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Estate Planning

The rights of survivorship for joint tenants in the UK

In a recent landmark case in Singapore, the Court of Appeal ruled that a surviving owner does not have any automatic right to the
succession of a property if it was clearly not the other owner’s intention for that property to pass to them.

Could a similar situation ever occur in the United Kingdom (UK)? I will examine the types of joint property ownership in the UK and how severance may be carried out.

In the UK, if a property is jointly owned it can be held either as “joint tenants” or as “tenants in common”. It is more common
when purchasing a property for it to be conveyed into the owners’ names as joint tenants. It is possible to change from joint tenants to tenants in common at any point and vice versa.

A joint tenancy creates rights of survivorship. The result is that when one owner dies the remaining owners will automatically own the whole property. This means that a joint tenant cannot gift their interest in the property to anyone by their Will. The doctrine of survivorship takes precedence over the Will.

More flexibility with tenants in common

If property is held as tenants in common instead, each owner has greater flexibility over how they deal with their share of the property. They each have a divided share in the property. This is often an equal share, but it is also possible to hold the property in unequal shares.

This is an attractive option for people purchasing a property together who are contributing different amounts towards the deposit, or who desire to be paid different proportions of rental income from the property for income tax purposes.

Under a tenancy in common, each owner can deal with their share in the property separately, allowing them to gift their share to their own beneficiaries by their Will. This also opens up more opportunities for planning to protect their share of the property by using trusts in their Will.

For a joint owner to avoid the rule of survivorship and pass their interest in the property elsewhere, it would need to be established that they have severed their tenancy – changes from joint tenants to tenants in common. There are a few accepted methods of severing a joint tenancy:

  • Mutual agreement
  • Unilateral notice
  • Mutual conduct
  • Acting in a joint tenant’s own share

By far the most common and simplest way to sever a tenancy on a UK property is by mutual agreement of all legal owners. All owners simply agree between them to hold the beneficial interest in the property as tenants in common going forward. They should evidence this agreement in writing, usually with a Declaration of Severance. If the property is registered with the HM Land Registry, they should also then apply to enter a Form A restriction on the title by completing Form SEV.

Less common methods of severance

If one owner does not agree to the severance, then the other owner may also act alone in the severance — it can be a unilateral act. To achieve this the owner wishing to sever must serve a notice of their intention to the other owner. This must be made in writing and validly served by either handing the notice to the other owner, leaving it at their last known place of residence or business in the UK, or by sending it by recorded post and not having it return as undeliverable. The other owner does not need to acknowledge or accept the severance for it to be valid. As with severance by mutual agreement, a Form A restriction should be entered on the property title.

The much more uncommon method of severance in the UK is mutual conduct. The joint tenancy can be severed by any “course of dealing” that is “sufficient to intimate that the interests of all were mutually treated as constituting a tenancy in common” (Williams v Hensman (1861) 70 ER 862). All owners of the property must be aware of the intention. There have been rare cases where the fact the owners had written Wills dealing with their share of the property separately was enough to constitute severance.

Finally, a joint tenant may sever by acting on their own share. To do this they must carry out an act with their interest in the property that is so inconsistent with a joint tenancy as to suggest the interest is severed.

Severance by mutual conduct or a joint tenant acting on their own share should not be relied upon however, as there is potential that the Courts may rule that no severance was completed. Mutual agreement or a unilateral action is always best and safest due to the written evidence that severance was carried out.

Siobhan Smith

Lead Tutor for The College of Will Writing
The Society of Will Writers, UK

Categories
Trust Estate Planning Wills

Foreign Grantor Trust for Non-US Tax Residents

Foreign Grantor Trusts (FGTs) are one of the most popular and advantageous vehicles for foreign parents to plan for their U.S. resident children. An FGT allows the foreign grantor to move assets out of their name and into a trust for the benefit of U.S. beneficiaries, and at the same time, avoid paying any taxes on the non-U.S. trust assets held in the FGT.

However, since FGTs present so many benefits, the Internal Revenue Service will also be aware that there can be abuse. The U.S. government wrote the Internal Revenue Code sections 671-678 to properly characterise certain trusts as grantor trusts by making sure certain criteria are met. Basically, if the grantor of the trust holds certain interests or power, they are considered the owner of the trust assets, even though the assets are in the trust’s name and possession. This rule helps avoid the abuse of FGTs to avoid U.S. tax.

Even with these restrictions, FGTs are beneficial when the grantor is not a U.S. person, and they are deemed as the owner of the trust assets. Under U.S. taxation rules, income from trust assets is taxed as if owned by the non-resident alien grantor — thus, unless the income is sourced from the U.S., it is not taxable in the U.S. Furthermore, any distribution to U.S. beneficiaries will not be taxed as income. However, the U.S. beneficiaries are obligated to report the distribution as foreign gifts received. Foreign gifts of non-U.S. assets received by U.S. beneficiaries are reportable transactions, but not taxed.

Care needed with distributions

It should be noted though that distributions from the trust could create other income and reporting for the beneficiaries by piercing the structure of the FGT. In general, distributions to beneficiaries or interactions/ control between beneficiaries and trust assets need to be handled very carefully. If beneficiaries have certain powers or control of the trust, this may trigger rules that deem the beneficiaries as owners of trust assets.

