Introduction

Legacy planning, often an overlooked but undeniably crucial process, ensures that our assets are distributed according to our wishes after we pass away. Without a well-thought-out plan, the distribution and management of one’s estate, ever so often, becomes a contentious issue, leading to family disputes and the unintended distribution of assets, causing undue stress and financial strain on loved ones. With the complexities of modern families and the diverse nature of assets today, proper legacy planning is thus, crucial in safeguarding one’s legacy and providing clarity and peace of mind to the surviving family members. This month’s article will first explore what legacy planning entails, before delving into the recently concluded case of [2023] SGHC 107, reviewing the key facts therein, the issues raised, the court’s findings, and finally, deliberate upon the lessons we can learn from this case, regarding the importance of legacy planning.

What is Legacy Planning?

Legacy planning is a comprehensive approach to managing one’s assets and ensuring one’s wishes are carried out after he/she has passed away. It involves a range of legal and financial tools to protect and distribute one’s wealth, property, and personal belongings according to the testator’s desires, with a few primary objectives which could include the provision for one’s family and those that the testator cares for; ensuring a smooth transition of management over businesses and assets; and preventing, as far as possible, any potential disputes over the distribution and management of the assets, et cetera.

A well-structured legacy plan would typically include the following components:

• Wills and Trusts: A will is a legal document that outlines how a person’s assets should be distributed after their death. Trusts, on the other hand, are legal arrangements where a designated trustee manages assets on behalf of beneficiaries. Both wills and trusts can be tailored to specific needs and circumstances.
• Legacy Letters: A legacy letter, while not a legal document, is a heartfelt expression of personal values, life lessons, and wishes for the future. It allows individuals to share their life stories, offer guidance, and express love and gratitude to their family and friends. Unlike a will, which focuses on the distribution of assets, a legacy letter delves into the emotional and intangible aspects of one’s legacy, providing comfort and closure to loved ones after the author’s passing.

• Lasting Power of Attorney: This legal document allows an individual to authorise trusted individual(s) to make financial and legal decisions on behalf of the former, in case the former becomes incapacitated and is unable to manage his/her own life and assets.
• Advance Care Planning: The Advance Care Planning is a process that enables individuals to make informed decisions about their future health and personal care. It involves discussions with loved ones and healthcare professionals to document preferences for medical treatment, living arrangements, and other personal matters. The plan that is documented can thus be particularly helpful as a guideline for the caretaker and representative of the individual to make decisions for the individual when the latter is not able to communicate their wishes due to illness or incapacity.

• Advance Medical Directive: The Advance Medical Directive (AMD) is a legal document that allows adult individuals to express their wishes to not be subjected to further life-sustaining treatment if they have become terminally ill and unconscious, and to let the dying process take its natural course. The primary purpose of an AMD is to give individuals autonomy over their end-of-life care, ensuring that their wishes are respected even when they can no longer able to communicate with them. It serves as a guide for healthcare professionals, clarifying the patient’s preferences and relieving the burden of decision-making from family members during such difficult times.
• Business Succession Tools: Such tools include shareholder buy-sell agreements and key-man insurance that allow for a smooth transition of management and ownership of businesses owned by an individual making such legacy plans.

The above is a non-exhaustive list and there could be various other specific legacy planning tools to cater to an individual’s unique needs and circumstances. Knowing what legacy planning entails, the following shall then be a review of the recent case of [2023] SGHC 107, highlighting the key facts of the case, the court’s findings, and ultimately, the lessons we can learn from this case with regard to legacy planning.

The Facts of [2023] SGHC 107

In the Singapore High Court case of [2023] SGHC 107 (the “Case”), the dispute arose among siblings regarding the management of their late father’s estate. The father (the “Deceased”) passed away unexpectedly in 2011 without leaving a will, leading to a series of legal challenges in administering his estate which included mainly two HDB shophouses and a dental clinic. The eldest (the “Eldest Child”) and youngest child (the “Youngest Child”) were the claimants and sought orders for the sale of the shophouses to be managed by one of the administrators, the Eldest Child, solely, with the proceeds to be divided among all the siblings equally. The claimants had also sought an order for the account of rental income of the shophouses and dividends from the dental clinic, alleging that one of the administrators, the second child of the Deceased (the “Second Child”), had been mismanaging the asset. The defendants (consisting of the Second Child and third child of the Deceased (the “Third Child”)) argued that in fact, an agreement had been reached between the parties on the method of sale of the property and that the claimants had breached such alleged agreement and are seeking an alternative recourse. The defendants further counterclaimed against the claimants for compensation for the Second Child’s work as administrator for the estate and for the breach of the Eldest Child’s fiduciary duties for leaving the bulk of the administration work to the Second Child.

The Court’s Decision

The Court held that there had been no conclusive agreement reached between the parties regarding how the shophouses were to be sold and that whatever initial actions regarding valuation that were taken by both parties, were done as part of the negotiation process only.

