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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
Wills Estate Planning

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
Wills

Professional Executor Expedites Estate Settlements

Precepts Trustee Ltd. provides professional executorship services which is fast becoming the preferred choice for people who are drawing up their Wills. While testators (persons drawing up a Will) may have a strong preference of appointing their family members as executors, it will also be prudent to appoint Precepts Trustee Ltd. as a substitute executor in the event their intended layperson executor is unable to execute his or her role.

An executor undertakes estate administration duties when a testator passes on. It may seem like an honourable appointment, but layperson executors often do not have the time, commitment and technical knowledge when met with unexpected circumstances. This may result in an unfortunate deadlock situation and other resulting emotional entanglements.

Here is a case highlighting the estate administration of a Housing Board (HDB) property.

Background

Our client was a filial single man who wrote a Will indicating that Precepts Trustee was to be appointed as the executor and the original Will was kept in custody with Precepts Legacy.

As soon as Precepts was alerted of our client’s passing, we initiated an asset search compilation according to the Inventory of Assets provided by our client. At the same time, we conducted a Will Reading session for his beneficiary, his aged mother who was accompanied by his 3 siblings.

A Twist of Circumstances

As raised by his siblings, it was discovered that our client was also pending an inheritance from his late father. It was a HDB property which the family of 6 lived in and which was intended to be passed down to all 4 children. The HDB property was owned equally as Tenants in Common by both parents and in their respective Wills, the 4 children were to inherit 50% share jointly upon the parents’ respective passings.

Before our client’s father passed away in 2018, he had appointed his 4 children, which also included the deceased, as joint executors and beneficiaries of his estate. Unfortunately, as the executors had little idea on how they were to proceed to apply for the grant of probate nor could they transfer the said 50% to themselves as beneficiaries, the matter was left unattended and soon forgotten. Over 2 years had passed, and the estate administration process had not even started.

Disagreements

With an unsettled inheritance from our client’s late father, we were unable to sign off the estate until all assets were fully transferred/ distributed to our client’s mother. Our client’s siblings were however unwilling to budge and insisted on executing their late father’s Will and transfer the shares of the HDB property to themselves despite each already owning a HDB property. They were adamant that they should co-own their family home where they grew up together with their mother.

The Final Resolution

At the same time, Housing Development Board wrote to our client’s siblings as executors of their late father’s estate and Precepts Trustee Ltd., being the executor of our client’s estate. It then became clear to the family that they would not qualify to own another HDB property, even a fraction of it, as they had an existing property. The HDB property had to be sold and the proceeds would be split amongst the beneficiaries.

This was a logical solution, but it meant that the elderly mother would be left with no place to live as her children were unable to accommodate her in their respective homes. With Precepts Trustee’s involvement, we suggested that they renounce their rights to receive the HDB property as a more straightforward solution. This move would render the HDB property to fall under the purview of the Intestate Succession Act. The consequences therefore resulted in the transfer of the property to the deceased’s spouse and the deceased’s child – our client and his mother.

Although it took them several months for deliberation, they eventually agreed to it.

The Role of Precepts Trustee Ltd

Precepts Trustee took over the estate administration duties and provided the written renouncement of rights by the 3 siblings as well as computation of the portion for transfer. The breakdown of the share for transfer to the mother is illustrated below for reference:

Adding up the portions from the 3 siblings (18.75%) and the late Testator’s share (31.25%) with her own portion (50%) meant that the mother would eventually own 100% of the HDB Flat.

The estate settlement took about a year from the demise of the Testator to the entire disbursement to the beneficiaries. Without the team’s perseverance and diligence to follow up and work with the parties involved, it would have been another stalemate with no alternative but to adhere to HDB’s requirement to sell and distribute the sale proceeds of the HDB property which would not have been the ideal solution.

