What Is Estate Planning?
Estate planning is the process of arranging the distribution of the assets of a person when he or she passes away.
The word ‘estate’ means net worth of a person in life as well as after passing away. It is the sum of assets including legal rights, interest on property as well as financial entitlements, less liabilities.
Estate planning attempts to eliminate uncertainties over the administration of probate and maximise the value of the estate by reducing taxes and other expenses. It also aims to reduce conflicts and delays in the rightful distribution.
Some of the important terms are:
- Bequest – specific items of property that a person leaves to others in his Will
- Will – a legal document outlining how a person wants his property divided and distributed after death
- Beneficiaries – persons receiving property identified in a Will
- Heirs – persons who are entitled to receive parts of the estate
- Residual estate – amount left over after expenses, taxes and bequests
- Probate – a legal document that is the official proving of a Will
- Intestate – having made no valid Will or an estate not disposed of by a Will
- Executor – a person designated to make sure the provisions of the deceased’s Will are followed and legal requirements are met
- Trust – a legal format by which property is held in the interest of designated beneficiaries
The first step in estate planning is to calculate the value of the client’s assets and liabilities. Items included are real estate, securities and tangible property. In addition, life insurance policies are also considered part of the estate even if someone else is the beneficiary of the policy. Finally, we include amounts contained in retirement accounts like Central Provident Fund (CPF) and pension death benefits.
Though estate planning sounds and can get complicated, simpler plans are often adequate for a majority of clients. For example, a Will articulates the assets, the beneficiaries, the proportions of distribution and the executor.
Estate planning requires the expertise of a qualified practitioner and thus, it is not a DIY job that you can undertake. And please do not even think of using online generic planning document and customise it for your own purpose. There is no ‘one size fits all’ in estate planning. Without a thorough understanding of how the legal process works upon your death or incapacity, you will likely make serious mistakes when creating a DIY plan. Even worse, these mistakes would not be discovered until it is too late – and the loved ones you were trying to protect will be the very ones forced to clean up your mess.