Based on the facts, the Court granted an order for the sale of the shophouses, however, it provided that the parties should appoint a third-party solicitor to manage the sale of the said shophouses instead of granting the sole powers of managing the sale to either of the administrators.

The Court further ordered the Second Child to provide certain accounts requested by the claimants as it found that the Second Child had not provided sufficient accounts regarding the income of the estate. The Court also expressly mentioned that it will not be ordering the Second Child to account for the income from the dental clinic, which was managed as a private limited company (the “Company”) that was incorporated after the passing of the Deceased. The Court mentioned that such matters of the Company should not be addressed in the current case and that it should be taken in a separate application by the shareholders of the Company holding the director of the Company accountable for the dividends declared.

The Court also stated that it agrees that the Second Child should be remunerated for her work as administrator, however, such amounts should be decided in a separate application once the Second Child has provided the full accounts and justified her contribution, with evidence of the actual work done in administering the estate.

The Court also dismissed the counter-claim by the defendants regarding the Eldest Child’s breach of fiduciary duties after considering the facts of the case which included the Eldest Child playing a more active role at the initial stages of the administration of the estate and that the parties had earlier agreed that the Eldest Child would be less active thereafter.

Lessons Learnt Regarding Estate Planning

It is clear that the court had to deal with numerous issues raised by the parties, many of which could have been avoided if proper legacy planning had been done prior, by the Deceased. The following highlights a few key lessons we can learn from this case:

• Confusion regarding the Legacy of the Dental Clinic – A Lack of Business Succession Planning

The case demonstrates the importance of business succession planning as part of legacy planning. In this Case, the Deceased had left the dental clinic as a sole proprietorship on his demise, leading to a messy incorporation of the Company with no clear directives in the Company’s constitution or shareholder’s agreement, resulting in confusion regarding the management and control of the Company, contributing to the dispute among the siblings. A well-structured business succession plan could have outlined the ownership and management structure of the dental clinic after the Deceased’s death, potentially preventing such disputes.

• Difficulties in Multiple Beneficiaries Co-owning a Real Property

This Case highlights the challenges that can arise when multiple beneficiaries co-own properties. The siblings disagreed on the sale and use of the HDB shophouses, leading to legal disputes. The Deceased would have contemplated such difficulties if he had engaged in estate planning and via a well-crafted Will, could have included detailed provisions for the immediate sale of the properties, or the establishment of a testamentary trust to manage the assets, thereby avoiding conflicts among the beneficiaries.

• Single Executor vs Joint Administrators

The Case demonstrates the potential challenges of joint administration, especially when relationships between administrators deteriorate. The court’s decision to appoint an independent solicitor to handle the sale of the shophouses reflects the difficulties faced by the siblings in co-managing the estate and the sale of it. A will could have designated a single executor or a trusted professional, avoiding the conflicts arising from joint administration.

• Lacking a Clear Procedure Regarding the Sale of Shophouses

The Case underscores the importance of providing clear procedures for the sale of assets in a will, as part of one’s legacy plan. The absence of such instructions in the Case led to disagreements over the valuation and sale process of the shophouses. A well-drafted will or trust could have outlined a specific procedure, including the appointment of valuers and real estate agents, to streamline the sale and minimize potential conflicts.

• Lacking Clear Instructions on the Management of the Estate Accounts

The Case involved disputes over the accounting of rental income and dividends from the dental clinic. A comprehensive legacy plan would have, via a will, set out detailed instructions on how the executors (or the trustees as appointed in the will) shall manage the estate’s accounts, ensuring transparency and accountability, and minimizing the potential for financial disagreements.

Concluding Thoughts

This Case serves as a stark reminder of the importance of legacy planning. It underscores that a well-structured legacy plan, encompassing a will, business succession planning, and clear instructions for asset management, is crucial to prevent family disputes and ensure that one’s wishes are carried out after death. The absence of such a plan can lead to protracted legal battles, emotional distress, and financial burdens for the family. Like so many other earlier cases, this Case is a lesson that proactive legacy planning is not just about asset distribution but also about preserving family harmony and ensuring a smooth transition for loved ones after one’s passing.

How can SMTP Help?

Having an experienced hand guiding you through the intricacies of the law is always helpful regarding matters of legacy planning. Tapping on decades of experience and our very own Wealth Legacy Screening process (involving a detailed, step-by-step, fact-finding process to determine a client’s circumstances and needs), our lawyers will be able to assist you on your Family Legacy Planning journey in a very systematic and structured manner, ensuring certainty and clarity in the management and distribution of your estate.

We also believe in close engagement with our clients, paying close attention to their individual facts and circumstances, and tailoring our advice and courses of action to cater to their specific needs and requirements. SMTP’s core philosophy is to provide bespoke legal advice based on our private clients’ specific needs and requirements, as cases always differ in their fine details. Our team of dedicated staff is ever eager and prepared to assist interested parties. Should you or your clients require any assistance in trust or real estate matters, please feel free to contact our Business Development Team to schedule a consultation. We look forward to working with you.