When this happens, the beneficiaries’ deemed shares of the trust assets or income will be subject to U.S. taxation. In addition, the trust must also provide enough powers to the foreign grantor to satisfy the grantor trust rules. If the powers are not enough to satisfy the grantor trust rules, the trust could be considered a foreign non-grantor trust, which carries a substantially different tax outcome. In most circumstances, a foreign non-grantor trust with a U.S. beneficiary is not beneficial in U.S. taxation.

Although the FGT is a very advantageous tool, one must also make sure the terms of the trust do not create other issues. For example, it is important to make sure the foreign grantor of the trust will stay foreign. If the foreign grantor plans to immigrate to the U.S. in the future, an FGT may not be a good idea. All the trust assets and income will be taxable to the U.S. when the grantor becomes a U.S. resident.

The FGT generally only lasts for the lifetime of the grantor. When the grantor passes away, the FGT becomes a foreign non-grantor trust. The U.S. beneficiaries will be deemed as the owners of the trust assets for foreign financial reporting purposes, which completely changes everything. In sum, FGTs can be an excellent planning tool, but they must be used for the right reasons and with proper planning.

We are a leading provider of trust services as well as will writing services in Singapore.

The above article first appeared on EPPL’s The Custodian, Issue 21.

#Wills #Trust #Estate Planning

Josh Maxwell | Precepts Group

Josh Maxwell, CPA, JD, LLM

Tax Attorney

Hone Maxwell LLP

Aaron Li | Precepts Group

Aaron Li, JD, LLM

Tax Attorney

Hone Maxwell LLP

Categories
Estate Planning Wills

Estate Planning In Indonesia Faces Pandemic-Driven Challenges

The restrictive Covid-19 pandemic policies have created bottlenecks in administration processes that facilitate the distribution of assets to loved ones, say Henra Sensei and Tri Djoko Santoso of LN Consulting

The impact of the Covid-19 pandemic has been significant on the estate planning landscape in Indonesia. With 5,539,394 Indonesians infected, resulting in the deaths of 148,073 people (source: worldodometers February 28, 2022)and the numbers still rising, there have been numerous cases in Indonesian parents passing away and leaving their children behind, children dying and leaving their parents behind, as well as whole families dying.

Estate planners have had their work cut out for them as many Indonesians are typically negligent about writing their Wills. This means their loved ones cannot easily track their assets when they die. It is often the case that a bereaved family does not even know that the deceased parent had a life insurance policy or a Will, or where these Wills and life insurance policies are kept.

Matters are complicated for some Indonesian families who have assets or life insurance policies outside Indonesia. Loved ones of the deceased have to find the supporting documents, and if they are minors, there may not be any guardianship plan in place to get the ball rolling.

Bottlenecks in administrative processes

The lockdown policies and other pandemic restrictions across the country that were implemented during the pandemic have had a serious impact on public services, organized by both government offices and private entities in Indonesia. They cannot operate as per normal, causing delays in the issuance of death certificates and other administrative documents such as certificates of heirs.

Most of the time this process requires a district court or an Islamic religious court to be involved. However, trial schedules are frequently seeing postponements, which results in court decisions potentially taking longer. This includes courts’ involvement in determining who are the guardians of minors, or who are adults with legal disabilities.

This process is key as it generates legal documents and court decisions that are the main gateway to carrying out the next stages of the administration process when someone dies. A common occurrence is insurance beneficiaries who are minors failing to complete supporting documents that expedite insurance claims because there are delays in the appointment of a guardian.

Meanwhile, the claims process can also be delayed as the pandemic restrictions have forced some insurers to reduce their employee numbers and service hours to provide insurance claim services. In addition, the pandemic restrictions and uncertainties on individuals state of health have also affected the communication channels between notaries, financial planners and life insurance agents, and clients.

What lessons can we take from the pandemic?

The delays in the administration of important documents that expedite the distribution of assets to a deceased person’s loved ones have serious implications. This is typically exacerbated when heirs are unable to present written evidence, which is the main requirement. In such cases, it is difficult to estimate the duration of the process.

Against this backdrop, a comprehensive estate plan and a proper life insurance policy should be able to reduce the impact of administrative delays and help the distribution of assets to bereaved families. Liquidity planning is a must using various forms of liquid instruments, such as cash or near cash. Indonesian families must strive to have detailed records of their assets and debts that must be maintained for validity and accuracy.

We recommend that individuals write their Wills with us, clearly stating who the Executors of their will should be, and who should be the guardian of minors or those with special needs, including adults with dementia. The best option is to contact a notary in Indonesia. Or if your situation is not complicated, you may make your own Will (Olographis testamen). However, it must be submitted to a notary for legal storage purposes.

People also need to ensure that they keep up-to-date records about the professionals involved who their loved ones can contact in the event of their death — for example, notaries and lawyers, tax consultants, financial planners, and insurance agents both in Indonesia and overseas, wherever the assets are domiciled.

Many Indonesians have made efforts to diversify and allocate their global wealth for financial and family security. If they already have life insurance coverage somewhere overseas, they should also ensure that they have life insurance coverage in Indonesia. After a person dies, this will help loved ones to have easy access to liquidity, both in Indonesia and abroad. There should always be a Plan A or Plan B, as well as an entry and exit strategy in this risky life.

