

There are 3 main steps to apply for an LPA:

  1. Fill up either Form 1 or Form 2
  2. Get the form certified
  3. Submit the relevant forms

Below are more details and the fees involved in each step.

1) Fill up either Form 1 or Form 2

From the section above, you’d probably know the differences.

And likely go with the Form 1.

You can download both forms at the Ministry of Social and Family Development website.

They’re free to download.

However, Form 2 requires a lawyer to draft certain sections.

In these forms, there are several pointers to note:

  • donees’ signatures are required
  • witnesses are still required
  • etc

2) Get the form certified

You’ll need to find a Certificate Issuer (CI) to certify the form for you.

This is to ensure that the donor fully understand what he’s doing such as:

  • purpose of making the LPA
  • intention of appointing the donees named
  • powers given to the donees
  • no fraud or undue pressure was made

There are 3 groups that can certify the LPA:

  • Accredited Medical Practitioner
  • Lawyer
  • Psychiatrist

There is a fee charged on getting the form certified by these groups.

It can cost $25-$300 (usually depending on which group).

3) Submit the relevant forms

Within 6 months of signing the LPA, the form and all relevant documents need to be mail to the Office of the Public Guardian (OPG).

OPG’s Mailing Address:
20 Lengkok Bahru #04-02
Family @ Enabling Village
Singapore 159053

The OPG will then follow up on payment and other details.

There are application fees involved:

LPA Form 1 FeeLPA Form 2 Fee
Singapore Citizens$75 (waived until 31 Aug 2020)$200
Singapore Permanent Residents$100$250
Foreigners$250$300

Can an LPA Be Revoked or “Challenged”?

In an LPA, you’d have to choose someone whom you trust to act on your behalf.

However, this can also be a limitation.

When you lose mental capacity, this someone might “change” and not act in your best interests.

This may be avoided with several solutions.

An LPA can be revoked at any time, if you still have the mental capacity. So, if you know that the appointed donee has changed or the relationship has turned sour, you can make a revocation.

A revocation is usually accompanied by a submission of a new LPA.

However, if you choose not to submit a new LPA, a lawyer or a medical practitioner has to be the witness to your revocation. This is to ensure you know the implications of revoking without making a new LPA.

On the other hand, if you’ve already lost mental capacity, what happens if a donee doesn’t act in your best interests?

The Office of the Public Guardian (OPG) can apply to court to revoke the donee’s power.

Such situations are less common but if a donee doesn’t act in the best interests of the donor – fraud, dishonesty, physical abuse, etc – such actions have to be taken.

What Happens After Losing Mental Capacity With an LPA

We make LPAs because we want to make preparations when we’re still mentally capable. If we’re not, LPAs can’t be made anymore and court orders have to been applied for when the time comes.

So in cases when mental incapacity happens and we have an LPA, what comes after?

These are 3 broad stages:

  1. Have a doctor certify the mental health condition
  2. Approach the institution such as a bank and provide them the relevant documents
  3. The institution will verify the validity of the LPA and will then grant the donee access

What’s Next?

Making a Lasting Power of Attorney is part of Advance Care Planning (ACP) – deals with situations where you’re “neither dead nor alive”.

Other parts of ACP are the Advance Care Workbook (spells out how you want to be medically treated) and the Advance Medical Directive (grants permission to remove life sustaining treatments)

But in the bigger picture of things, there are 3 crucial aspects.

I call it the F-E-A: Financial Planning, Estate Planning and Advance Care Planning.

Each area has its importance.

For example, you’d need proper financial planning done up to provide the means for medical treatments when you’re critical ill or mentally incapacitated. This is in the form of having sufficient life insurance coverage and hospitalisation coverage.

And if you’ve lost mental capacity, how are your assets going to be distributed when death happens after? If you die without a Will, it’s distributed according to the law. And this is why most would also write a Will while they’re trying to do up LPAs.

All these 3 areas have to be catered for.

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Estate (& Legacy) Planning in Singapore: The Beginner’s Guide https://smartwealth.sg/estate-planning-singapore/ Sat, 08 Aug 2020 04:38:32 +0000 https://smartwealth.sg/?p=3066 Estate planning is often an afterthought. Most of us tend to focus on how to make more money, but we don’t think about what happens to that money when we die. Sure, we earn money to make our lives better, but it’s also for our loved ones. If you don’t get the basics of estate ...

Read moreEstate (& Legacy) Planning in Singapore: The Beginner’s Guide

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Estate planning is often an afterthought.

Most of us tend to focus on how to make more money, but we don’t think about what happens to that money when we die.

Sure, we earn money to make our lives better, but it’s also for our loved ones.

If you don’t get the basics of estate planning done right, your money may not go to the intended parties when you’re not around anymore.

So, read on to find out more about estate planning in Singapore!

The Importance of F-E-A

At any stage in life, there are 3 areas that interplay with each other.

I call it the F-E-A.

Financial Planning, Estate Planning, and Advance Care Planning.

Financial Planning comes into play when you’re alive.

Estate Planning comes into play when you’re dead.

