Principles of Wealth Distribution
Mr Tan has just passed away at the age of 90. To many, he has lived a fulfilling life to leave this world only at age 90 and survived by a loving family.
Mr Tan left behind a wife and two sons married with three children each. Mr Tan left behind a valid Will; leaving 50% of his estate to his wife, 25% to be shared by his two children and the remaining 25% to be shared by the six grandchildren.
In addition, Mr Tan left behind the following assets and liabilities:
- Property in the name of Mr and Mrs Tan (with outstanding loan)
- Bank account in the name of Mr Tan
- Bank account in the name of Mr and Mrs Tan
- Bank account in the name of Mr Tan and elder son
- Insurance policy with nomination to Mrs Tan
In the course of distributing the estate, the family ran into some doubts:
- What are the assets that should be distributed in accordance to the Will?
- Should liabilities be paid before the distribution?
- The property in the name of Mr and Mrs Tan: Should it be given to Mrs Tan or form part of the estate for distribution?
- The bank account in the name of Mr and Mrs Tan: Does it go to Mrs Tan or form part of the estate for distribution?
- The bank account in the name of Mr Tan and elder son: Does it go to the elder son or form part of the estate for distribution?
- The insurance policy with nomination to Mrs Tan: Does it go to Mrs Tan or form part of the estate for distribution?
The answer: Assuming the surviving joint owner is the rightful beneficiary and the insurance policy goes to Mrs Tan, the only estate available for distribution is the bank account in the name of Mr Tan.
How do you think the younger son and the grandchildren will react upon hearing this?
The above are common scenarios that may happen when a person dies. To avoid arguments or disputes among the beneficiaries, it is important to know the Principles of Wealth Distribution.
Wealth Distribution is often viewed as a simple process. However, this is far from the truth. Often enough, Wealth Distribution is a complicated process when the deceased leaves behind simple instructions in the Will; worsened if there are conflicting instructions.
Many of us will choose to create a simple Will, which is easy to write but tough to execute when death occurs. It is important to design your Will such that your intended wealth distribution is in accordance with your exact intentions.
A Will speaks on your behalf when you are not around. It is important that the wordings in the Will reflect your truest intention.
Principles of Wealth Distribution
There are eight guiding Principles that we follow when we plan for distribution of the estate. This is known as the Principles of Wealth Distribution.
Principle 1: Clear and Concise
It is important that the instructions in the Will are clear and concise. There must not be more than one possible interpretation in any part of the Will.
An extract of the Will: “I give my property to charity and the rest to my only child.”
This sentence is not clear. What is the real intention of the deceased? To give the property to the charity immediately upon death OR if the son is occupying the property, to allow the son to stay for a period of time with the property going to charity when he moves out.
Principle 2: Joint Ownership
It is common to hold assets in the name of more than one person. It is important to know the reasons for the joint ownership and the intention of the joint owner or owners. Generally, the surviving joint owner will inherit the share of the deceased. However, this may not also be the intention or understanding of the joint owner or owners.
Property may be held under joint tenancy or tenancy in common. The intention of the joint owners may be to pass down to the surviving owner or to pass down to other beneficiaries.
Bank account can be in joint name. The intention of the joint owners may be to pass down to the surviving owner or to pass down to other beneficiaries.
The instruction for the distribution of assets in the name of more than one owner must should be clear. Quite often, the intention of the owners for each asset should be clearly spelt out. Sometimes, we may require the consent of other joint owners.
Principle 3: Conflicting Instructions
It is important that there is only one instruction for the distribution of a particular asset. There should not be conflicting instructions.
The Will indicated that the property shall be given to Mrs Tan. In another paragraph, the Will indicated that the property shall be given to the two sons to live in.
Principle 4: Conflicting Beneficiaries
There should not be conflicting beneficiaries in the distribution of a particular asset, regardless of whether it is written in the Will or nomination or any other forms of documents.
It is indicated in the Will that the insurance policy is to be distributed amongst the two sons but the nomination of beneficiary in the insurance policy is Mrs Tan.
Principle 5: Needs Of The Beneficiaries
We should consider the needs of the beneficiaries. It is important to leave sufficient money to meet the needs of the beneficiaries.
The Will indicated that each of the parents shall be given $200 per month to meet their daily expenses. The amount of $200 may not be sufficient for the parents.
Principle 6: Contingent Beneficiaries
The main beneficiaries of the assets may predecease the testator. It is important to have contingent beneficiaries for each of the assets. Otherwise, the assets may be distributed in accordance to Intestate Succession Act, instead of in accordance to the Will.
Mrs Tan is the main beneficiary of the investment held with DBS Bank. In the event that Mrs Tan predeceases Mr Tan, the beneficiary of the investment shall be the two sons of Mr Tan.
Principle 7: Bankruptcy Of Beneficiaries
Nobody would want the assets to be distributed to bankrupt beneficiaries as this would mean the assets will go towards debt repayment. As such, it is common for the Will to exclude distribution to beneficiaries who are bankrupt.
Mr Tan wrote in his Will that the bank account shall be given to the younger son. In the event that the younger son is an undischarged bankrupt when the testator dies or before the distribution of the estate, then the bank account shall go to his sisters.
Principle 8: Real Property To One Person
To avoid future dispute among family members, it is a good practice to leave behind real property to only one person. Otherwise, the intention of the different owners may change over time and conflict may arise.
Mr Tan wrote in his Will that 50% of the property shall be given to his wife, with 25% going to each son.
When Mr Tan died, the property was transferred in accordance to his instruction. As the children grew older, they may want to buy their own house. Here is where complications set in, as not everyone involved would want to sell the property.
It is vital to follow these eight Principles of Wealth Distribution. Doing so can best ensure that the beneficiaries and loved ones are protected and yet they do not fight over the Will. The Principles help to address the needs of the beneficiaries, and helping each other in times of need. It minimises conflict and sustains harmony among beneficiaries.