If you are a financial practitioner in Indonesia, we recommend you take the AEPP® course in Indonesia. Gaining global knowledge will help you in totally serving your clients in Indonesia. Henra Sensei, CFP®, AEPP® and Tri Djoko Santoso, CFP®, AEPP® are financial educators and are both facilitators of AEPP® courses in Indonesia.

The above article first appeared on EPPL’s The Custodian, Issue 21.

#Wills #Estate Planning

Henra Sensei of LN Consulting | Precepts Group

Henra Sensei, CFP®, AEPP®

Tri Djoko Santoso of LN Consulting | Precepts Group

Tri Djoko Santoso, CFP®, AEPP®

Founder, LN Consulting

Categories
Estate Planning Wills

Update on Malaysia 2022 Budget Proposals: Significant Changes to Proposed Taxation of Foreign Source Income

The Malaysian 2022 Budget announced on 29 October 2021 was passed into law as the Finance Act 2021 on December 31, 2021. There were a few major changes to the original budget proposals. A significant exception related to the budget proposal to tax Foreign Source Income.

In what may be regarded as a last-minute “stay of execution”, the Ministry of Finance (MOF) issued a press release suspending the full impact of taxing Foreign Source Income received in Malaysia by Malaysian residents.

MOF responds to concerns

The late change of heart was in response to concerns raised inter alia by economists, the wealth planning industry, as well as corporate and individual taxpayers on the potentially detrimental and far-reaching effects on the economy of taxing Foreign Source Income receipts.

One of the most worrying effects, even ignoring the difficulties involved in collecting the tax, would be to slow down foreign monies flowing into the economy at a much-needed time.

It is clear the budget proposal had not been fully thought through and the press release was greeted with a collective sigh of relief by Malaysian residents and quite possibly the international community which, when pushing for the change, may not have expected such a clumsy approach.

The MOF listened and introduced changes representing a significant watering-down from the original proposal:

Taxpayer TypeExempted Foreign Source Income received in MalaysiaEffective Dates
Tax Resident Individuals not carrying on a business through a partnershipAll categories of Foreign Source IncomeFrom 1 January 2022 to 31 December 2026
Tax Resident Individuals carrying on a business through a partnershipUnclearUnclear
Tax Resident CompaniesForeign Source Dividend Income only
All other types of Foreign Source Income remain taxable
From 1 January 2022 to 31 December 2026
Tax Resident Limited Liability PartnershipsForeign Source Dividend Income
All other types of Foreign Source Income remain taxable
From 1 January 2022 to 31 December 2026

Exceptions to the rules

For clarity, the new rules do not apply to

  • Resident companies carrying on the business of Banking, Insurance, Air and Sea Transportation. Such companies will continue to be taxed on Foreign Source Income whether received or not.
  • Non-residents of Malaysia will also continue to be exempt from tax on Foreign Source Income received in Malaysia.

There remain areas for clarification and the MOF will announce the conditions to be complied with to enjoy the exemptions. But deferring the budget proposal to 2026 allows the MOF time to formulate a more cogent and considered response to meeting its international commitments.

Notes of caution

Tax Resident Companies and Limited Liability Companies may explore the feasibility of re-characterising non-dividend income into dividend income by interposing a foreign subsidiary in a low-tax financial centre. But it will come as no surprise if the conditions require a headline tax of 15% in the location of the company paying the dividend.

A further note of caution to resident individuals is to expect claims to exempt Foreign Source Income will be heavily scrutinized. So, keep excellent records. As the saying goes “the sun may be shining but don’t forget to take your umbrella.”

We also provide trust to safeguard your Savings and distribute your wealth

The above article first appeared on EPPL’s The Custodian, Issue 21.

#Wills #Estate Planning

Mike Grover | Precepts Group

Mike Grover

Former Head of Tax at International Accounting Firm

Categories
Estate Planning Wills

Joint ownership and accompanying woes

The distribution of assets held in joint ownership following death is not always so straightforward and can be challenged, explains Persis Hoo.

People often assume that there is no need to provide for joint bank accounts or joint properties in their Wills due to the assumption that the asset will automatically fall into the hands of the other joint owner when one of them passes on.

While the law of survivorship holds true in most circumstances, it does not mean that the surviving ownership of the asset is insulated from a challenge. This is perfectly illustrated in the seminal High Court case of the Estate of Yang Chun (Mrs) née Sun Hui Min, deceased v Yang Chia-Yin [2019] SGHC 152:

Madam Sun, the deceased wife, and her deceased husband, Mr Yang, had been married for more than 50 years. Mr Yang passed away in 2012 while Mdm Sun passed away in 2016. Proceedings were brought by the Estate of Mdm Sun (her nephew) against the sole executor and representative of Mr Yang’s estate (his nephew).

The couple held multiple bank accounts in joint names. While Mr Yang wrote a Will, he omitted any reference to the joint accounts. The crux of the dispute turned on whether the monies in the joint accounts belonged to Mdm Sun after Mr Yang’s passing. In the course of administrating Mr Yang’s estate, the Defendant had allegedly used the monies that belonged to the Estate of Mdm Sun. Therefore, if the court ruled in favour of the Plaintiff, the Defendant had to return a sum of about half a million dollars to the Plaintiff.