Advance Care Planning comes into play when you’re “neither alive nor dead” (i.e mentally incapacitated).

When one part of the equation is missing, there are bound to be gaps.

For example, you’ll need proper financial planning to have something to leave for your loved ones. If you don’t have anything, then there’s no point in doing estate planning because there’s simply nothing to give.

Another example: if you’ve done proper financial planning and estate planning, but not advance care planning, and mental incapacity happens, it doesn’t mean that your family is automatically granted access to your assets to pay for the bills and all. The assets still belong to you, but if you’re already “not here nor there”, what happens then?

That’s why all 3 areas have a role to play.

But for now, let’s zoom into estate planning.

What Is Estate Planning

The purpose of estate planning is to allow the individual to decide who his/her beneficiaries are and how much they will receive upon death.

There’s also another debate: estate planning vs legacy planning.

What’s the difference? In my opinion, both generally mean the same thing in the grand scheme of things, so I’ll stick with estate planning.

Here are some benefits when we utilise estate planning tools:

  • decide who receive what
  • faster distribution of assets upon death
  • overall lower costs to unlock assets
  • avoid ugly arguments and fights between family members
  • etc

But estate planning is such a broad topic, and there’s many moving parts..

What Happens If You Don’t Do Proper Estate Planning

One of the main reasons why you would want to do estate planning is to make sure your assets go to your intended beneficiaries, and to not let the law decide for you.

But how many people do it?

Let’s look at some statistics on unclaimed and un-nominated assets:

  1. $132 million in CPF savings are left unclaimed
  2. Only 120,000 CPF nominations are made in a year
  3. More than 8,000 insurance policy payouts are unclaimed
  4. Only 2% of life insurance policyholders make nominations
  5. Your assets may go unaccounted for if a Will isn’t made
  6. Not more than 10-15% of Singaporeans have made Wills

And what are the consequences? More on that later..

Tracking Your Personal Finances Is Always the First Step

“What can be measured can be improved”.

If you don’t measure or track your finances, it’s very hard to improve on it, because you’re not able to identify any shortfalls or gaps.

But there’s also another benefit of tracking your finances, and that’s to note down what you have.

Why is this important?

It’s because if such a list is not made, how would your family know what you have when death or mental incapacity happens? The assets will just go “unclaimed”.

So it’s always good to have an all-in-one collection of these data:

  • Assets & Liabilities
  • Income & Expenses
  • Insurance Policy Summary
  • Other Essential Information

For a free downloadable google sheets/excel template (without subscribing to anything), check out our FinSnap.

How to Leave a Larger Estate for Your Loved Ones

When you’ve done the proper tracking, there may be shortfalls.

And even if there aren’t any, you might think of maximising and enlarging your estate (the total assets upon death) for your family members.

How do we do this?

Firstly, the core basics of income protection should’ve already been done. That should be achieved by having adequate insurance coverage, usually from a term insurance or a whole life insurance, if something adverse happens prematurely.

Secondly, you need to have sufficient retirement funds in the future and your kid’s education has been catered for already.

Thirdly, you can consider 3-generation lifetime income plans, which can provide income for your own retirement as well as for your next-gen.

And lastly, legacy insurance plans.

These legacy plans are specifically meant to leave a bigger estate for the next-gen:

Regarding Inheritance Tax in Singapore

Once you’ve got everything in place, and death happens, will the government tax your estate?

The short answer is no.

The long answer: Singapore used to have an estate duty tax but that has since stopped. For all deaths that happen on or after 15 Feb 2008, there’ll not be an estate tax.

An Overview of What Happens If You Die Without a Will

what happens if you die without a will

Once death happens, all your assets will be frozen. Nobody is supposed to have access to them anymore.

For the majority of those who die without a Will, an Administrator has to be appointed, and apply for a court order called the Grant of Letters of Administration.

This Administrator is usually the next-of-kin (e.g spouse or eldest child) and has responsibilities to fulfil such as:

  • gather information on the deceased’s assets and liabilities
  • creating an estate bank account
  • transfer funds from the various banks into the estate account
  • paying off all debts and liabilities
  • and if there are any remaining assets, to be distributed to beneficiaries

How are these assets distributed?

According to the intestate succession act or the muslim law.

intestate succession act distribution table

However, not all assets are treated the same.

Depending on several factors, the following assets may be treated differently:

  • Joint properties
  • Joint bank accounts
  • CPF monies
  • Insurance proceeds
  • etc

They may not be distributed according the intestate law or muslim law depending on what has been done prior.

Generally, making a Will makes it easier for everyone.

The 3 Basic Estate Planning Tools

There may be a lot to take in.

But to start you off, there are a few core tools that you should take advantage of.

  1. CPF nominations
  2. Insurance policy nominations
  3. Wills (and testamentary trusts)

More details below..

Making a CPF Nomination Is Easy Now

Whether you’ve made a Will or not, it doesn’t matter.

What matters is whether you’ve made a CPF nomination or not.

If you didn’t make a nomination, the CPF monies will go according to the intestate law or the muslim law.

