A guide for British Expats in Singapore: Estate & Wealth Planning Post-Divorce

Your divorce is now final. What next? The last thing on your mind may be to consider your estate and wealth planning, and the prospect of dealing with lawyers again so soon after your divorce can quite understandably be unappealing for some!

However, there is a good chance that your existing planning arrangements (if any) are no longer appropriate for your post-divorce circumstances. They may be overly reliant on your ex-spouse, or too intertwined with their planning and not reflective of your individual wishes. Perhaps they do not cater for any post-divorce obligations you may owe to your ex-spouse or are wholly inadequate for the significant windfall you received from them.

Doing nothing or waiting too long to redress these sorts of issues may lead to serious and unintended consequences that could adversely affect any or all of your children and the rest of your immediate family in the event of your death or loss of mental capacity. Now is therefore the most critical and opportune time to start afresh with your estate and wealth planning and give yourself peace of mind after going through such a major life event.

This article serves to highlight the key areas of planning to consider, which are equally applicable to either party to a divorce and to British expats residing in jurisdictions other than Singapore. UK tax considerations in a divorce scenario are also critical given that estate planning and tax (particularly UK inheritance tax if a person is UK domiciled) go hand-in-hand and cannot be compartmentalised. Further details of such considerations can be found here but suffice to say tax advice should always be sought when embarking on any aspect of estate and wealth planning.

Please note that references in this article to England or English law should be understood to also include Wales but not Scotland and Northern Ireland whose laws differ to that of England and Wales.

The first step – review your estate

Your estate may have significantly changed as a result of the dissolution of your marriage. Therefore, the best starting point is to review it, and prepare a general inventory of your current worldwide assets and liabilities.

Not only will this help to identify what is in your estate, but it will also focus your mind on your succession objectives and help to establish your thoughts on important issues, such as:

• any particular wishes you have regarding the devolution of specific assets;
• assets of sufficiently high value that require bespoke succession arrangements;
• how to deal effectively with any digital assets or cryptocurrency you own;
• any family inheritance you are due to receive; and
• liabilities (particularly any owed to your ex-spouse pursuant to the divorce) and how they may need to be dealt with following your death.

Such a review should also establish if you have a life insurance policy or pension (either privately or through your employment in Singapore or elsewhere) and whether pay-outs to nominated beneficiaries require updating if you had previously nominated your ex-spouse.

Cross-border estates

Living in Singapore, you may have an international lifestyle and perhaps own assets located in multiple jurisdictions. You may even have acquired a foreign asset from your ex-spouse as part of the divorce settlement.

In these circumstances, you have a cross-border estate, which will add a level of complexity to your wealth and succession planning if ‘conflict of law’ issues arise. Broadly, conflicts may arise between the laws of different countries when determining which law should ultimately govern the succession of your assets at death. To resolve such conflicts, countries have developed domestic ‘private international law’ rules to determine which law should apply in different circumstances. This is a particularly complicated area of law and beyond the scope of this article, so formal legal advice should be sought if such rules may be relevant to you.

As a general overview, if you are domiciled in England at the time of your death, then English private international law rules will apply to the succession of your estate. Having British nationality and a British passport does not automatically mean you have a domicile within one of the countries of the UK. The concept of ‘domicile’ under English law is rather nebulous and made up of a variety of relevant factors that seek to draw out a person’s strength of connections to a particular jurisdiction and their current and future intentions. It is important to bear in mind that domicile can differ for succession purposes and UK taxation purposes.

If you have an English domicile, the general rule is that ‘moveable’ assets (e.g. paintings, jewellery, shares etc.) devolve in accordance with English law, whereas the succession of ‘immoveable’ assets (e.g. real estate) is governed by the local laws in which the asset is situated. Under English law, a person generally has complete testamentary freedom to dispose of their entire estate on death provided they have a valid and effective English Will in place. This widely contrasts with the rules in civil law jurisdictions (such as countries in Europe) where a system of ‘forced heirship’ operates which dictate that a certain portion of a person’s estate must devolve to certain family members in prescribed percentages and cannot be altered by a Will.

A situation could occur where your English Will governs the succession of your worldwide estate, but it does not when it comes to your holiday home in France, for example. The EU Succession Regulations were introduced in 2015 to avoid these types of situations and harmonise succession laws for cross-border estates involving EU countries by enabling a person to choose whether the law applicable to their whole estate wherever situate and whether moveable or immoveable should be that of either their habitual residence at the time of their death (the default position) or their nationality, which must be elected in a Will to override the default position. Therefore, if you own real estate in an EU country, you have the option to elect in your Will that English law governs the succession of that property on the basis of your British nationality. Brexit has had no impact on your ability to make such an election.