The question then is who was the beneficial owner of the monies in the joint account after Mr Yang’s death? Was it the Defendant, who asserted that as Mr Yang was the main contributor to the monies, Mdm Sun held the monies in the joint accounts on trust for his estate? Or was it the Plaintiff, who argued that Mdm Sun was the beneficial owner of the monies by way of the law of survivorship?

The relevant legal principles

  1. The law of survivorship: Joint tenancy

    Joint Tenancy refers to a form of co-ownership where parties own the entire interest in a particular property. Upon the death of a joint tenant, the surviving joint tenant will automatically take the entire interest in the property. This is also known as the law of survivorship. Joint Tenancy results in the presumption of inheritor if there is no will or trust being written | Precepts Group

  2. Resulting trust

    Notwithstanding the above, the law of survivorship can be displaced by resulting trust. A resulting trust arises where there has been a transfer of property in circumstances where the deceased did not intend to benefit the survivor. In this case, there was no clear intention by Mr Yang to retain beneficial ownership of the bank accounts. This brings us to the presumption of resulting trust.

  3. Presumption of resulting trust

    The presumption of resulting trust kicks in where there has been a transfer of property to the surviving owner, for which the survivor has not provided the whole of the consideration (or value of the property) and there is no evidence that shows the true intention of the transferor. Therefore, an inference is made that the deceased did not intend to benefit the survivor. If this presumption arises and is not displaced, the survivor is deemed to hold the property on trust for the deceased’s estate.

    However, all is not lost. If the presumption of resulting trust arises, the presumption of advancement can be argued to displace the former.

  4. Presumption of advancement

    Certain types of relationships attract this presumption, for example, the transfer of property from husband to wife or father to child. Within these established categories of relationships, transfers of property are intended to be gifts in favour of the recipient.

Application of the law to the facts

In this case, the High Court found that the presumption of resulting trust arose on the facts with respect to the joint accounts since Mr Yang contributed more monies to them. However, the presumption of advancement also arose because Mr Yang and Mdm Sun were married.

For a good part of their 50-year marriage, Mr. Yang was the sole breadwinner of the family and Mdm Sun remained financially dependent on him. The evidence also pointed to the couple having a loving and close marriage. Accordingly, together with other facts, the court held that the presumption of advancement applied, and on the basis of the law of survivorship, the monies in the joint accounts were beneficially owned by (gifted to) Mdm Sun. Hence, Yang Chia-Yin was ordered by the court to return the $500,000 of monies to the Estate of Mdm Sun.

Another case in point is Chye Seng Kait v Chye Seng Fong (executor and trustee of the estate of Chye You, deceased) [2021] SGHC 83. The plaintiff and the defendant in this recent estate dispute are brothers. Chye Seng Kait (Plaintiff) disputes that Chye Seng Fong did not perform his duty as Executor of their father’s Will in accounting for the joint bank accounts as part of the estate of their father — namely whether the joint accounts between the deceased and his daughter should go to the daughter by way of the law of survivorship, or whether it should fall to the estate of the deceased. The Plaintiff submitted that the latter should prevail based on the principle of resulting trust (that is the daughter is only holding the monies in the joint account in trust for their father).

Interestingly, the court held that the daughter did hold the joint accounts on the resulting trust for the father’s estate. However, the Plaintiff’s claim was ultimately rejected as the deceased had explicitly dealt with his joint assets in his Will. Clause 2 of his Will read as follows:

    “I hereby declare that any immovable property held by me jointly with the co-owner as joint tenants shall belong to the surviving joint tenant absolutely by virtue of the right of survivorship. I further declare that any account held by me with any other person(s) jointly in any financial institution shall also belong to such joint account holder(s) absolutely by virtue of the right of survivorship.”

The court held that in construing a Will, the court will ascertain and give effect to the testator’s intention as expressed in his Will, read as a whole in light of any admissible external evidence.

Therefore, despite the plaintiff’s desperate attempt to lay claim to the joint accounts, the court ruled in favour of the deceased’s plain and ordinary intent to gift the joint accounts to his daughter, the co-owner of the accounts.

What does this mean for me?

As shown in these two cases, just because assets are held in joint bank accounts does not mean that the beneficial ownership of the asset is insulated from a challenge. In Singapore, the presumption of advancement is only limited to certain categories of relationships. Further, the presumption of resulting trust may arise in certain situations where one party is the main financial contributor to the asset.

To ensure peace of mind and to prevent any disputes or uncertainty, it is advisable to clearly lay out your intentions in your Will or Trust. Even if your assets are held in joint bank accounts, usually for the sake of convenience, it is best to clearly spell out your intention for distribution in your Will.

The above article first appeared on EPPL’s The Custodian, Issue 21.

#Wills #Estate Planning

Persis Hoo | Precepts Group

Persis Hoo

LLB

Estate and Succession Practitioner representing

Precepts Legacy Pte Ltd

Categories
Estate Planning Wills

The Singapore Landed Residential Property Report

Researched and written by ERA Research & Consultancy Department for publication in The Custodian Issue 21

Key Takeaways
  • As the Singapore economy gradually recovered amid the Covid-19 pandemic, the residential real estate market rebounded strongly in 2021.
  • Private residential property prices increased by 10.6% year-on-year in full-year 2021.
  • This price expansion was led by the capital values of landed residential properties.