Only if you’ve made a nomination, then it’ll go according to your wishes

Not only that, it can be cheaper and faster.

importance of cpf nomination

It used to be that CPF nominations can only be done via the CPF service centres or the submission of hardcopy forms (with 2 witnesses).

This limitation resulted in fewer nominations made, which negatively impacted the family of the deceased.

However, you’re able to make a CPF nomination online now. This is by far one of the easiest methods.

Some Insurance Policies Should Be Nominated

For insurance policies with a death benefit, you’re able to make a nomination.

By making an insurance policy nomination, you can decide who and how much your nominees would receive.

There are 2 types of nominations – revocable and irrevocable (trust).

Most nominations are revocable as you’re able to change details at any time.

And whenever you’ve made a nomination, the insurance company can pay out straightaway to your nominees when there’s a successful claim.

This is great because it gives your family liquidity.

However, it can be a double-edged sword because it will pay out one-shot, which may not be advisable for the nominees who aren’t great at handling money.

So you could consider nominating only a portion of your policies, and the rest can be dealt with more properly with a Will (particularly, with a testamentary trust).

Making a Will is Important at Any Stage in Life

how-does-a-will-work

Making a Will will allow your to specify who receives what for all other assets.

The signing of the Will must be witnessed by 2 people, and then it should be kept at a safe and accessible place.

Upon death, the executor of the Will needs to gather all documents and apply for the Grant of Probate.

This enables him/her to gain control, pay off liabilities and distribute the assets according to the Will, etc.

The Will does have other features that will be useful.

One is that you can appoint a guardian for your children.

And the other is you can include a testamentary trust (Will trust) which can allow the staggering of payments or a monthly amount to be paid out instead.

You Can Also Consider Setting up a Trust

Setting up a trust is not just for the rich, it can be for the retail individual too.

how-does-a-trust-work

There are 3 main parties in a trust: the settlor (person who sets up the trust), beneficiaries, and the trustee.

A trustee is a person or entity that manages and distributes the assets for a period of time (e.g 20 years, till when the beneficiary turns 21, etc).

A trust provides greater control and flexibility which the basic estate planning tools can’t provide.

As such, it can be handy in certain situations.

There are different types of trusts available such as:

  • Trust (Irrevocable) Nomination
  • Will Trust (Testamentary Trust)
  • Living Trusts
  • Standalone Insurance Trust
  • Property Trust
  • Standby Living Trust

Don’t Forget About Advance Care Planning Too

What happens if you’re just mentally incapacitated?

Estate planning doesn’t kick in because it mainly deals with death.

So in the event when you’re “not dead or alive”, advance care planning comes in.

It consists of 3 main tools which can only be made when you’re mentally capable (and comes in when you’re not):

  1. Advance Care Planning Workbook – indicate your healthcare preferences
  2. Lasting Power of Attorney (LPA) – appointing a donee(s) to act on your behalf
  3. Advance Medical Directive (AMD) – forgoing life sustaining treatments when you’re terminally ill

All these tools help to make life easier for yourself and your loved ones when an unfortunate event happens.

What’s Next?

As mentioned, estate planning is nothing when proper financial planning is not done.

If you don’t have anything to give, then it’s rather pointless.

So emphasis has to be on improving your finances.

This can include getting adequate insurance coverage, catering to wealth accumulation needs such as kid’s education and retirement, and then implementing legacy insurance plans.

Then start to utilise estate planning tools such as CPF nominations, insurance policy nominations, writing a Will, and setting up a trust.

At the same time, advance care planning comes in when you’re “neither dead nor alive”. So, take some time to read about that too.

The post Estate (& Legacy) Planning in Singapore: The Beginner’s Guide appeared first on SmartWealth.

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6 Statistics on Unclaimed & Un-Nominated Assets in Singapore https://smartwealth.sg/unclaimed-unnominated-assets-statistics/ Wed, 05 Aug 2020 03:22:40 +0000 https://smartwealth.sg/?p=3044 If you don’t make the necessary arrangements, some of your assets might never be accounted for when you’re not around anymore. These include your CPF monies, insurance proceeds, and other assets you may have. Here are 6 statistics on unclaimed and un-nominated assets in Singapore. Hopefully, it’ll open your eyes and do something about it. ...

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If you don’t make the necessary arrangements, some of your assets might never be accounted for when you’re not around anymore.

These include your CPF monies, insurance proceeds, and other assets you may have.

Here are 6 statistics on unclaimed and un-nominated assets in Singapore.

Hopefully, it’ll open your eyes and do something about it.

So, read on!

1) $132 million in CPF savings are left unclaimed

For those who pass away without making any CPF nomination, their funds will be transferred to the Public Trustee’s Office (PTO) to be distributed.

In total, $211 million of funds are left unclaimed with PTO; CPF savings contributed to $132 million.

It also means that the money is just sitting there, waiting for family members to claim it (if ever).

While PTO makes an effort to trace and contact beneficiaries, there’ll still be cases where the monies are unclaimed.

Which is the reason why making a CPF nomination is important as it greatly increases the chance that your CPF savings will go to intended parties, and not be decided by the law.

