Estate Settlement via Testacy (with a will)
The acid test of a responsible person, spouse, son or daughter of elderly parents, or business owner is to give serious thought to his or her estate and leave a valid will behind after his or her death. Dying without a valid will create uncertainties regarding the distribution of your estate and the beneficiaries. It is not uncommon to find family members resorting to court for judicial decisions on estate entitlement, which result in resentment and the separation of family.
When a person dies leaving behind a valid will which can be located, the person dies testate. If the will is not valid (for example, the witness is also the beneficiary in the will), or the will simply cannot be located, the estate will revert back to intestacy.
The following write-up will focus on the main issues of a person dying testate. They are:
- Who can administer the deceased person’s estate;
- Settlement of liabilities;
- Settlement of assets;
- Who can be beneficiary; and
- Advantages of a testate versus an intestate estate.
1. Who can administer the deceased person’s estate
Unlike an intestacy estate where the legal personal representative is appointed by the court (after all the relevant stakeholders have given their consent), the testate situation allows the legal personal representative to be appointed by the will. This legal personal representative is known as the “executor”. An executor can also be one of the beneficiaries of your will.
One can name anyone to be the executor of his will; not necessarily the next of kin. However, it should be common sense that not everyone is suited to be executor. First, he should not be a bankrupt, second he is of sound mind, and third he should be someone you can trust. The executor has a wide range of power over the estate.
When a person dies with a will, the estate is vested in the executor. He obtains authority to conduct the affairs of the deceased the moment the deceased dies. He is empowered to pass proper title to the assets of the deceased which are sold and any action he may undertake on behalf of the deceased would be held valid. It is purely to land authority and vest a proper title that grant of probate are obtained.
In contrast to an intestacy estate, the property of the estate would only be vested in the administrator(s) upon the grant of administration. However, such vesting does not confer on the administrator(s) the authority to deal with those assets until the administrator(s) has extracted the order of the grant. Thus, the authority of an administrator to deal with the property of the deceased stems from the extracted grant, without which the administrator has no authority. (Tacplas Property Services Pte Ltd v Lee Peter Michael )
With such powers vested on an executor, one has to give serious thought to the choice of executor in his will.
2. Settlement of liabilities in testacy estates
The executor, on behalf of the estate, has the obligation to settle outstanding debts and liabilities before the (net, if any) estate assets can be distributed to the beneficiaries. Some examples of common outstanding debts are:
- Credit card debts
- Car loan
- Personal loan
- Business loan guaranteed by personal assets
Once the creditors know about the debtor’s death, they will file a caveat onto the estate. The caveat will only be lifted if the creditors are satisfied with the executor’s undertaking of settling the debts and liabilities from the estate. If the caveat is not lifted, the court will not issue the grant (i.e. grant of probate), and therefore estate assets cannot be distributed.
3. Settlement of assets in testacy estates
The executor has to provide the court with a schedule of the deceased person’s assets at market value as of the date of death. For example:
- Bank Accounts (name of bank, account numbers)
- Insurance Policies (name of company, policy numbers)
- HDB flat at (full address)
- Private properties (housing, shops, etc.) at (full address)
- Other properties in Singapore
- Other movable property outside Singapore
- Outstanding debts in Singapore secured by mortgage (name of bank, property involved)
The net estate value is the difference between the sum of assets (items i to vi) and outstanding mortgage (item vii). The purpose of the schedule of assets is for the court to confirm the value of the estate and to determine the fees payable for the matter. If the net estate is worth more than $3M, the grant would need to be applied for at the Supreme Court.
Unlike in intestacy estate, there is no need for sureties or posting of administration bonds to the court in settling the estate in a testate situation. The co-executors (if any) and the beneficiaries are entitled to this information.
After the grant of probate has been extracted, the executor can start to call in the deceased assets, pay off the estate debts, discharge estate liabilities, and then distribute the net estate to the statutory beneficiaries.
