This article suggests financial planning solutions to avoid calamities.
According to a worldwide study of private wealth conducted by UBS AG in June 2002, Core Affluent Wealth in Asia (defined as liquid assets of at least Euro500,000 held by a single household) accounts for about 20% of the global
total. While private wealth in Asia, as elsewhere, was eroded by the recent economic downturn, the study suggests that Asia (excluding Japan) will account for the highest growth in Core Affluent Wealth over the next five years.
Growth has been driven by high savings rates, GDP growth and improved stock market performance. In Singapore, the number of Core Affluent households is expected to increase by around 36% from 2001 to 2005.
Wealth accumulated by families in Asia, including Singapore, is likely to be transferred to the next generation within the next 50 years, in an unprecedented inter-generational transfer of wealth. Without proper financial
planning, this shift could be complicated by a host of issues such as increasingly complex tax regimes, assets held outside country of residence, etc. Family dynamics could further muddy the waters. Earlier this year, the
Singapore press reported three instances in the month of February alone, where family disputes were the subject of highly publicised court cases.
Family Dispute Over Missing Will (Reported on 19 February 2002)
LKH died in 1998. His second wife, TCY, maintained that he died intestate, having revoked a will he had made in 1969. However, his son from his first marriage, LBM, countered that while the original of the 1969 will could not
be found, he had a copy and the court should give effect to that. LKH’s estate is estimated to be worth around S$4 million. In his 1969 will, he gave 60% of his estate to LBM and 30% to TCY. But if he had revoked that will and
died intestate, TCY would receive 50% of his estate, according to Singapore’s rules on succession.
Three-Party Squabble Over Alleged ‘Trust’ (Reported on 20 February 2002)
LCK deposited S$1 million in Australia but later transferred S$980,000 to her friend, CL, and kept S$20,000. This was the only thing that the parties appeared to agree on. CKT claimed that he gave LCK, who was then his wife, S$1 million to be deposited in Australia and to be held in trust for their two sons’ education in Brisbane and that LCK had breached the trust by paying the moneys to CL. Furthermore, CKT claimed that CL knew about the trust and dishonestly helped or conspired with LCK to commit the breach of trust. LCK and CL disputed CKT’s version and said that the moneys in fact belonged to CL. CL said she gave LCK S$980,000 for LCK to deposit in Brisbane where CL was looking to buy properties and S$20,000 was her ‘gift’ to LCK for taking and depositing the money in Brisbane. LCK alleged that CKT had eavesdropped on her telephone conversation with CL about her arrangement with CL and that his claim was a complete fabrication for the sole purpose of obtaining the S$1 million.
Sick Mother Allegedly Manipulated by Son (Reported on 26 February 2002)
PJW suffered a stroke and moved in with her youngest son, TPM. PJW’s other sons, TTK and TTH, discovered that she had made two wills while she was living with TPM under which she transferred the family’s pub business (which was
managed by TTK and TTH) to TPM and left TTK and TTH with S$10 each. Separately, she sold her house for S$910,000 and gave the proceeds to TPM and, in addition, mortgaged the family’s pub business, valued at around S$2 million, for
a S$1.5 million credit facility granted to TPM. TTK and TTH argued that TPM, who was unemployed, had exercised undue and improper influence over their mother.
How can one avoid calamities like those outlined above? Financial planning solutions must be flexible and extensive to satisfy a wide variety of financial and lifestyle goals. They could range from something as simple as a
valid will to more complex strategies such as establishing a trust.
A trust is a legal relationship in which an individual or individuals (‘settlor/s’) transfers ownership of assets (‘trust assets’) to another person/s (‘trustee’) who undertake/s to hold and administer the assets on behalf of
certain persons (‘beneficiaries’).
In the modern commercial context, many professional trustees are corporate entities. The trust companies could be part of a larger banking group or stand-alone companies. In most cases, the trustees will incorporate one or more underlying investment holding companies to hold the trust assets, although in certain cases the use of an investment holding company is not advisable. For example, using an investment holding company to hold a UK property which is occupied by the settlor of the trust could, in certain circumstances, result in adverse UK income tax implications. Ultimately, the trustees will work with each client, and his/her professional advisors, to design the appropriate structure.
The trust is a highly developed legal concept that originated in English common law and has been adopted by many jurisdictions. The benefits of a trust can include:
A trust could help individuals avoid some of the conflicts outlined in the cases mentioned earlier.
Setting aside moneys for children’s education
By setting aside moneys to be held by a trustee, one has the opportunity to reduce the risks associated with holding assets under a personal name. The funds will be set aside to support education costs. This form of wealth
protection mitigates against family disputes, personal liability stemming from high-risk business activities, and the burdens of inheritance tax and estate duty.
Setting conditions for wealth succession
Conditions for wealth distribution can ensure the financial protection of minors, prevent the delinquent use of funds and the dilution or loss of funds as a result of divorce. The trustee will not permit a beneficiary to
dispose of trust assets unilaterally or over-leverage trust assets.
Henny Liow
UBS Private Banking
E-mail: henny.liow@ubs.com