2) Only 120,000 CPF nominations are made in a year

In 2018, there were 120,000 processed CPF nominations.

In contrast, there were only 50,000 nominations made in 2013.

While this is a great start, more could be done.

One reason why there’s a low number of nominations made is because it can only be done at the CPF service centres or submitting of hardcopy forms.

However, you’re able to make CPF nominations online now. And the process is simple.

This should increase the amount of CPF nominations especially for those under the age of 45.

3) More than 8,000 insurance policy payouts are unclaimed

When you buy an insurance plan such as term insurance or whole life insurance, you’re mainly thinking about your dependants.

If you’re not around anymore, that money will ease financial burdens on your family.

But what if it’s unclaimed when you’re gone? Doesn’t that defeat the whole purpose?

As at 2015 (latest publicly available information), there are more than 8,000 insurance payouts that were left unclaimed.

That can mean that 8,000 families are not benefitting from something meant for them.

Now, the Life Insurance Association (LIA) has came up with the ability to check for unclaimed proceeds online. This’ll allow family members to easily search for any unclaimed policies that their deceased loved ones have.

But for this information to be there in the first place, the insurance company must be notified of the death, if not they wouldn’t know.

So in my opinion, the reason why such policies are unclaimed is because the family simply doesn’t know of it.

And this is why it’s so important to let them know about it through policy summaries or sharing with them your personal finances before death or mental incapacity happens.

If you’re wondering how to do this, do check out our free FinSnap template.

4) Only 2% of life insurance policyholders make nominations

In a life insurance policy, you’re able to make 2 types of insurance nominations – revocable and irrevocable (trust).

Most nominations are the revocable ones.

By making a nomination, you can specify who and how much your beneficiaries will receive, and not only that, the insurance company will pay the proceeds without going through the legal process of obtaining a court order.

But how many people do this?

2% of Aviva’s life insurance policies are nominated. While, this may not represent the whole industry, it can give you some perspective.

Why aren’t more people doing it? Probably because you’ll need 2 witnesses and a hardcopy form to be submitted.

But it’s something that can be crucial when the time comes.

So make use of your financial advisor and ask him/her to assist in this area.

5) Your assets may go unaccounted for if a Will isn’t made

While the bigger assets such as your property and bank accounts shouldn’t go unaccounted for if you die without a Will, there may be some assets that would.

For example, if you have cryptocurrency or some not-so-obvious assets, who would know of such items other than yourself?

And once death or mental incapacity happens, that information might be forever “gone”. As such, there’s no statistics to show how many of such assets go “missing”.

I do think that this may be a common issue.

So as a start, get a Will written up.

If not, start small by listing out such assets and let your family know about it.

6) Not more than 10-15% of Singaporeans have made Wills

In current times, basic Wills are affordable.

But why isn’t there a lot more Wills written?

In my opinion, because it can be a hassle and Singaporeans don’t see a need.

And that’s why only 10-15% have made Wills, which is a very small amount.

So, let me refresh the benefits of it:

  • you can specify who and how much your beneficiaries will receive
  • don’t let the law decide for you
  • faster process for your family to access the money
  • the whole process can be cheaper than when you die without a Will
  • .. and much more

If you have some time, learn more about Will writing in Singapore.

What Do All These Mean

You may not think such tasks are necessary.

Perhaps you think you’re healthy and the chances of death or mental incapacity is low, for now.

But when the time comes, such preparations may not be made in time.

So they almost always have to be done beforehand.

Take some time to make sure the basics of estate planning are done. These are your CPF nominations, insurance policy nominations and writing a Will. You can also look at setting up a trust.

But at the end of the day, not all information can be captured.

So it’s important to track and safekeep personal finances in a single place.

Taking a screenshot of personal finances with FinSnap have 2 benefits:

  • You’re able to track and improve on your finances
  • Your family will know what you have when it’s time if not everything is lost

Check out FinSnap now.

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FinSnap: Taking a Snapshot of Your Personal Finances (Free Template) https://smartwealth.sg/finsnap/ Sun, 02 Aug 2020 09:50:45 +0000 https://smartwealth.sg/?p=3022 Reminder: There comes a time when all lives will end. And when that time comes, it might be too late. Tracking your personal finances may seem boring, but it has a greater meaning behind it. What happens when you die or become mentally incapacitated? Critical information might be forever gone. That’s why taking a snapshot ...

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Reminder: There comes a time when all lives will end. And when that time comes, it might be too late.

Tracking your personal finances may seem boring, but it has a greater meaning behind it.

What happens when you die or become mentally incapacitated?

Critical information might be forever gone.

That’s why taking a snapshot of your personal finances (FinSnap) is one way to keep track AND sakekeep it.

Here’s a free google sheets/excel template you can download.

Not convinced why it’s important?

Read the short story below..

Take a snapshot of your personal finances with FinSnap

Why?

  1. Keep track and improve your finances
  2. Ensure your family know what you have when the inevitable time comes

It also includes these sections:

  • Assets & Liabilities
  • Income & Expenses
  • Insurance Policy Summary
  • Other Essential Information

You don’t need to subscribe to anything, the download link goes to a public google sheet. Get your free template now.

