Protect your property inheritance for future generations

Recently I have the privilege to attend a guardianship planning seminar conducted by FPSB (Financial Planning Standards Board).

What is FPSB?

Their mission statement below, taken from their website explains it well:

FPSB (Financial Planning Standards Board)’s Mission

To benefit the global community by establishing, upholding and promoting worldwide professional standards in financial planning. FPSB’s commitment to excellence is represented by the marks of professional distinction—CFP, CERTIFIED FINANCIAL PLANNER and 

The event focused on estate planning, and how the act of preparing for the transfer of a person’s wealth can affect their next generation. Assets such as life insurance, pensions, real estate, cars, personal belongings, and debts are all part of one’s estate.

Therefore, it is very important to plan ahead of time for their transfer.

After the seminar, I spoke to my friend Alan, who is one of the panel speakers at the event. He shared with me how estate planning can affect our property assets. If left without proper planning, our estate may end up not the way we wanted it to be. There are so many important points shared by him, and in this article, I will share the 3 main points of our discussion.

1. Property Ownership & Will 

Property ownership are usually held in one of these two ways:

Joint Tenancy

The holding of an estate or property jointly by two or more parties, the share of each passing to the other or others on death.

For example, if husband and wife were to purchase a property in joint tenancy, upon the death of one of them, the property will be passed on to the surviving spouse. Therefore the distribution of the property asset is already fixed.

Tenancy in common

A shared tenancy in which each holder has a distinct, separately transferable interest.

For example, 2 friends (David and Howard) purchased a property under tenancy in common, with David having 60% share and Howard 40% share.

Upon the death of David, the 60% share of the property will be passed on to his beneficiaries. Meaning if David has made a Will, the 60% property share will be distributed according to the instructions in the Will. However, if there is no Will, the share will be distributed according to the Intestate Succession Act or the Syariah court (for Muslim).

The limitations of the Intestate Succession Act is that the distribution to which exact beneficiaries (person) are fixed, together with the percentage amount according to the Act. Therefore if David does not have a will and if he intent to have other beneficiaries other than those in the Intestate Succession Act, he may have to have a Will. This also apply if David wants a different percentage of distribution to his beneficiaries other than those stated in the Intestate Succession Act.

Understanding property ownership and Will making is important to ensure our asset are distributed to beneficiaries as intended, without creating unnecessary hassle and dispute among our loved ones.

2. Multiple beneficiaries to a single property

If a property is being passed on from a deceased to 3 different beneficiaries, there may be a problem if the beneficiaries decide to sell and buy the property among them.

For example, after inheriting the property, if one of the 3 beneficiaries decided to buy over the shares of the other 2 beneficiaries, he may be subjected to ABSD (additional buyer stamp duty) if he is already an owner of another property.  

See the ABSD table below:

Therefore do consider how the property will be passed on if there are multiple beneficiaries.

One of the solutions to this problem is to use “asset equalisation” method. Meaning you can look at your estate as a whole, and perhaps you can pass on the property to one single beneficiary and giving equal amount of cash or asset from the estate to the other beneficiaries.

3. Outstanding Debt in property

Most properties are bought with a loan or financing. Upon the death of the owner, the outstanding loan or financing on the property will need to be settled. If the estate of the deceased is sufficient to settle the loan, then there will be no problem.

However, if the estate does not have enough funds to settle the loan, the beneficiaries inheriting the property may then need to get a loan or financing for the property. In the event that the beneficiaries are not qualified to borrow or get any financing, then they may need to sell off the property.

What if at that point of time the market is bad and the property has to be sold at a loss?

A good solution to this problem is to use insurance to pay off the loan should something happen.

Conclusion

If you look at property asset distribution of your estate, there are actually much more to consider and think about than just the 3 main points mentioned above. If you are a property owner, I will highly recommend you to consider looking for a good advisor to assist you in your planning.

If you like to find out more, you can also drop me an email at john@ontrack.sg

I run property investment seminar and organize visit to URA for property investors, if you want to get the latest update about these events, you should like my page on Facebook.

If you are new to my blog, I hope you enjoy reading this.

Previously I have written a 4-part articles about CPF. You can read about them below:

Part 01: Should We use CPF for Our Property Purchase?

Part 02: Restriction on CPF OA Usage for Property Purchase in Singapore

Part 03: How using CPF monies can be work for or against us in a property investment

Part 04: Should I use Cash or CPF first for my property purchase?