Alvin Lai

PreceptsGroup International Pte Ltd

Categories
Wills

Tracing Beneficiaries

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

When there is no will, the estate of the deceased is distributable by default according to the intestacy rules. Quite often, when the administration of the estate is able to proceed soon after death, identifying the persons who are entitled under the estate usually poses no problem. But when the nearest relatives of the deceased are no longer around, the personal representative may have to trace not only the deceased’s surviving descendants but the ascendants (including their spouses and children). Matters become more complex when these family members have become estranged, relocated and are residing elsewhere in the world or when the personal representatives of family member descendants and ascendants who are deceased, are also deceased. Hence even when the administrator of the estate had already collected the assets of the deceased’s estate, they are not in a position to make distributions when they have not ascertained all the beneficiaries who are entitled. The following two cases are examples of the complexities involved in the tracing of beneficiaries.

Administration of an Estate 75 years On!

The first involves the administration of the estate of Madam Wan Chin Neo. In 1937, a Peranakan widow Wan Chin Neo, a mother of three, bought a small bungalow in Katong for the then princely sum of $1,900. She decided the property should remain in the family for generations to come and created a trust that stated it was for her descendants to occupy in perpetuity. By the end of 1939, Madam Wan and her two adult daughters were dead. Only her son was alive. It was more than 70 years before the house in Carpmael Road in Joo Chiat came to the attention of the High Court, when some of Madam Wan’s descendants wanted to check if the trust was valid. The court ruled that her intention to keep the house in the family forever was not valid and ordered the property be sold and its proceeds distributed among her surviving descendants. The run-down house was sold in 2013 for almost $4 million. But the biggest challenge is that the trustees are duty bound to search and to track down Madam Wan’s surviving descendants, who are entitled to a share of the proceeds. Madam Wan and her three children had all been long dead, and none of them left a will. Under inheritance rules, this means the money should be shared by their lineal descendants. Even then, the trustees are dealing largely with Madam Wan’s great and great-great grandchildren, many of whom are already retirees and of senior age. Some fifty people have stepped forward or have been asked to stake their claims. According to Rockwills Trustee, the trustees who were appointed, the search for Madam Wan’s descendants had included tombstone inspections at the Bukit Brown cemetery, a listing on the Government Gazette and newspaper advertisements.

Estate of Reclusive Sisters

In July 2016, the Straits Times reported that the skeletons of two elderly women were discovered at a single-storey terrace house at 17 Jalan Batai, which was worth at least

$2 million. It was revealed that the skeletons were of two reclusive sisters, Pearl and Ruby Tan, whom neighbours and relatives said had not been seen in over a decade. In an unprecedented move, the Public Trustee’s Office (PTO) asked interested parties to submit their claims on the estate of the sisters, which includes the house owned by Pearl for their investigations.

As part of the verification process for the Tan sisters’ case, the PTO spent three weeks searching the National Library Board’s digital newspaper archives, and pieced together a family tree that includes Pearl and Ruby’s parents, grandparents, aunts and uncles on both sides.

It was reported that the High Court had issued an order that both sisters be presumed dead; as they left no known will and have no legal beneficiaries, their assets go to the State under the Intestate Succession Act. However, under the Civil Law Act, any person can make a “moral or equitable claim” on the basis of bona vacantia by demonstrating their relationship to the deceased sisters. The PTO administers such claims.

Considerations for bona vacantia claims include the length and nature of the relationship between the deceased and claimant, any legal or moral obligations, which the deceased had towards the claimant and any contribution made by the claimant to the welfare of the deceased while alive. If the Law Minister is satisfied with the claim made, he can disclaim and release either part or all of the Government’s right to the estate to the claimant.

(See “Estate of reclusive sisters now open to claims” Straits Times, 10 Jul 2016, Tiffany Fumiko Tay)

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

Categories
Wills

Legal Requirements for Valid Wills

There are some basic legal requirements for a will to be valid under the Wills Act (Cap 352).