A Short Personal Story

10th Jul 2020.

I remember that date because it was polling day, and it was also my first visit to the A&E.

In short, it was because of a combination of double vision, a moment when I couldn’t understand simple words, extremely bad headache, and full-on vomiting (at least 5 times) for no apparent reason.

Note: I’m generally healthy and have never been to a hospital other than for a dislocated thumb (thanks, Mabel).

And now, I’ve to see a neurologist and an ophthalmologist (eye doctor).

During this process, I’d be lying if I say I didn’t think of the what ifs.

It’s not about whether I have insurance or not – I do have the essentials (fortunately) – but what happens beyond that.

SIDE NOTE
Even if I were to apply for more insurance now, it’ll likely be postponed or excluded. So if you’re not sure whether you’re adequately covered, do check out our life insurance cover calculator. And also learn more about hospitalisation coverage.

More important to me are the areas in estate planning:

But even with all that, it’s still not complete.

Here’s why..

The Purpose of a FinSnap

There will still be important information being left out, including the not-so-obvious ones.

And when death or mental incapacity happens, it can be swift.

You might not have the luxury of time or the ability to communicate all these to your next-of-kin.

And then, everything just becomes non-existent.

That’s why all these need to be done beforehand (preferably, now).

With a FinSnap, it enables you to have an all-in-one collection of these financial information that will come in handy whether you’re living or dead.

There are 2 objectives with it:

  1. Track your finances so that you’re able to measure and improve on it
  2. Safekeep key financial information so that it can be accessed by your family members when it’s time

The 4 Areas in a FinSnap

FinSnap is really just a template that includes prompts so that you don’t have to wreck your brain coming up with everything.

It is designed to be organised and presented in simple way.

There are 4 parts to it:

  • Assets & Liabilities
  • Income & Expenses
  • Insurance Policy Summary
  • Other Essential Information

Let’s take a deeper look at the significance of each section.

Assets & Liabilities

assets and liabilities

Whether you’ve made a Will or not, a Schedule of Assets has to be submitted upon death.

This should include a list of all your assets and liabilities.

If you’ve never made this list before, how would your Administrator/Executor be able to find this information?

They will have to write in to all financial institutions to check whether you have holdings with them.

I’m sure you’d be able to see how this plays out.

Not only is it extremely troublesome, but certain assets (e.g cryptocurrency) may not be accounted for, and just be lost in space.

Listing it down will serve as a reference.

It also shows you the overall health of your finances.

Income & Expenses

income and expenses

While the asset section would’ve listed down the income-generating assets, it’s also good to keep track of all earned income here.

Most importantly are your expenses.

Life around you still goes on, even when death or mental incapacity happens.

Having all your expenses listed down here will allow continuity for the essential ones, especially those meant for your dependants.

When your family doesn’t know of such expenses, and it’s not catered for, it will have a negative consequence.

For example, insurance policies will lapse and there’ll be no more coverage. Even if it’s reinstated, waiting periods will be refreshed.

This section will also allow you to track your spending.

Overspending? Spending on unnecessary items? You’ll know.

Insurance Policy Summary

insurance policy summary

Insurance is an important element in any financial portfolio.

But many a times, consumers do not know what they’ve bought.

This also hampers proper advice to be given by a financial advisor, or anyone for that matter.

An insurance policy summary lists down all the policies you’ve bought.

Not only does it help in times of claims, it gives an overview of each policy.

It also shows any shortfalls or gaps.

Note: If you’re paying for your dependants’ policies, do duplicate and have separate tabs for them. This way, it shows an overview financial health of each individual.

Other Essential Information

other essential information

In this section, you’d want to list down other information that may not be categorised in the previous parts.

In this digital age, there’s one particular area which is often overlooked, and that’s online accounts.

Online accounts and their passwords can hold tremendous value to the person who’s recently deceased or mentally incapacitated.

If such access is denied or not known, it might not be to the benefit of loved ones and people around them.

Of course, you have to be comfortable to list out such sensitive information. If not, another way is to have a password manager which allow access to emergency contacts.

How Do You Download and Use the Template

The FinSnap download link is to a public google sheets created by me.

You’re able to view it, and there are 2 options you can take.

First, you can duplicate and make a copy, and it’ll then be useable on your own Google Sheets account.

Second, you can just download it as an .xsl and use it as an excel file.

I’d prefer the first option because I can make changes easily and it’s more accessible.

How Should FinSnap Be Accessed by Your Loved Ones

FinSnap is not a sure-fire way of keeping track and safekeeping financial information, it’s just to get you thinking.

You can even use a note-taking app.

But the core idea is that it should be usable and accessible.

You see, it’s how comfortable with you sharing such information with your loved ones.

If you’re comfortable, accessibility to them is not a problem. You can just share all information and passwords with them.

However, if you’re not comfortable, then you’d have to decide how you want them to know of everything when the time comes.

Do take note that all information (sensitive or not) kept digitally carries some sort of risk that it can be accessed by unintended people, so make sure proper digital hygiene is in place.

