Most of us understand the need to live well by keeping ourselves healthy, active and engaged to enable us to care for and spend quality time with our loved ones for as long as possible.
At the same time, thinking about leaving well, in order to protect your loved ones when you are no longer around, is equally important.
According to Credit Suisse's Global Wealth Report 2022, the average wealth per adult in Singapore is about US$358,200, or approximately S$470,000. This is a substantial amount of money for anyone to leave behind for their beneficiaries and it makes sense to plan ahead to ensure the wealth we leave is well distributed and our beneficiaries can make the most of it.
What is a legacy?
A legacy is what you leave behind, including your assets and possessions, to your beneficiaries to create a lasting connection to them. When planning the legacy you want to leave, you should also include clear instructions of how you want to divide your assets and how you wish for them to be used.
When you pass on, you also leave behind memories and your values to the younger generation. This is why it is important that you live a meaningful life and impart the values that you prioritise by practicing them in your daily lives.
Does leaving a legacy matter?
Similar to how the generation that came before left you a legacy you could build upon, the generation after you will be able to build upon what you leave them.
The way you lead your life has a profound impact on those close to you. These are the values you believe in that will act as a compass for the next generation.
You also spend your entire life building your estate and you don't want to neglect distributing it to your beneficiaries in the manner you wish. This is especially important if you have young children or other family members who are relying on you for their livelihoods.
While leaving a legacy is commonly associated with wealth and prized possessions, even those without vast wealth need to consider leaving a legacy that affords your beneficiaries a means to sustain their standard of living, when you are not around to provide for them.
How to leave a financial legacy for the next generation?
Leaving a financial legacy starts long before you enter the twilight years of your life. When you have children, you want to inculcate sound financial values in the next generation, including being prudent with your money and learning important money lessons early.
You also need to safeguard your loved ones with a financial legacy that will enable them to continue their current standard of living and to pay for important big-ticket items before your children are able to start working after they finish schooling. This safety net should include a payout that takes care of your home loan and other outstanding personal debt, as well as tertiary education funds for your children.
This highlights the importance of having adequate life insurance coverage for the amount they will need. For example, policies such as AIA Guaranteed Protect Plus (IV) or AIA Secure Flexi Term will provide liquidity to your beneficiaries should the unforeseen happen to you. This way, they are not forced to sell off the family home or other illiquid investments in order to continue paying for their daily lives.
You can also tailor the distribution of your assets such that you can achieve two objectives: 1) leave the right assets to the right beneficiaries who will know how to manage those assets; and 2) use your life insurance payout to offset differences in the nominal value of how much you leave each beneficiary.
For example, if you have a property worth $1 million and cash savings worth $500,000, a $1 million life insurance payout can be split between two beneficiaries, with one receiving the home and $250,000 from the life insurance payout, and the other receiving the cash savings ($500,000) and $750,000 from the life insurance payout. In total, each beneficiary receives $1.25 million, with the one who needs the home more urgently being left the particular asset. The same situation applies if you have a beneficiary managing a family business or investments in stocks or other private companies.
Likewise, you should list down all your assets as well as valuable and emotionally significant personal belongings, and create a will to explicitly detail how you want to divide the estate between your beneficiaries. This becomes even more crucial in instances where you may wish to leave different aspects and amount of your assets to different family members or even organisations.
Together with your will, you should make your CPF Nomination for your CPF monies as they do not comprise your estate when you pass on. If you fail to do this, CPF monies will be distributed according to the Interstate Succession Act or the Inheritance Certificate for Muslims, rather than how you intended in your will.
You should also leave clear instructions pertaining toyour end-of-life care, in the event you are incapacitated or unable to make these decisions on your own, via an Advance Medical Directive (AMD), as well as funeral arrangements. This is so your family members understand your wishes and do not bear the brunt of added pressure having making these decisions. You should also make a lasting power of attorney (LPA) to appoint the people you trust to act on your behalf, in decisions pertaining to your Personal Welfare and Property & Affairs, in the event you lose your mental capacity.
Protecting your legacy against serious medical conditions
You may need to consider protecting your legacy against costly medical treatments in Singapore. Understanding the importance of insurance can be key, and you should also consider adequate critical illness insurance that will give you a payout if you are diagnosed with a critical illness covered under the policy, without having to dip into your savings or liquidate assets which you may have already designated for your beneficiaries.