  • The testator must be at least 21 years old and of sound mind. Persons under 21 years old and in active military service or a mariner or seaman, can still prepare a will. These are known as “Privileged Wills”.
  • The will is to be in writing and signed at the end by the testator.
  • The signature of the testator must be at the foot of the will as any writing below the signature will not be valid.
  • At least two witnesses are to be present to witness the signature of the testator and in the presence of each other. They should in the presence of the testator, also sign as witnesses.
  • Beneficiaries under the will are prohibited from signing as witnesses to the will. Spouses of beneficiaries also fall within this prohibition. The will is not rendered invalid but these beneficiaries or their spouses who are the witnesses, will not be entitled to any gifts in the will.
  • For validity, the testator must have the necessary testamentary capacity to make and execute the will meaning that he must be of sound mind when he executes the will.
  • In general, a will shall be treated as properly executed if its execution conformed to the internal law in force in the territory where it was executed or of his domicile when the will was executed or when he dies or of the territory where the testator was habitually resident or the state where he was a national (see the “Formal Validity” rules in section 5 Wills Act).

The Strict Requirement for a Minimum of Two Witnesses

In AEL and others v Cheo Yeoh & Associates LLC and another [2014] SGHC 129 the will was invalid as it did not comply with the formalities required under the Wills Act. A fundamental requirement is that for a valid will, it must be executed by the testator in the presence of a minimum of two witnesses. The will was found to be witnessed by a sole witness, namely by the lawyer himself, Johnny Cheo and therefore was not in compliance with the law.

This resulted in quite a different distribution basis from that stipulated under the terms of the will. At stake were the distributable assets in Singapore, an amount of AUD1.8 million in a Citibank Account. With the invalidity of the will, some of the named children under the will got less than what were due to them and the grandchildren were totally excluded altogether under the intestacy laws.

As a result of the alleged negligence, those aggrieved beneficiaries claimed about AUD719,000 from Mr Ali’s lawyer and his firm Cheo Yeoh & Associates. The sum represented the difference between what they would have received under the will and what they received eventually. On the other hand, the two children not named in the will had a windfall, while the other saw an increase in his share. They did not sue the lawyers.

In another decision, Harshenin v Khadikin (2015 BCSC 1213) the Supreme Court of British Columbia held a will invalid on the grounds that the propounder had not “discharged his burden of showing, on a balance of probabilities, that the alleged will was duly executed by the deceased”. It was not established that “two witnesses saw the deceased signed or acknowledged his signature on the alleged will”. The judge also stated that there was no reliable evidence that the deceased “read and appeared to understand the alleged will”.

Categories
Wills

Helping Families through our Estate Administration Work

Over the years, we have helped many families in administrating their family members’ estates. In some cases, the estate administration was extremely challenging. The complexities involve dealing with various parties, the court, litigation, or multi-faceted groups of beneficiaries. We have seen many lay executors suffer prolonged stress and anxiety over many years before considering appointing us as Executor and Trustee.

More than 2500 of our clients have chosen to appoint us as their Executors and Trustees under their Wills. We now highlight some of the cases that we have administered.

Estate of PB

A high-profile Senior Executive, Mr. PB passed on the operating table during treatment in December 2009. He had a Will appointing two of his close friends as the executors. However, both renounced their rights to apply for the Grant of Probate – one of them was in a state of grieve and the other was a busy Senior Executive. The executors and the beneficiaries (family members) came to seek our assistance and consented to our appointment as the professional administrators of the estate of Mr. PB.

In 2011, we initiated an action to sue the doctors and the clinic for damages and loss of inheritance that the dependants of Mr. PB had suffered.

The legal proceedings involved complex technical and medical issues and went on for a period of 5 heart-wrenching years before the first judgement. We had to employ relevant specialists to contest the case and to guide the family members each step of the way. In 2016, the Court of Appeal allowed our claim for damages amounting to $3.698 million. However, the legal proceedings did not end here.

After the Court of Appeal’s judgment in 2016, the taxation proceedings went on for another 2 years for the court to decide our claims on the amount of legal costs incurred for bringing the action to sue the doctors and the clinic. In 2019, the court allowed the legal costs in the amount of $756,000. It took 10 years for the case to be concluded. If not for our appointment, it would be a huge strain and pain for the family members and the lay executors.

