Why is legacy planning important for retirement?

Although many people associate legacy planning with only the ultra-wealthy battling over inheritances and business interests, in reality everyone needs a solid plan in place to manage what should happen to our assets.

What is legacy planning?

Legacy planning refers to the organisation of your personal and financial affairs to deal with the future scenario of death or possible mental incapacity. A legacy plan can also include your medical or healthcare directives so that you can ensure you receive your preferred treatment when you are ill.

Why is it important?

If you do not have a legacy plan, the management of your assets might go against your wishes after your death.

For example, your money or property could be passed on immediately to children who might lack the maturity to manage the inheritance wisely. Another possibility is your wealth being distributed to unintended third parties in the event of your children’s divorce. 

Legacy planning that includes a trust can protect your assets in such scenarios.

Moreover, legacy planning reduces the financial impact or burden on your loved ones upon your death or incapacity. 

It may also help to reduce the emotional burden on them — the absence of a will and other directives in place could sometimes stir up hard feelings and difficult conversations among family members.

How is legacy planning done in Singapore?

There are five main things to consider when it comes to making your end-of-life plans in Singapore.

1. A will

A will is a legal document that contains instructions on what happens to your assets — such as cash and property — and possessions after your death. You can write how your assets are to be distributed to the people you choose, who would be your children’s legal guardian, and who would carry out your will.

2. CPF nomination

Your Central Provident Fund (CPF) savings will not be covered by a will, as they do not form your estate. Instead, you need to make a CPF nomination if you want the funds to be distributed in a certain way after you pass away. A nomination lets you choose who you want to receive your CPF savings, the percentage that each nominee should receive, and how the monies will be distributed to them.

3. Lasting power of attorney (LPA)

The LPA is a legal document that allows you to appoint one or more people to help you make decisions about your personal welfare and property affairs on your behalf. The LPA goes into effect only if you lose the mental capacity to make your own decisions.

4. A trust

A trust is a legal arrangement whereby one person transfers property to another person, the trustee. The trustee holds the assets and manages them in the best interests of your specific trust beneficiaries.

Trusts can be used to manage a family’s wealth and protect personal assets. For instance, you can implement rules on when and how beneficiaries receive their inheritance. Setting up a trust can also help with succession planning, as the trust assets will not be subject to time-consuming and expensive probate proceedings when you pass away.

5. Advance care planning (ACP)

ACP refers to the process of planning for your future health and personal care. This is so that your doctor and loved ones understand your treatment decisions and care preferences in the event you have a serious illness and are unable to express your wishes then.

Pick a nominated healthcare spokesperson (NHS) — ideally someone you trust and feel comfortable sharing your wishes and concerns with — to help you make important decisions if you are no longer able to communicate. The ACP discussion will be documented in an advance care plan, which will be used during an emergency.

Besides having a legacy plan in place, you can pick up other retirement strategies such as bucketing and decumulation.

If you're ready to invest, learn more about how to build passive income here, or get started with Endowus Income Portfolios.

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