4. Beneficiary issues
This is one of the most important advantages of a will: you can decide who can inherit your estate, how much each beneficiary should get, and when each beneficiary will inherit your estate. Unlike in intestacy cases where the beneficiaries are listed according to the law, you can name anyone or any organisation as beneficiary in your will. However, you need to pay some attention on situations as follows:
- If the beneficiary is a bankrupt or is facing bankruptcy proceedings, try to name another person to hold the inheritance in trust for this bankrupt beneficiary. Otherwise, your inheritance will go to the beneficiary’s creditors.
- If you want to provide for the children of your previous marriage through the will, you can expect your current spouse to give priority to her/his own children over yours. Think this matter through.
- If your elderly parents cannot communicate well, you might want to appoint two executors to ensure your elderly parents get their share of your inheritance.
- If you want to provide for your extra-marital lover through the will, and you name your spouse as executor; your estate distribution intention might never happen. Think this matter through.
- If you want to provide for your favourite pet, do know that a pet is not a legal entity. Therefore your pet cannot receive your inheritance on its own. You need to leave the money to a person or organisation for them to use the money to take care of your pet.
- You can leave instructions to the executor to preserve your estate and time the distribution to the beneficiary.
5. Advantages of Testacy (dying with a valid will) vs. Intestacy (dying without a will)
|Vesting of deceased person’s estate||Vests in the executors upon death enabling the executor to handle deceased person’s financial affairs (production of probate is if and when required by the respective institutions).||Does not vest in the administrators until after letters of administration have been obtained.|
|Right to carry on with deceased person’s financial affairs||Executors have such rights subject to the validations of their actions by extraction of probate and provisions of the will.||No such right. Administrators’ duty is to call in the assets and distribute.|
|Right to choose one’s beneficiaries and their shares of inheritance||Testator has a free hand subject only to leaving reasonable provisions for dependants.||Succession to estate is determined by the provisions of intestacy laws.|
|Sureties to the administration of the estate||No such sureties required.||Sureties required to the gross value of the estate. Consequently, time, cost and delay involved in extracting grant.|
|Assigning rights under a will||A beneficiary’s rights are easily determinable where a will contains specific devises; bequests etc. and therefore such rights are assignable.||A beneficiary’s rights are inchoate and therefore not determinable, making it impossible to assign any specific right.|
|Calling in deceased person’s assets||In most instances, production of a will and death certificate are sufficient to call in assets and have them vested in executors.||Not possible to call in assets as holders of such assets will want a proper discharge and this can only be given validly if letters of administration have been extracted.|
|Issuing receipt and discharge in satisfaction of deceased person’s assets||Sufficient if executors named in the will or any one of them gives any such discharge or receipt. This can be done even before extracting probate.||No valid receipt or discharge may be given by an administrator unless he has extracted grant of letters of administration. Third parties are therefore unwilling to deal with administrators unless they are able to produce the grant.|
|Chain of executorship||A testator can stipulate that part or the whole of the family wealth is to be preserved subject to the rule against perpetuities and accumulations, for a period of time. This would ensure that family wealth is not squandered by heirs.||No such advantage as there is no executor who can step into the deceased person’s shoes.|
|Preservation of family wealth||An executor steps into the deceased person’s shoes and continues with the administration of the estate which may not have been completed.||No such advantage as there is no executor who can step into the deceased person’s shoes.|
|Guardianship of infants||An executor steps into the deceased person’s shoes and continues with the administration of the estate which may not have been completed.||There is no certainty as to who will be the guardian as long as both parents have passed away. Sometimes there may be disputes as to who is the most suitable person to be guardian.|
|Saving of stamp duty||Where there is a will there is no need to enter into an administration bond or to apply for dispensation of sureties so that stamp duty can be saved on the bond, application for dispensation and affidavit in support or other documents which may be required to be filed.||The documents have to be filed and stamp duty incurred.|
(Source: G. Raman: “Probate & Administration in Singapore & Malaysia; 3rd edition”)
In conclusion, leaving a will can provide a sense of certainty for your family members and stakeholders, so that the pain of losing you is lightened. It is not how we start, but how we end that truly matters.