Estate of WCF

It should be noted that the duties of a personal representative of a Deceased’s estate may involve him making decisions to sue on behalf of the estate but also face the prospects of defending legal suits against the estate. The personal representative may also potentially risk being sued for the failure of fiduciary duties.

WCF passed away in 2016 leaving a Will appointing us as his professional executor. In February 2019, we received a letter of demand from a firm of solicitors claiming for an amount of about $2 million against the WCF’s estate.

As a professional executor, we examined the merits of the litigation suit thoroughly. After examining our deceased client’s position, we attempted to settle the matter amicably in the best interests of the Estate. After effective negotiations, both parties agreed to engage a professional accounting firm to prepare a report to determine a reasonable claim amount to resolve the matter out of court and avoid engaging in litigious proceedings. We are glad that we were able to assist the family in managing the undue stress from dealing with such complex legal matters.

Estate of WLC

WLC passed away in 2000 leaving a Will appointing both of his two sons as the executors of his estate. Unfortunately, the two lay executors only extracted the Grant of Probate for their late father’s estate in 2008, after 8 years.

After obtaining the Grant of Probate in 2008, the two lay executors who were not aware of the complications and risks of delaying administration to liquidate a house in which their late father was the 50% registered owner.

In 2016, the lay executors finally decided to sell the house when all the funds in their late father’s estate had been fully utilised for the maintenance of the house. But they could not proceed as the other co-owner of the house had lost his mental capacity and therefore unable to sign any documents.

The lay executors were left with no other alternative but to spend additional costs to commence Deputyship Proceedings to appoint a Deputy for the co-owner. This resulted in protracted proceedings as there was little cooperation from the co-owner’s relatives.

Yet in another twist, in the midst of the Deputyship Proceedings, the co-owner passed away. The sale of the house was furthered delayed as it now required an administrator of the deceased co-owner’s estate to be appointed. They were struggling to maintain and manage the house due to these legal constraints and the financial demands to pay for legal fees.

The lay executors were relieved to discover our services. They approached us to take over the administration of their late father’s estate as they had advanced a lot of money for the Deputyship Proceedings out of their own pocket. Most significantly, they were also facing constant pressures from the various beneficiaries who demanded for the sale proceeds of the house. They were also under constant accusations of mismanaging the executorship appointment and faced potential legal risk exposure for negligence.

Upon acceptance of the estate administration case, we proceeded to complete the administration of their late father’s estate, including liaising with the administrator of the deceased co-owner. Our efforts helped them to finally complete the sale of house in 2017 at $1.8 million. With our professional discharge as administrators, we prepared statements of the estate account and made the distribution of the sale proceeds of the house to all the beneficiaries satisfactorily. The two brothers were finally relieved of an issue that had hung over their heads for some eighteen years.

Estate of SAG

SAG appointed us the professional Executor in his Will.

SAG was the sole shareholder and the sole director of a company that is still in active operation and generating good profits. The company employed a sizable group of employees at the point of his death. The value of his company shares was worth about $2.7 million at his death.

When SAG passed away, most of the company transactions had to be put on hold and the company account was frozen as SAG was the only signatory for the company’s bank account. Further, the company was not able to tender for new contracts, which was crucial for the business. It was a very worrisome and anxious period for many of the employees in the company.

SAG’s business was vulnerable as they could lose their business to competitors or the employees leave the company due to uncertainty. So, we had to act fast.

We acted quickly and stepped in to stabilise the company operations and to resolve the internal conflicts in the company. We appointed key persons to head up the company’s operations under our supervision.

We managed to obtain the Grant of Probate within 2 months and brought the company back to its normal operations.

One year after SGA’s demise, a formal valuation was carried out by professional valuers and SAG’s company shares were valued at $7.8 million. We were glad to have preserved the value of the business and also the livelihoods of so many employees.
 
This article is first published on our newsletter, The Custodian Issue 13 on February, 2020. Click here to subscribe to our latest newsletter.