 

Landed housing prices gained pace in 2021

Landed residential properties are among the most expensive housing in Singapore. Prices can range from $1.5 million for an older terrace house to tens of millions of dollars for a Good Class Bungalow. In 2021, landed residential property prices in Singapore appreciated at the fastest pace in the past 10 years. They surged by 13.3% year-on-year in 2021, compared to a lackluster 1.2% expansion in 2020.

When the Covid-19 pandemic slowed the Singapore economy in 2020, capital values of landed housing — like other real estate values in Singapore — were adversely affected and resulted in a much slower annual growth rate that year. However, real estate market sentiment started to improve from the second half of 2020 onwards. It received a further shot in the arm when the Covid-19 vaccination programme was implemented in 2021. This contributed to the subsequent faster rate of property price growth.

Interestingly, the capital values of landed housing increased at a faster pace in the first two years of the pandemic compared to the two years before Covid-19 became a household word in early 2020. Landed residential property prices increased at an average annual rate of 6% in 2018 and 2019. However, prices expanded 7.1% annually on average in 2020 and 2021.

Prices of landed housing also grew faster than prices of non-landed properties, such as condominium units, from 2018 to 2021. During this four-year period, capital values of landed residential properties increased by 28.8%, while capital values of non-landed housing grew by 24.2%.

Table 1: Residential property price growth

YearAnnual growth of landed housing price indexAnnual growth of non-landed housing price index
20186.3%8.3%
20195.7%1.9%
20201.2%2.5%
202113.3%9.8%

Source: URA, ERA Research & Consultancy

More landed homes sold in 2021

The Covid-19 pandemic prompted more white-collar workers across the globe to work from home. This sparked a demand for more space at home, and the growing wealth and income of the upper-middle class led to more demand for bigger condominium units and houses.

Some 2,113 landed homes were reportedly sold in 2020, compared to 1,545 units transacted in 2019, a 36.8% jump. In 2021, landed property transaction volumes jumped a further 73.1% to 3,658 units, in line with the overall recovery in the residential property market.


Figure 1: Landed property transaction volume

Source: URA, ERA Research & Consultancy

Due to the limited supply of landed housing in the primary market, the sales of more than 90% of landed homes were transacted in the secondary market. Still, both primary and secondary markets saw increases in the number of units sold in 2021 — primary sales volumes rose by 142% year on year while secondary sales volumes increased by 71.1% year on year.

Among the three market segments in Singapore, the Core Central Region saw the highest increase in landed home transaction volumes in 2021, followed by the Rest of the Central Region and Outside Central Region, respectively. The growing transactions in the prime areas underpinned the growing appetite among landed housing buyers who can afford more expensive homes in prime locations.


Table 2: Landed property transaction volume by market segments

YearCore Central RegionRest of Central RegionOutside Central Region
20202913461,476
20215746642,420
 
Increase year-on-year97.3%91.9%64.0%

Source: URA, ERA Research & Consultancy

 

Rental demand remained strong

Meanwhile, movements in landed property rental rates in Singapore were more closely correlated to the economic climate and the job market. The landed rental index contracted from 1Q 2020 to 3Q 2020 when border restrictions were tightened and expatriate tenants left Singapore.

When the vaccination programme was announced towards the end of 2020, market sentiment improved as people expected the economy to recover and the borders to reopen in the near future. As a result, the landed housing rental index started to rise from 4Q 2020 and into 2021. By the end of 2021, rental rates of landed homes had increased by 8.2% year-on-year, compared to the 2.7% contraction in 2020.


Figure 2: Landed property rental index

Source: URA, ERA Research & Consultancy

Residential leasing demand from local residents also contributed to the rise in landed housing rental rates. With the completion of new residential developments being delayed due to supply-chain bottlenecks, some homebuyers had to temporarily rent their accommodation while waiting for their new homes to be completed. The demand for rental landed homes was also boosted by the demand for more space due to the widespread work-from-home practice.

Looking ahead: Impact of cooling measures

In the wake of the strong price gains and exuberance in the residential property market, the Singapore government introduced a new round of property market cooling measures on 15 December 2021. The new market curbs include raising the Additional Buyers’ Stamp Duty (ABSD) rates and tightening the Total Debt Servicing Ratio (TDSR) threshold from 60% to 55%.


Figure 3: New market curbs from 16 December 2021

Source: Ministry of National Development

Property sales could soon slow down as both buyers and sellers adopt a wait-and-see approach. However, as most of the buyers of landed homes are Singaporeans, who are exempted from paying ABSD if they are buying their sole residential property, the landed housing market could be less affected by the government’s new measures in the longer term.

Higher property taxes

Furthermore, in Singapore Budget 2022, the government said that it will increase the property tax rate for owner-occupied residential properties in two stages — from 4% to 16% currently, to 6% to 32% by 2024. The property tax rate for non-owner-occupied residential properties will be raised from the current 10% to 20%, to 12% to 36% in 2024.

Although the increase in the tax rate appears to be rather large in absolute terms, it is not expected to have a significant negative impact on demand for landed homes. This is because landed homes in Singapore are typically owned by wealthy individuals who could likely afford to absorb the increase in property taxes. Moreover, the incremental amount of property tax may not be particularly significant if capital values of landed property continue to expand in the long term.

We at Precepts Group also provide Associate Estate Planning Practitioner (AEPP) Certification Programme.