Here are some examples to get you thinking:

  • sharing the file with your Executor (Will) or family members
  • printing it out and letting your loved ones know of its location
  • placing printed copies in a safe box at home
  • etc

What’s Next?

In the bigger picture of things, there are 3 areas that one should look at.

Firstly, financial planning ensures that you have proper protection and wealth so that you have something to lean on and pass to the next generation.

Secondly, advance care planning ensures that everything is smooth when you’re not “living or dead”.

Lastly, estate planning ensures all that you have can be properly passed to your intended beneficiaries.

To tie this all up together is a simple tool like FinSnap.

Don’t belittle this simple tool as it can make a difference. Remember, it serves 2 purposes: tracking & safekeeping.

If you think this is great idea, make use of it and share this article with your family and friends.

Take a snapshot of your personal finances with FinSnap

Why?

  1. Keep track and improve your finances
  2. Ensure your family know what you have when the inevitable time comes

It also includes these sections:

  • Assets & Liabilities
  • Income & Expenses
  • Insurance Policy Summary
  • Other Essential Information

You don’t need to subscribe to anything, the download link goes to a public google sheet. Get your free template now.

The post FinSnap: Taking a Snapshot of Your Personal Finances (Free Template) appeared first on SmartWealth.

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Setting up a Trust in Singapore: An Introductory Guide https://smartwealth.sg/setting-up-trust-singapore/ Thu, 30 Jul 2020 08:27:46 +0000 https://smartwealth.sg/?p=3007 Have you heard of trusts? (No, not the one between two people. The financial kind..) Most would think that a trust is only for the ultra-rich. But it can also be relevant to retail individuals. How is that possible? Because of the different types of trusts available. Today, I’ll touch on: what is a trust ...

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Have you heard of trusts?

(No, not the one between two people. The financial kind..)

Most would think that a trust is only for the ultra-rich. But it can also be relevant to retail individuals.

How is that possible? Because of the different types of trusts available.

Today, I’ll touch on:

  • what is a trust
  • important features of a trust
  • specific situations where it can be useful
  • most common types of trusts in Singapore
  • .. and more.

The content is created to be as simple as possible.

So, read on!

Too Long; Didn’t Read

how does a trust work

In a typical trust, the settlor (the person or entity who creates the trust) sets aside assets into the trust. These assets will then be managed by the trustee (person or entity) who ultimately makes distribution to the beneficiaries named by the settlor.

But this is just a simple flow.

There are many details that need to be touched on, so read on further.

What Is a Trust

What is the meaning of a trust, trust fund, or a trust account?

They’re similar.

how-does-a-trust-work

The definition of a trust is a legal arrangement between a settlor (the person or entity who sets up the trust) and a trustee (the person or entity who holds the legal ownership) to provide proper distribution of assets to the beneficiaries (the person or entity who holds the beneficial ownership).

The trust can be “funded” by a variety of assets.

What’s the Purpose of a Trust

While a trust can serve a variety of needs, there are 3 core reasons why people turn to trusts.

Firstly, the trustee has a fiduciary duty to manage and distribute the assets for the sole benefit of the beneficiaries, and not for anyone else. Not doing so may result in breaking the law. Professional trust companies can be trustees too.

Secondly, with a trust, you can have greater control over how the distribution of your assets are to be made to your beneficiaries, whether you’re living or not.

And lastly, trusts can be extremely useful in special circumstances where no other instrument can cater for.

More on these specific situations later on, but let’s take a look at what a trust is made of..

The Different Components in a Trust

While a trust may seem complicated at first, it’s only made up of a few important parts.

Settlor

The settlor is the person who creates the trust and starts the ball rolling.

A trust can be created when the settlor is living (living trusts) or when he’s dead (testamentary trust/will trust).

He does this by setting aside a variety of assets into the trust to be handled and distributed by the trustee, for the ultimate benefit of his beneficiaries.

Trust

When the trust is created, it has to be “funded” with something.

It need not be just cash, and can include a variety of assets.

Examples of assets a trust can hold:

  • Cash
  • Shares
  • Residential/commercial properties
  • Insurance policies
  • etc

One of the main reasons why you would create a trust is to make delayed gifts to your beneficiaries.

Trustee

What is a trustee?

The trustee is a very important person or entity that is the legal owner of the trust assets, and has to manage these assets and make proper distributions to the beneficiaries.

Here are some duties of the trustee:

  • invest in only authorised investment vehicles
  • optimise returns for assets
  • distribute assets to beneficiaries
  • etc

The trustee has a fiduciary duty to act according to the beneficiaries’ best interests. Failure to do so may result in a breach of trust and can be liable for lawsuits.

Having a professional trust company as a trustee works best for everyone as the duties can be performed at the highest level. They act as a “middleman” to the settlor and the beneficiaries. And dutifully act according to the wishes of the settlor.

An example of a trust company is the Special Needs Trust Company (SNTC).

Beneficiaries

The settlor names beneficiaries who can be individuals or entities.

