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Wealth Transfer Planning with Life Insurance
Few wealthy families in Asia have a proper wealth transfer plan
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Only 31% of high-net-worth families polled across Asia have established a complete plan to
pass on their wealth
According to the RBC Asia Pacific Wealth Transfer Report 2017*……..
*The poll involved 425 respondents across Singapore, Hong Kong, China, Indonesia, Taiwan and Malaysia.
Case Studies
CARRIER UPDATECase Study 1 – Lack of Liquidity
Robin William’s widow revealed that he had been suffering from Lewy BodyDementia, a progressive brain disorder that shares characteristics of bothParkinson’s and Alzheimer’s disease.
Photo Source: abc7news.com
CARRIER UPDATERobin Williams’ Estate▪ Robin Williams’ net worth estimated at around
U$100million.
▪ Robin Williams had created Trusts for his wife and3 adult children from 2 previous marriages.
▪ A legal battle ensued shortly after his deathbetween his widow and children over personalitems of Williams’ and money to maintain thehome left by Williams to his widow SusanSchneider.
▪ His widow and children reached an out-of-court settlement on his estate.
▪ Susan Schneider gets to keep the home she had shared with Williams in SanFrancisco with sufficient money to cover costs related to maintain the residenceand some personal items from Williams.
▪ His children received the vast majority of personal items including more than 50bikes and over 85 watches.
Case Study 2Family Feud – Estate of Chow Cho Poon
Source: The Straits Times, 19 July 2007
Mr Chow’s Will (1997)
▪ Upon his passing, his Will distributed the wealth unequally
Mr Chow’s Estate
Mrs Grace Chow
2/7th of estate
30% to each son
10% to daughter
Son 1
2/7th of estate
Son 2
1/7th of estate
Son 3
2/7th of estate
Daughter
$1,000
Mrs Chow’s Trust Deed
Family Feud – Estate of Chow Cho Poon
Source: The Straits Times, 5 May 2015
Property Tycoon Chow Cho Poon bought this massive house in the ‘50s and raised 4 children(3 sons & 1 daughter).
The children could not agree on ▪ To sell or to subdivide the property into 4 subplots▪ Items in the house – Art Pieces, Jewelry and even the portraits
of the parents
“We never fought when we were children. In fact, we were close in our childhood. We were like any happy family.”
Series of Litigations and Court hearings
▪ 1997 – Mr Chow passes away
▪ 2002 - Mrs Chow passes away
▪ 2004 - Sister sues the brothers, claiming they cheated her of her inheritance
▪ 2006
▪ The Singapore courts ordered the brothers to settle their inheritances.
▪ The parents’ estate was still not divided because it has debts that were disputed.
▪ 2007
▪ Son 1 applied to the high courts to wind up the companies
▪ Son 2 sued the older brothers, claiming they acted oppressively against him as a minority shareholder.
▪ 2008 - the Courts ordered the liquidation of the firms
▪ 2015 - 73,277 sqft site finally sold for SGD 91m
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Chow Legacy
▪ Family Companies forced by courts into liquidation
▪ 4 children have fallen out over inheritances
▪ Family Feud became a public affair
▪ Unpaid estate taxes that compounded at 12% p.a.
▪ Even the most prime estate (140 Robinson Rd) that MrChow owned no longer bears the family name. It was sold in 2010 for $175million
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▪ Dilution of wealth is more prominent with Bigger Families
▪ Assuming no further wealth generation from family business, the wealth when passed to 3rd and 4th generation will be miniscule.
The above case study is purely for illustrative purposes.
Multi-Generational Wealth Plan
Mr and Mrs A
Mr B1
Mr C1 Mr C2
Ms B2
Mr C3 Mr C4
Mr B3
Ms C5 Ms C6
Mr B4
Mr C7 Ms C8
Net Worth U$40m
Net WorthU$10m
Net WorthU$5m
Net WorthU$5m
Case Study 3 - Wealth Dilution
▪ By the use of Insurance in a total wealth plan across generations, the wealth dilution effect can be reduced.
The above case study is purely for illustrative purposes.
Multi-Generational Wealth Plan
Mr and Mrs A
U$40m
Mr B1
Mr C1 Mr C2
Ms B2
Mr C3 Mr C4
Mr B3
Ms C5 Ms C6
Mr B4
Mr C7 Ms C8
Keep U$10m*Use U$5m to buy U$15m of life insurance
Keep U$10m*Use U$5m to buy U$15m of life insurance
Wealth Dilution
Keep U$10m*Use U$5m to buy U$15m of life insurance
*($1 buys $3 of death benefit)
Net Worth: U$20m
Use U$20m to buy U$40m of life insurance(U$1 buys U$2 of death benefit)
U$15m U$15m U$15m U$15m
Why the need to plan?