The above article appeared on EPPL’s The Custodian, Issue 21.

#Wills #Estate Planning

Nicholas Mak | Precepts Group

Nicholas Mak

Categories
Estate Planning Wills

The Risks Of Delaying The Writing Of Your Will

When people tell you that they will do their Wills later, or they prefer to write their Wills themselves, it can create headaches and incur extra costs for intended beneficiaries, says Precepts Legacy’s Ooi Li Sun.

In our job, one of the most common things we hear from people is “I can do my Will later.” Indeed, it is an individual’s choice as to when to write a Will, and no one can force that. However, a key question that has to be asked is whether this is the way to protect loved ones after death. Another way to frame it is how to prevent assets from being distributed to unintended persons.

Here is an example of how things can go wrong if you don’t write a Will. A few years ago, we dealt with a case involving a married elderly couple with no children in Singapore. The husband was diagnosed with stage 3 cancer. Upon his diagnosis, he immediately wrote his Will, bequeathing all his assets to his wife. If his wife did not survive him, his assets were to be distributed equally to his biological siblings. Meanwhile, his wife was reluctant to write her Will. There seemed to be no urgency as she was healthy at the time and her situation was different from her husband’s.

The couple stayed on a landed property together with the biological siblings of the wife. The property had been bought in the wife’s name and her siblings contributed financially to the purchase. The sad news is that the wife later died intestate before her cancer-suffering husband due to an acute illness. According to intestacy laws in Singapore, the husband was the sole beneficiary of his wife’s estate.

We came into the picture after the husband died as he named us the Executor in his Last Will and Testament. There were no changes to his Will even after the demise of his wife. The most problematic issue that we had to deal with after the husband’s death, centered around the estate’s most substantial asset, namely the landed property.

The biological siblings of the husband wanted us to convert the property into cash and were willing to pay for rental accommodation for the wife’s biological siblings who lived in the property. As expected, no one was willing to move out of the property. We had to engage our lawyer to apply for vacant possession and an eviction order. All these problems could have been avoided if the wife had written a Will herself.

Lifetime transfers can hit snags

Some may argue that these problems could have been avoided if the wife transferred the property to her biological siblings during her lifetime. Is lifetime transfer a good approach? As an example, we note the experience of an elderly mother who transferred her property to her only son. The son died prematurely in a car accident and his wife – the daughter-in-law of the elderly woman – was the sole beneficiary of her husband’s Last Will and Testament. She promptly evicted her mother-in-law from the property.

When the old lady approached us to seek a remedy, it was too late. Her property had been legally taken out of her hands. We could only recommend that she approach a lawyer to seek remedy or resolution or reinstate her rights via litigation. This is not the only such case that we have handled. We would always encourage people to write their Wills instead of doing such lifetime transfers. By writing a Will, you can have control over your assets, particularly your property assets that would otherwise be fiercely contested.

Writing your own Will is not a good idea

We also want to highlight people who take matters into their own hands by writing their own Wills just to save on Will-writing fees. Even after they have written their Wills, can they be sure that they clearly reflect their actual intentions? Will have to be worded meticulously. If there is any ambiguity or contradiction regarding distribution or instructions in the Will, it may cause unnecessary delays in administering the estate. Higher costs may also be incurred if a court’s direction or other guidance has to be sought.

As an example, we were the administrator for a Will that was badly drafted by the testator. It was a disaster – there was no indication of the date of the Will, the executor appointment clause was omitted, and the instructions for the distribution of assets were contradictory. We ended up spending more time than usual to get a Grant of Representation extracted from the Court.

After that, we also had to seek the court’s direction before distributing the assets in the estate to the beneficiaries named in the Will. All the incurred costs ended up being three times more than the cost of a usual application. This demonstrates that it is not worth saving on Will-writing fees when the estate ends up having to spend a substantial amount of money on estate administration costs.

Writing a Will is one way of protecting your loved ones after you are gone. People should not delay this as no one can predict what is going to happen at the very next moment. While there is nothing in the Wills Act 1838 that restricts an individual from writing his or her own Will and therefore not compulsory to engage professionals to assist in his or her Will making, real-world experiences suggest that this is not the wisest move.

The above article first appeared on EPPL’s The Custodian, Issue 21.

#Wills #Estate Planning

Ooi Li Sun | Precepts Group

Ooi Li Sun

AEPP®

Head of Department, Precepts Legacy

Wills and Estate Administration

Categories
Estate Planning

The Importance Of Holistic Estate Planning

Elijah* (not his real name) had written his Will with Precepts. He passed away recently, leaving behind his wife and his special needs daughter. He had expressed that in the event of his demise, the care of his special needs daughter was paramount.

Elijah was a businessman, whose business generated good profit to provide for him and his family. Thinking that he had a sustainable source of income, he had not paid much attention to include life insurance in his estate planning. Unfortunately, his business was badly affected due to the Covid-19 pandemic. By force of circumstances, he had to downsize his business which took a toll on his health. This led him to fall ill eventually and he did not recover from it. Prior to his passing, he had resorted to using his savings and other means to keep his business afloat while providing for his family at the same time. A substantial part of his savings was depleted in the process.

With Precepts Trustee Ltd acting as the executor of his estate, we had the responsibility of collating his assets and to administer his business. As he was the sole shareholder and sole director running his business, his passing had left a void in the business. His wife or employees were not able to replace him.

