IN THE past three years, we have seen a rise in the number of people coming to us for end-of-life, legacy and estate planning. Perhaps they were reminded that death can happen suddenly, something which they saw during the pandemic.
Many consult various financial institutions and professionals and are often recommended products such as universal life policies or legal and tax structures as solutions.
But while these individuals feel something is missing, they cannot put a finger on what is not right about the “solution” offered.
Here is a case study to show how legacy planning can be done.
Richard and Eva own an engineering firm.
They have three children: Catherine, a doctor who is married to a doctor, and is not interested in the family business. Gladys, who is single, and is the only child involved in the family business as assistant general manager. Michael, an admin assistant who has bipolar disorder and may not be able to manage money well.
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The siblings get along well with each other. When Richard and Eva came to us, they were concerned with who will care for them and manage their financial affairs when they get older. They have not put in place their wills, Lasting Power of Attorney (LPA) and have not undergone the Advance Care Planning (ACP) process. They also would like to retire soon.
Here is what we found in our initial discovery meeting with the couple:
- They have total assets of S$34 million (see accompanying graphic).
- They want to retire with S$25,000 a month, adjusted for inflation.
- Preserving family harmony and building relationships are of utmost importance. Hence, asset distribution must be fair, not just in quantum, but in terms of who should rightfully own the assets.
- The plan must convey Richard and Eva’s trust in their children.
- They wish to do some lifetime giving to help their children now, and not just after their deaths.
- As Eva and the children are not investment savvy, some funds need to be managed professionally when Richard is mentally incapacitated or dies.
- Catherine and Gladys will take care of their parents if they become physically or mentally incapacitated.
- They wish to ringfence the assets from their children’s spouses and potential creditors if any of their children becomes bankrupt.
- Unmarried children should always have a house to live in.
- Where possible, mitigate overseas estate duty.
Based on the above parameters, we then discussed which assets should be distributed in the couple’s lifetime and which upon their deaths.
Lifetime gift
We worked out that Richard and Eva will need to set aside S$7 million for their retirement. This amount cannot be distributed.
The engineering business is to be transferred to Gladys in Richard and Eva’s lifetime. It will not be fair for Catherine and Michael to have a share in this business, since they have never been involved.
We worked out that S$200,000 will be gifted to each child, even though Michael may not be able to manage it well. The couple wanted to be fair and show him some trust.
On death or loss of mental capacity
- Insurance proceeds and investments to be managed by an investment manager for income distribution upon Richard’s death or mental incapacity.
- CPF proceeds distributed equally among the three children using CPF nomination.
- Residential property to be sold upon both Richard and Eva’s deaths and distributed via wills.
- Upon both Richard and Eva’s deaths, investment property is to be given to the children via wills and inhabited by unmarried children. It will be sold, and the proceeds distributed when all children are married.
- Richard and Eva will trust their children to manage the CPF monies and proceeds from sale of properties on their own.
Next, we worked out a high-level solution for the couple:
- An asset distribution plan as shown in the graphic was worked out.
- Money in Hong Kong is to transferred to Singapore bank accounts. US-listed investments are to be restructured to mitigate US estate duty.
- The couple will write their wills to distribute the properties and residual assets, with Catherine and Gladys as executors and trustees, and do their CPF nominations.
- They will set up a revocable, discretionary standby trust and appoint a corporate trustee. The trust is dormant and activated only upon Richard’s mental incapacity or death. The trust will have a schedule listing their children’s spouses as excluded persons, who are not to benefit from the trust.
- The couple will write a letter of wishes to guide the trustee on distribution to the beneficiaries. This will include a monthly amount to be paid to the beneficiaries. If a beneficiary becomes bankrupt, payments will stop. An annual amount will also be given for the beneficiaries to go on a family holiday together. This is to help build family relationships.
- They will also put in place an investment mandate to guide professional managers who will take over on Richard’s death.
- Eva will be appointed as the protector of the trust.
- LPAs for both Richard and Eva, appointing Catherine and Gladys as donees, as well as ACP spokespersons.
When the high-level solution is agreed upon, we will find an appropriate corporate trustee for Richard and Eva, as well as coordinate the details of the wills, trust deed and LPAs with our legal partners.
When all is in place, a family conference can be organised to brief the beneficiaries on the plan and the intentions behind it.
While financial instruments and legal structures are products that can be useful in legacy and estate planning, it is more important for one to first make his or her “life decisions” ahead of deciding on the suitable products.
In this case, the plan sets out to ensure family harmony, the building of relationships and communication of trust, while also protecting and providing for the family. While this case involves individuals with significant wealth to allow for a richer discussion, the thought process is similar for less-affluent families.
The writer is chief executive of Providend, Singapore’s first and probably sole fee-only comprehensive wealth-advisory firm. He can be contacted at chris_tan@providend.com
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