I would like to announce the availability of a new service I am providing called the Advanced Estate Planning (AEP). Advanced Estate Planning is normally only available for the high networth individuals but is now made available to the man-in-the-street. What is Advanced Estate Planning and how it differs from ordinary estate planning?

The AEP and ordinary estate planning share one thing in common – the distribution of assets accumulated for the purpose of achieving certain goals. The difference between the AEP and ordinary estate planning is that the former almost always involves the need for a professional trustee while the later involves individuals as trustee. Due to the burden imposed on individuals as trustees, it is more practical to engage the service of professional trust company. Traditionally, trust companies are only keen to work with assets that run in millions of dollars. That is why such Advanced Estate Planning has always been restricted to the high networth individuals. Now, such a service is made available for the mass affluent and there is no need to have millions of dollars.

Advanced Estate Planning is part of the Comprehensive Financial Planning. It is automatically included for those who engaged our Comprehensive Financial Planning service. There is no need for clients to specifically request for Advanced Estate Planning because this will be recommended based on a needs basis only. I do not offer the AEP as a standalone module because I will only make recommendation after a thorough analysis of the clients’ situations.

The following are two examples of Advanced Estate Planning. More will be added on a later date:

Example 1 - Provision for children who are still minors

The problem is that such life insurance proceeds cannot be given to minors because they are not allowed to own assets. Moreover, they may be still immature to manage money.

Under ordinary estate planning, these life insurance proceeds and as well as all other wealth owned by parents will be held by a trustee who are usually a family member. If there was no Will, the Administrator will hold the monies in trust. If there was a Will, normally the Executor will hold in trust on behalf of the children. The common issues are

1. Which family member can be trusted and will not embezzle these monies? Using a simple calculation of providing for $2000 per month for two children over 20 years, the lump sum amount is 2000x12x20 = $480,000 assuming inflation and investment returns the same. You can see the temptation which the family member is subjected to.
2. If such a trusted person can be identified, is such a person financially savvy so as not to get cheated by financial salespersons, scams and ponzi schemes?
3. Will this family member have the time to maintain proper records so as to ensure that the monies are not accidentally mixed with his own estate resulting in his own creditors making a claim on such monies? Do not forget that the monies will be held in trust possibility for more than one decade depending on the children’s age.

To address the above three problems, we recommend Advanced Estate Planning.  Under Advanced Estate Planning, the estate planning practitioner will be able to arrange for such monies to be placed in a testamentary trust. A testamentary trust is a trust setup only after a person dies. Arrangement can be made to have the trust setup automatically if both parents pass away. After deducting for all debts, all movable assets such as life insurance proceeds, bank saving accounts, fixed deposits, unit trusts, shares and ETFs are shifted to the testamentary trust. Immovable assets such as properties can also be shifted to the testamentary trust at a nominal stamp duty of $10 (at this time of writing) per title. The following are some characteristics of the trust: 

1. The trustee can be given powers to invest the assets, sell the assets and/or rent properties to generate income and capital gains. Such powers and asset allocation can be pre-specified from the onset.
2. Parents are also able to specify exactly which investment adviser the trustee should consult. The trustee has the fiduciary duty to ensure the assets are managed to the benefit of the beneficiaries. In this case, it will be the children.
3. The trust can provide maintenance, education and medical expenses to the children on a discretionary basis. A certain regular amount of money can also be specified to provide for the children guardian’s personal allowance.
4. As the trustee holds huge powers, it only makes sense that a corporate trust company be allowed to be the trustee. In Singapore, corporate trust company must be licensed by Monetary Authority of Singapore. Also, anyone offering trust services within Singapore can only recommend MAS licensed trust companies.

The setting of such a testamentary trust requires careful planning such as the duration of the trust and the contingency event on what happens if one of the beneficiaries dies. When the duration of the trust ends, how the proceeds are to be distributed is also needed to be plan for.

There is no need to be an Accredited Investor or high networth individuals to obtain such a service.

Example 2 - Provision for aging parents

If you have parents who are your dependents, you will be concern on how to provide for them if you are no longer living. Again, if you would to leave behind a lump sum of assets and life insurance proceeds, you will have the following concerns:   

1. Will your parents be able to manage this lump sum of money? Again assuming an allowance of $2000 per month over 20 years, the lump sum involved is $480,000.
2. While $480,000 (example) can be easily created through a cheap term insurance insuring your life, will your parents be cheated by financial advisers to invest in toxic assets and unsuitable investments to earn a huge commission? When there is a sudden increase in your parents saving balance by almost half a million from your insurance proceed, be rest assured that they will be constantly prospected by financial advisers to invest in the latest hot funds.
3. To be kind hearted is a virtue but it can become a liability. Your parents are kind individuals but they will be subjected to constant harassment from relatives and friends to borrow money. Very soon, your parents will be like an ATM dishing out cash except never to see it back again.
4. What happens if your parents develop mental disabilities due to aging? They will no longer be able to enter into any contracts and thus they cannot manage these monies. There is also a current lawsuit in which a local bank froze the bank account of a customer whom the bank believed was mentally not capable of operating the account.
5. Some parents hold joint-accounts with others so as to provide a convenient way to operate the account in the event of mental disabilities. This is similar as appointing a trustee but it comes with the risk of the trustee embezzling the money.
6. It is a well known that many retirees spent a considerable amount of time gambling in the casinos. The convenience of having free hotel stay for visiting casinos has resulted in many retirees visiting the casinos as a way to kill boredom and some even developed compulsive gambling habits.. Now that Singapore has its own casinos, the convenience is even more irresistible. While you are still living, you can provide your parents a monthly allowance but if you have passed away, providing them a lump sum can be detrimental as your parents could gamble it all away overnight.

Due to the above six reasons, Advanced Estate Planning involves setting up a testamentary trust. There are many similarities compared with that for minor children but with some minor differences:

1. Unlike a testamentary trust for children, you would probably prefer a regular allowance be given to your parents of say $2000 (example) per month adjusted for inflation rather than based on the trustee’s discretion;
2. You may wish to provide a yearly lump sum of say $6000 (example) for your parents to go for a holiday;
3. You can instruct the trustee to pay insurance premiums for your parents so that their medical expenses will be paid for through insurance rather than from the trust assets. In this way, the trust assets will not be unnecessarily depleted. You can decide which insurance your parents should purchase when you are still living.
4. The duration of the trust could potentially be quite long depending on the age of your parents. As such, it is recommended that the assets be managed for long term investments to earn a potentially better return;
5. When the trust ends (say when both parents pass away), you probably would prefer any remaining monies to be distributed to your own children rather than to other relatives. If you give a lump sum, any remaining assets left would form part of your parents’ estate which could eventually ends up with unwanted relatives.

Again, there is no need to be a Accredited Investor or high networth individuals to obtain such a service.

Related links: FAQs on Estate Planning and Free Will Writing for Existing Clients