The major concern was the lack of liquid assets to provide for the family and the employees of the business while waiting for the extraction of the grant of probate and calling-in of other assets in the estate. The estate also had some outstanding mortgage loans faced with inadequate liquid assets. Hence the likely scenario is that the executor will have no other options but to sell the property.

This brings us back to the importance of holistic estate planning and the routine review to cater for life changes. From the case of Elijah, the lessons learnt are:

a) The importance of keeping reserves for rainy days.

b) Having sufficient coverage on the life of the breadwinner of the family as part of estate planning.  In the event of premature demise, this would provide adequate liquidity to the estate and family members. 

c) Importance of reviewing your estate plan every 2 to 3 years or if you have experienced changes in life, such as addition of new family members, change of career, change of personal financial position, falling ill or losing an important family member. 

d) If you are a business owner, you need to have in place a successor or an exit plan for the business. This is to ensure the business continues to function in your absence. Depending on your objectives, setting up a trust may help to put the plan in place. 

Please approach our Estate and Succession Practitioner for advice if you have any concerns on your estate planning matters. 

*Facts and background of Elijah has been altered due to privacy reasons.

Leong Mun Kid

Head of Department, Trusts

Precepts Trustee Ltd

Categories
Estate Planning

What are Digital Assets?

By Mr Lee Chiwi
Excerpt from PreceptsGroup Succession and Trusts in Wealth Management (4th edition) Book

Digital assets comprise electronic records and information, documents, literary works, images and even money in electronic form stored in computers, hard disks, online cloud storage services, digital accounts and other forms of media capable of storing electronic information.

Examples of digital assets include the following:

Online accounts – bank accounts, payment gateway accounts, e-wallet, e-commerce accounts, investment, personal email accounts, gaming or cryptocurrency accounts.
Social media accounts – Facebook, twitter, Instagram or LinkedIn accounts.
Reward programs – airline miles, hotel credits.
Personal data – photographs, electronic books, music or videos in computer or kept on a cloud server.
Others – domain names, blogs, websites, cloud storage accounts like Dropbox or Google Drive or online business sites.

They can be of financial or emotional value. We cannot rule out that digital assets of emotional value may yet be exploited and have commercial value. But based on such categorization, it may be appropriate for separate persons to be dealing with them after death of the deceased.

We now see digital data everywhere and everyone is using less cash nowadays and instead using their digital wallets (which allows electronic credit and debit transactions) through their smart devices and mobile phones to make payments and engage in all kinds of transactions. Points and rewards are digitally stored and utilized for payments or to obtain benefits.

We cannot rule out that there will surely be digital assets that are employed in the family business. It can be expected that as Singapore strives towards being a leading smart nation, many business transactions within the private and public sector will increasingly become the norm.

The wide ambit of Digital Assets and non-uniform legal markers

In dealing with the succession of digital assets, one needs to be mindful that there might be the lack of established laws and uniform definitions when a person other than the deceased is to take over the administration of digital assets. The applicable laws concerning may be that of the laws of an unfamiliar jurisdiction where the service provider resides. The relevant laws and data protection and security regulations now widely prevalent may only recognize and allow only certain parties other than the testator to handle the digital asset after the testator’s demise. When the testator subscribed for the service, he would have consented to be bound by the terms and conditions of the service provider, which terms and conditions are to be ascertained by his executors. And in some cases, the perceived “ownership” of the digital asset is in fact only a license to use. Hence the license will no longer be available when the testator deceases. Where there is no ownership, the contents relating to the digital assets could not then be transferred to any beneficiary. Whether benefits associated with a digital account will survive death depends on the terms of the service provider. Some service providers may have some form of legacy contract or inactive account management service which allows the account to be closed or for submission of a request for transfer of data account of the deceased.

For more related content on Estate Planning, kindly go to https://www.preceptsgroup.com/book-purchase/ to buy this book!

Categories
Estate Planning

Appointing the Executor and Trustee

By Mr Lee Chiwi
Excerpt from PreceptsGroup Succession and Trusts in Wealth Management (4th edition) Book

The spouse, children or immediate family members are often the logical choice for the appointment as executors and trustees. But today, many decide that an independent professional trust company may be preferred as an alternative to the appointment of a family member. This has often proven on hindsight to be the preferred solution. Another reason is the newly imposed regulations on individual trustees as discussed at 11.13 (Transparency and Effective Control Regulations). In any case, the newspapers are full of articles reporting cases where family members ended up taking each other to Court. Often, the disputes revolve around family members who act as joint executor and trustees.

Where joint executors and trustees are appointed, they must act unanimously in the discharge of their office responsibilities. Sometimes, they cannot agree and this can lead to delays in estate administration, potential litigation and other issues. See 4.9, the example in Lau Tyng Tyng v Lau Boon Wee, where a sister and her brother were appointed as the joint executors and trustees in the Will of their late father.

It is possible that a professional trust company be appointed as the default executor and trustee in the event that the family member who is appointed may himself be deceased or unwilling or incapable of acting as such.

