Property Related Estate Planning Issues

Clients typically aim to provide a secure home for their children, achieve a fair distribution of assets, and avoid hindering their children's ability to acquire their own property, such as an HDB flat.

We often get queries along the line of “can I give the house to A (since A don’t have his own house) but on the condition when he sell, he has to split the proceeds with B…” or “can I give the house to C but C has to let D stay in it…”.

While it is not illegal to pen down these instructions, do consider the following factors:

1. What the instruction entails and if they are binding

In general, assets directly distributed to a beneficiary through a Will are considered his/hers which will be up to him/her to do what he/she wants with it. While you still can pen down your wishes under “Additional Instructions” in the asset, it might not be legally binding since technically the beneficiary will now own the asset once he/she inherits it. Regardless, beneficiaries might still follow the testator's wishes out of goodwill.

2. Are you putting the property under a trust

A trust is a legal arrangement in which a person or entity, known as the trustee, holds and manages assets on behalf of one or more trust beneficiaries. The ownership of assets is transferred to the trustee to hold and manage for the benefit of the beneficiaries.

Say you plan to give the property to A but wants A to let B stay in it. Even if you did not explicitly state for it to be under a trust, it might still be considered one (e.g. for A to hold the property on trust for the benefit of B). This can be problematic if that is not your intention.

On the other hand, if that is your intention, you should explicitly allocate it into a trust (e.g. to a living trust, standby trust or well described testamentary trust). Managing a property trust can be time consuming and having a professional trustee doing it properly can help prevent unwanted disputes and disagreements. While you can appoint someone you trust as the trustee, you should consider engaging a professional trustee instead.

Any trustee holding property may not be personally eligible to buy HDB flat

According to HDB website, a person holding a property on trust for another person/entity (i.e. the trustee) is also considered to have an interest in a property, thereby affecting his/her own eligibility to buy HDB flat.

HDB eligibility requires the person "Must not own or have an interest in any local or overseas private residential property;", and "You are considered to own or have an interest in a property if you have acquired a property through purchase or when it is: ... Acquired by holding on trust for another person/ entity."

3. Restrictions for HDB Flats

You will need to seek approval from HDB if you intend to put the HDB flat in a trust. The approval for the creation of trust over an HDB flat and transfer are subject to eligibilities and HDB's policy at the point of application. In the case of a testamentary trust, since the trust is not set up yet until the testator dies, HDB is unlikely to be able to give prior approval.

4. Issues with forcing the retention of property

Having such conditions for the beneficiary to retain an inherited property might be an issue due to HDB eligibility criteria or ABSD (if the children wish to purchase their own property in the future). This is as compared to allowing some flexibility by just simply giving the asset to the beneficiaries which allows the beneficiaries/executor to discuss and decide in future, who can better assess the situation then.

5. Risk of disputes

Such instructions might end up leading to potential disputes. Regardless, where and how the Will is drafted, even the best law firms in Singapore, there is always a chance there might be disputes on the estate. As the instructions are to be carried out over a very long period, circumstances and factors could change accordingly which increases the risk of disputing in Court since the circumstances are different. There is also no way to clarify with the deceased on the new circumstances by then. This is as compared to a straightforward approach to give the property as it is or for the property to be liquidated for the proceeds to be split amongst the beneficiaries.

Conclusion

While we can definitely empathize with the considerations, unless there is (to put it bluntly) very little trust on the intended beneficiaries, you can consider other solutions instead.

One ideal solution is to ensure that the estate is suitably diversified, with liquid assets (e.g., death payout from policies, bank accounts) that adds up to be of comparable/higher value than the properties. In such cases, the client can simply divide their entire estate equally amongst the children (e.g., 50-50 to two children), and leave it to the children and executor to choose how to split these assets in future, be it to share both the property and liquid assets or for one party to inherit the property while the other inherits the equivalent value in liquid assets or even to liquidate all properties and split the proceeds. This can be left to the beneficiary and executor to work out how to handle the asset distributions.

However, if the estate's primary value comes from the property, the distribution may end up unequal. It involves financial planning beyond just crafting the Will's clauses especially if the client do not wish for the property ownership to be distributed in parts.

Another straightforward solution is to keep things simple and distribute as it is now, without such instructions that could potentially complicates matter. Down the line as circumstances change (e.g. children subsequently have their own families or purchased their own property), the Will can be updated. The testator can even to indicate for the properties be liquidated before distributing to the beneficiaries (instead of leaving this decision to the beneficiary/executor).