Ultimately, the trust is created for the benefit of these beneficiaries as they ultimately receive the assets

Examples of beneficiaries:

  • Spouse
  • Children
  • Parents
  • Any close friends or relatives
  • Charitable organisations
  • etc

Trust Deed

The trust deed is a legally binding document which spells out the terms and conditions to how the trust should be administered.

It contains information such as:

  • whether the trust is revocable or irrevocable
  • whether it’s discretionary or fixed
  • who the beneficiaries are
  • the types of investments the trustee can make
  • .. and a lot more

Letter of Wishes

The letter of wishes is a separate document where the settlor (person who created the trust) expresses additional wishes as to how the trust should be administered by the trustee.

It’s used as a reference and it provides guidance to the trustee, and it’s expected to be followed.

Although the document is not legally binding, it can have an influence in court (when challenged).

Protector

The protector is someone appointed to “oversee” the trustee, and it’s optional to have.

He/she is given power which includes:

  • appointing and removing trustees
  • adding/removing beneficiaries
  • trustee has to seek approval from the protector when making distributions
  • etc

A protector is particularly useful when the trust lasts beyond the next gen (i.e great-grandchildren).

Other Important Features of a Trust

There are other estate planning tools that you can use to create your desired roadmap.

Most of the time, these tools are used together such as CPF nominations, insurance policy nominations, writing a Will, etc.

But what makes the trust entirely unique?

Flexibility, which no other tool can replicate.

Here are some of the various features of a trust:

Revocable or Irrevocable

Most living trusts are revocable.

So you’re able to change any details of the trust whenever circumstances change at any time during the lifetime.

Only a small percentage of trusts are irrevocable. But they do come in handy in certain situations such as protecting your assets from creditors.

Discretionary or Fixed

If a trust is fixed, the trustee has to execute according to what’s spelt out.

And there can be no deviation.

This may not be ideal as one will never be able to predict the future, which is why most trusts are discretionary.

This would mean that the trustee has some wiggle room.

It does not mean that the trustee can do whatever they want, but they’re still expected to follow the trust deed and the letter of wishes. They still have a fiduciary duty to act in the best interests of the beneficiaries, just that they have more freedom to do so.

6 Situations Where a Trust Can Be Useful

Here are some scenarios where you can consider creating a trust:

1) Providing for a special needs child

If you have a beneficiary who is a special needs child, who’s going to provide for the child financially when you’re not around?

That’s why you may want to consider setting up a trust.

The trust will then be able to distribute funds so that the child will have continuous financial support when you’re not around.

And at the same time, you’re able to avoid placing legal and financial responsibilities on people around you.

The Special Needs Trust Company (SNTC) in Singapore is one that specialises in this area.

2) Delaying gifts for vulnerable family members

Some of our loved ones may not be great at handling money.

This can be seen in a number of news where the spouse receives insurance proceeds but is left with almost nothing at the end of a year.

This happens because not many of us are able to deal with a sudden increase in wealth and money.

So a solution to this is to structure how your gifts are to be made.

You can decide whether you want your loved ones – parents, spouse, young children – to receive a monthly amount or staggered payouts at different stages, etc

3) Buying real estate for children

When parents are more than self-sufficient, they’d usually think about the next generation, and how to provide more for them.

An asset class they think would be ideal is real estate.

Creating a trust to transfer beneficial ownership to the child may also allow the parents to avoid paying Additional Buyer Stamp Duty (ABSD).

But there may be downsides to this (more on that later).

4) Protecting your assets

Money is hard to earn, and so your assets are hard-earned.

You don’t wish them to go to unintended people.

Placing these assets in a trust can be a good way to protect against undeserving people, especially when the trust is irrevocable.

It can then have some protection against creditors, divorce and lawsuits.

However, there may be situations where it can still be challenged. For example, if there are creditor troubles within 5 years upon the creation of the trust, it may not be protected.

5) Avoiding probate

As assets placed in a trust do not form part of the deceased’s estate, it can skip the lengthy probate process.

It’ll be business as usual.

6) Having confidentiality

This is an area where the trust can be a good addition to a Will.

If you have just a Will, you’re likely to state whatever you have, who are your beneficiaries, and all the sensitive information.

But you may not want others to know about these information, for whatever reasons.

If you create a trust, all details are private and confidential, and will never be made to known to anyone.

Such details include who the beneficiaries are, what types of assets are in the trust, how the distribution plan will be like, etc.

Here are some situations where this could apply:

  • if you don’t want anybody else to know what you have
  • you may have another family or mistress that you don’t want anybody else to know
  • a partner who is same sex that you don’t want others to know
  • wanting the distribution plan to be private
  • etc

The list is not exhaustive.

6 Most Common Types of Trusts in Singapore

Trusts come in all shapes and sizes.

And because of this flexibility, it caters to the different needs of those who want more than what the regular estate planning tools can provide.

Here are 6 common types of trusts:

  • Trust (Irrevocable) Nomination
  • Will Trust (Testamentary Trust)
  • Living Trust
  • Standalone Insurance Trust
  • Property Trust
  • Standby Living Trust

More details of each are below..