Nonetheless, this only applies to assets situated in EU countries. Conflict of law issues will still exist if you own assets in other civil law countries with forced heirship such as Vietnam, the Philippines and Japan. Careful planning will be necessary for such assets, particularly if they are valuable

Wills

Both England and Singapore are common law jurisdictions and therefore provide for testamentary freedom facilitated by a valid and effective Will. If a person dies without one, then the relevant intestacy rules will apply to the succession of their estate. Such rules dictate who can inherit from the estate and in what manner, which are likely to be contrary to the deceased’s wishes. To avoid this situation occurring, it is vital that a person has a Will regardless of their circumstances.

Being newly divorced, it is critical that you update your Will if you have one already. For example, it may leave everything to your ex-spouse and appoint them as an executor of your estate, which is a common and appropriate arrangement for married couples but not for divorcees.

If you are domiciled in England and have an existing English Will, divorce does not revoke it. Your ex-spouse is treated as if they had died at the date of the decree absolute. This could inadvertently result in an intestacy situation if your existing Will leaves everything to your ex-spouse but is silent on what should happen in the event of their death. Problems can also arise if your ex-spouse is named as the sole appointed executor and trustee in your existing Will and fails to appoint substitute executors and trustees in the event of their death.

If you are not domiciled in England, then your Will could create a discretionary trust over your estate for the benefit of your children (but not for your ex-spouse). This may be very useful in long term tax planning for any of your children (and successive generations) who may live in the UK in the future and therefore have a UK domicile; it avoids your assets and wealth your children may not immediately need from falling into their own individual estates for UK inheritance tax purposes.

Minor children

If you have minor children, an important question will be: who should be their guardian(s) if both you and your ex-spouse pass away while they are still minors? This can be a tricky and highly emotive issue but if you and your ex-spouse are able to agree on a guardian in this scenario it is best to record this in a separate document signed by you both rather than leaving it to be stated in your respective Wills (which is common practice), one of which could be changed without the other’s involvement or knowledge.

Another important consideration is that if your ex-spouse does become your children’s sole guardian following your death, they could have absolute control over any wealth your children inherit directly from your estate until they reach 18 years old. Any risk that your ex-spouse may abuse their position and enrich themselves from your wealth may be mitigated if under the terms of your Will, you create a trust over it for the benefit of your children to be managed and controlled by independent trustees appointed in your Will.

Lifetime trusts

Singapore has a thriving and robust professional trusts and fiduciary services industry and a modern trust law. If your estate is of significant value with surplus wealth, you might wish to create a discretionary trust during your lifetime as part of your estate planning. A discretionary trust is so-called because it is made by the ‘settlor’ (you) in favour of a class of potential beneficiaries (for example your children and immediate family). The appointed trustee(s) have absolute discretion to determine how much (if anything), when and in what manner potential beneficiaries receive funds from the trust.

Discretionary trusts are flexible and enable the trustees to take into account the changing circumstances of the beneficiaries. It is usual for the settlor to write a non-legally binding letter of wishes to the trustee(s) to provide guidance on how the trustee(s) should consider exercising their discretion and manage the trust. This is a flexible mechanism, as a letter of wishes can be changed from time to time without any legal formality.

Holding assets through a trust structure can be advantageous for a number of reasons:

• it allows you to plan for the succession of assets for the benefit of future generations of your family;
• it avoids the need to go through the probate process on death for assets held in the trust;
• it may assist with asset protection and tax planning for your family; and
• it may help in family governance or business succession planning.

Trusts are not appropriate in every case for particular reasons. For example:

• a core feature of a trust is that the settlor gives up a significant degree of control over the trust assets, which some may not find comfortable (although there may be ways to mitigate this to some extent);
• the creation of a trust is likely to give rise to UK inheritance tax consequences if you are UK domiciled (or deemed to be so domiciled for tax purposes), or if you are non-UK domiciled but transfer UK assets (or non-UK companies owning UK residential property) into a trust; and
• other rules regarding the UK taxation of offshore trusts may apply if beneficiaries of the trust are UK tax resident (for example, children being educated in the UK) or you plan to relocate to the UK in the future. These rules can be complex, and you may decide that the cost and effort of navigating the complexities is disproportionate to the non-tax advantages of a trust.

Incapacity planning

A growing feature of estate planning is to ensure arrangements are in place to deal with the eventuality of a person becoming mentally incapable. Given your connections to the UK and Singapore, you may have created Lasting Powers of Attorney (LPAs) in each jurisdiction already, whereby you appoint someone as your attorney to make decisions on your behalf regarding the management of your personal affairs if you lose mental capacity.

There are two forms of LPA available in England, one relating to property and financial affairs, and the other dealing with health and personal welfare. During your marriage, you may have created one or both types of LPA, and perhaps appointed your ex-spouse as an attorney. Your divorce will have had the effect of terminating their appointment, which could have the wider knock-on effect of terminating the LPAs entirely depending on how attorneys are appointed. For this reason, it is advisable to review and update your existing English LPAs following your divorce. This is also advisable if you have an LPA in Singapore or its equivalent in any other jurisdiction where you have assets.

The article was first published on 25 April 2022 by Expatriate Law as part of their 'Guide to British Expats in Singapore' e-book.