Some criteria in selecting a suitable executor and trustee are as follows:
• Is the person responsible and trustworthy? Assess his character as manifested by his living habits and lifestyle.
• Is he in good health and likely to outlive the testator?
• The organizational skills of the person.
• His experience in managing and investing assets and also consider the types of assets to be managed.
• Does he get along with his family members?
• Would he be biased against certain beneficiaries?
• Is he likely to accept the job as it means taking up his personal time in administering the estate?
• Is he likely to expect a fee or remuneration as this is a voluntary role?

Lay Executor and Trustee of a Will

He agreed to be executor of an estate — it cost him seven years of his life and
$100,000

Toronto accountant Terry Dooley’s seven-years ordeal as executor of a client’s multimillion-dollar estate involved a protracted court battle, which began in 2011 (when the deceased’s daughter contested the will) and ended in 2018. It left him and the estate trustee on the hook for a combined $1 million in legal costs.

Dooley, 73, says he didn’t receive “one nickel” of the $375,000 in compensation he was entitled to as executor. And “false allegations” of wrongdoing during the trial tarnished his reputation even though he was exonerated, he says.

The case is an example of the contentious and onerous nature of the job as executor.

Source: By Carola Vyhnak Special to the Star, June 1, 2020

Not many people will want to assume the role of executor and trustee of his friend’s will if he realizes the legal implications and responsibilities that are associated with such an office. Typically, a person appointed under a will as executor is also appointed as the trustee as the provisions of the Trustees Act apply to a trust which is embedded in a person’s will. With the statutory duty of care now made law, a lay trustee under a will has to consider whether he can suitably discharge his responsibilities without getting himself sued for negligence. After all, he is a mere volunteer.

The office of trustee is also an onerous office as it imposes upon the trustee a fiduciary relationship with the beneficiaries. This requires the utmost diligence, good faith and loyalty in the trustee’s discharge of his duties. If the trustee acts without care and causes loss or detriment to the estate, he will be liable to be sued. The testator should also consider carefully the person he wants to carry out the trusteeship role.

Two women, who agreed to be joint executors and trustees of woman’s will in 2003 were found to be liable to the woman’s beneficiary, namely her son for around

$87,000. The figure was derived after deducting the son’s maintenance and education expenses. The son who is now 29 had sued the two women for breach of their fiduciary duties and for an account of the administration of the estate. His mother’s estate was worth about $148,000, which included a HDB flat then priced at about

$120,000 and bank accounts. Income from the deceased’s estate included rent from her HDB flat totalling $98,000 over the years.

Remarkably, one of the executors, a cousin of the testator was also the appointed guardian for the son under the will when the testator died in 2003 of cancer. The boy then 14 had lived with the guardian. The other joint executor was a social worker at a welfare centre and had agreed to be the other executor but had left the administration to the other executor as the latter was also guardian. The flat was handed to the son after he turned 21.

It is to be noted that as both women were jointly responsible for administering the estate and to hold assets on trust for the son, they were each individually liable to pay the $87,000 to him. The judge said the responsibilities of executors were onerous and even if the motive was out of benevolence, they should not have accepted the appointments if they were not able to perform them. (See Straits Times dated 29 May 2020 by K.C. Vijayan & Tan Tam Mei Executors of woman’s will liable to pay son $87k)

In another case, a not so honest individual trustee was tempted and abused his office as trustee. In 2012, a businessman Abu Bakar Said Ahmad Alhabsi, 72, who was a trustee of charitable trust, pleaded guilty to misappropriating $176,470 between 2004 and 2007 for his own pocket. He did not keep accounts. He could not explain what happened to the missing rental income that came from four properties that were held in the trust.

Engaging Professional Trustees and Singapore Trust Companies

There are merits for the appointment of professional executors and trustees over a lay-trustee, at least where a person’s estate may be complex or where the testator cannot find anyone suitable to discharge such office. Individuals will die and it could be cumbersome when the individual executor dies in the midst of administering the deceased’s estate. A trust company being a corporate entity that is appointed as executor will not face this problem.

Greater professionalism is demanded of a trust company compared to a lay-trustee as the trust company is required to have officers who have the necessary qualifications and track records, requirements to have in place proper internal controls, audit and professional indemnity insurance etc. There are severe fines and in serious cases, even imprisonment of the officer concerned for breaches under the Trust Companies Act. This can only be positive for clients because there is recourse for the client and his beneficiaries against the trust company should there be the need to enforce rights or to pursue remedies for loss or negligence.

Provisions under the Trust Companies Act in Probate and Administration

Under the Trust Companies Act, where a trust company is appointed executor of the will of any testator, it shall be lawful for the company to apply to the court for probate of the will and if probate is granted, to exercise and discharge all the powers and duties of an executor. A person who is entitled to apply for probate or letters of administration may authorize a trust company to apply in his stead.

Where a trust company is empowered to apply for probate or for letters of administration, any petition, declaration, account or affidavit or other necessary document may be made or sworn by a duly authorized officer of the company. Such officer of the company may on behalf of the company sign any petition, account or statement, take any oath, swear any affidavit, make any declaration, verify any act, give personal attendance at any court or place, and do any act or thing whatsoever, which may be required to be signed, taken, sworn, made, verified, given, or done on behalf of the company.

As mentioned elsewhere, a licensed trust company that is granted letters of administration is not required to furnish any security for the due administration of the deceased’s estate.

For more related content on Estate Planning, kindly go to https://www.preceptsgroup.com/book-purchase/ to buy this book!