Leaving a financial legacy starts long before you enter the twilight years of your life. If you have children, you can start by instilling financial literacy and responsible money habits.
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 your family financial
liquidity should the unforeseen happen to you. This way, they are not forced to sell off important assets like the family home or other illiquid investments.
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.
Creating a will, nominations and end-of-life decisions
A crucial part of leaving behind a meaningful legacy is ensure your intentions are clearly documents and legally protected. This goes beyond just deciding who get what, it's about making the right preparations, so your loved ones are supported and not burdened during a difficult time.
Start by creating a will to detail how you want your estate and personal belongings to be distributed. This becomes especially important if you have specific wishes such as leaving different aspects and amount of your assets to family members, or giving to charities.
However, some assets in Singapore do not form part of your estate and require separate instructions:
- CPF savings: You should make a CPF Nomination for your CPF monies to be distributed according to your wishes. Without it, they will be allocated by the Public Trustee's Office to your family members based on the intestacy laws or Muslim Inheritance Certificate.
- Insurance policies: Make a Nomination of Insurance Nominees (NIN) under the Insurance Act to directly appoint your beneficiaries. This ensures that your insurance proceeds go to the intended recipients swiftly, without delay or legal complications. For more information on the nomination process and your options (e.g. trust vs revocable nomination), visit the Life Insurance Association (LIA) Singapore website.
In addition to distributing your assets, it's important to leave clear instructions pertaining to your end-of-life care. These includes:
- Advance Medical Directive (AMD): Indicates your decision to decline extraordinary life-sustaining treatment if you are terminally ill and unconscious. If you would like to find out more about how you can make an AMD, you can refer to this article.
- Lasting Power of Attorney (LPA): Appoints someone you trust to make decisions pertaining to your Personal Welfare and Property & Affairs on your behalf, in the event you lose mental capacity. Here's a step-by-step guide on how you can complete your LPA application online.