Trust (Irrevocable) Nomination

If you own a life insurance policy, you should know that you can make a nomination.

An insurance policy nomination is where you can specify who your beneficiaries are and how much each beneficiary can receive if you were to pass away.

By nominating, you’re able to bypass the legal process of obtaining probate; the insurance company will just pay out directly to the beneficiaries.

There are 2 types of nominations, revocable and trust (irrevocable) nomination.

Revocable is one that you can change the nomination details at any time, but the irrevocable one has much more restrictions.

Trust nominations can be great for those who wish to protect their assets from creditors.

But it comes with downsides such as any proceeds (even if you surrender; critical illness claims) will go to your beneficiaries instead and nominated monies are paid out in one lump sum.

Making a trust nomination is free of charge.

Testamentary Trust (Will Trust)

A testamentary trust or a will trust is created only when the testator (the person who makes the Will) passes away.

In making the Will, he/she would’ve specified who the trustee is (can be an individual or entity) and how the assets are to be managed and distributed to the beneficiaries.

So when the testator passes away, the executor of the Will would’ve to transfer these assets to the trustee (if different from the executor).

A will trust is useful when your estate is large and don’t wish your beneficiaries to receive everything in one-shot.

So you can specify to stagger or pay out a regular sum of money.

This will be useful in cases where you have young children or vulnerable family members who might not handle a sudden increase in wealth.

However, if you were to appoint a family member (i.e spouse) to be the trustee, you’re placing a lot of control and responsibilities on him/her. These responsibilities include legal and financial.

Which is why it can be advisable to appoint a professional trust company to be the trustee instead.

This will allow your family members to carry on with their life as per normal, and the trust company will then take on this responsibility of managing and distribution of the assets. They still have a fiduciary duty to do so.

To include provisions for a testamentary trust in the Will, it’s affordable and can cost less than $2,000.

If you wish to appoint a trust company as the trustee to manage the assets after death, it also comes at a cost, usually a small annual percentage (can be as low as 0.5%) of the asset value.

Living Trusts

While testamentary trusts are created only upon death, living trusts are created during the lifetime of a settlor (person who creates the trust).

Living trusts which can also be known as inter-vivo trusts, give an even greater control and flexibility compared to the will trust or trust nomination.

Because of this, they tend to cost more. There may be setup costs, annual cost of running it, and an annual percentage of the asset value, etc.

Depending on which type of living trust is created, it can cost less than $10,000 at the lower end.

The different types of trust are usually defined by how they’re funded:

  • Standalone Insurance Trust
  • Property Trust
  • Standby Living Trust

Standalone Insurance Trust

In an insurance trust, a trust is set up during when the settlor is living, and then funded by having insurance policies nominated or assigned to the trust.

That way, the trustee (trust company) can manage these assets.

Such insurance policies can include life insurance policies with death benefit or surrender value/payouts.

This can be useful when everything else in estate planning is already properly done up, and you just want to separate this particular trust from everything else.

You’re still able to indicate how your want these proceeds to be distributed.

Property Trust

A property trust is funded by placing properties in the trust.

One of the main reasons for doing so is to buy properties meant for your children.

There are several benefits to this:

  • Delaying this gift till when your child reaches a mature age
  • Being able to avoid paying Additional Buyer Stamp Duty (ABSD)
  • etc

However, there are downsides such as the child becomes the beneficial owner to the property and the property usually needs to be fully paid up.

Standby Living Trust

The standby living trust is just on standby.

It just means that you create a very small living trust, subject to a minimum amount.

The creation of it will include specific instructions and who the beneficiaries are, distribution plan, etc.

So what are we standing by for?

Death or mental incapacity.

If death were to happen, there’s likely to be specific instructions in the Will to “pour over” all assets into this “standby trust”.

Once that happens, the trust is then “funded”.

And all the instructions that have been created prior will kick in.

This is more for the affluent individual who wishes more confidentiality and control.

The Disadvantages of a Trust

One of the main disadvantages to set up a trust is the obvious – fees.

Depending on what type of trust you want to create, the fees will vary.

The cheapest but most beneficial one would be to do a will trust.

Living trusts may come with “front end” and “back end” fees.

In more specific situations, there are also other disadvantages.

For example in irrevocable trusts, it’s much harder to change any details once it’s set up. Another disadvantage is that you’d be giving up control to the trustees. So generally, they should be competent.

How to Set up a Trust in Singapore

Depending on what type you want, there are several options.

The easiest would be the make a trust nomination for insurance policies. Approach your financial advisor to assist you with it.

For the rest including the will trust, having a professional trust company to be the trustee, and living trusts, you might want to approach an estate planner to deals with these areas.

They’ll be best equipped to advise you on the whole estate planning process too.

What’s Next?

Trusts are a part of the estate planning process.

But to start this journey, make sure the basics are done.

These include making CPF nominations, insurance policy nominations, and writing a Will.

And then consider whether Will trusts or living trusts would be beneficial for you.

The post Setting up a Trust in Singapore: An Introductory Guide appeared first on SmartWealth.

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