Wealth Creation
Wealth Enhancement
Wealth Protection
Wealth Transfer
Wealth Planning is a Dynamic Process
Wealth Cycle
WealthAccumulation
Wealth Preservation
Wealth Transfer
• Family with dependents
• Financial markets volatility
• Increased concentration risk
• Liabilities
• Key man Risks
Some concerns:
• Retirement needs
• Cross-Border assets
• Inheritance & Estate Taxes
• Business and personal debts
• Business succession
• Lack of legacy planning
• Insufficient liquidity due to prolonged probate process
• Estate Disputes
• Continuity of family business
• Lavish lifestyle of beneficiaries
• Marital issues of children
• Estate equalization
• Complex family structure, blended family planning
• Charitable giving
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Wealth Cycle
Life Insurance as a solution:
• Family Financial Security
• A solution not correlated to financial market volatility
• Asset diversification
• Debt repayment
• Liquidity to business
• Retirement income
• Create liquidity to repay business and family debts
• Generate liquidity to fund tax liabilities
• Cash value accumulation for retirement needs
• Buy-Sell agreement for business
• Estate Equalization – provide for a balanced and equitable legacy to the beneficiaries
• Maintain the family’s standard of living
• Succession planning – set out to minimizes conflicts and dispute within the family
• May avoid probate and publicity
• Maximize donations to charities
WealthAccumulation
Wealth Preservation
Wealth Transfer
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Why the need for Wealth Planning?
▪ One of the greatest risks faced by many HNWIs is the erosion of one’s estate’s value from taxes, creditor’s claims, outstanding liabilities andwealth dilution when wealth is transferred from one generation to another.
▪ Avoid disputes and preserve harmony within the family
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Why Life Insurance in Wealth Transfer Planning?
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$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99
LIFE INSURANCE VS INVESTMENTMale, Non-Smoker, Age 50, Standard
1-Pay Deposit: USD3.0 MillionLife Insurance: 4.00% Crediting Rate, Current Charges
Non-Taxable Investment: 4.00% & 2.00% Rate of Return
Life Insurance Death Benefit Non-Taxable Investment Taxable Investment Life Insurance Account Value
Age 100
Insurance Component
Age 81Age 91
Account Value
Death Benefit
4% investment return
2% investment return
How Universal Life works
Account ValueTotal PremiumUSD 3,000,000
Premium Charge
_
Net Premium
Policy Interest Rates(Current Interest Rate 3.6 - 4.2%)
(Guaranteed Interest Rate 1.5 – 2.5%)
Admin Charge, Cost of
Insurance
_
+▪ Debt Protection▪ Liquidity Planning ▪ Family Protection
BenefitUSD 10,000,000
▪ Full Surrender ▪ Partial Withdrawal
After lifetime:
During Lifetime:
Age Cash Value*
70 4,700,000
80 6,200,000
90 7,700,000
100 10,000,000
*Assumes 4.00% crediting rate
Male, Non-Smoker, 50Yrs
Life Insurance and Family Trust
Family Trust
Settlor: Mr. A
Bank Account
Life Insurance(Insured = Settlor )
Beneficiaries:- Mr. A- Spouse- Children- Grand-children- Relatives- Charities
Other Assets
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Life Insurance and Premium Financing
Trust
Life Policy(Insured = Mr. A)
Net of Loan Death Benefit
ClientMr. A
Premium
Beneficiary
Loan
Bank
Example: 50 years old, Country A resident, Male, Standard health, Non-smoker
Total Premium: USD 3,000,000Loan: USD 2,100,000
Cash Outlay: USD 900,000
Benefits: USD 10,000,000Loan: USD 2,100,000Benefit net of loan: USD 7,900,000 (8.7x)
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UNIVERSAL LIFE– MULTI PAY OPTIONS
Premium
Cash
Surrender
Value
Annual
Premium
Cash
Surrender
Value
Annual
Premium
Cash
Surrender
Value
1 3.00M 2.38M 661K 160K 366K $0 10M
2 - 2.42M 661K 749K 366K 164K 10M
3 - 2.47M 661K 1.36M 366K 465K 10M
4 - 2.52M 661K 2.00M 366K 778K 10M
5 - 2.57M 661K 2.67M 366K 1.10M 10M
10 - 3.09M 2.96M 366K 2.96M 10M
15 - 3.86M - 3.83M 3.83M 10M
20 - 4.63M - 4.68M - 4.68M 10M
30 - 6.20M - 6.24M - 6.24M 10M
40 - 7.70M - 7.75M - 7.75M 10M
Age 100 - 10M - 10M - 10M 10M
Total
Premium3.00M 3.31M 3.66M
Single Premium*
Policy
YearDeath Benefit
5 Pay* 10 Pay*
*Assume current crediting interest rate at 4.00%
Wealth Creation with Life Insurance
(2) Investment portfolio allocation – Insurance plan
Bank accountUSD 10,000,000
PortfolioUSD 10,000,000
Expected return: 5% (Annual investment income
USD 500,000)
(1) Existing investment strategy
Bank accountUSD 10,000,000
PortfolioUSD 10,000,000
Additional family protection
USD 7,000,000
Policy financingUSD 2,100,000
Portfolio Loan ofUSD 900,000
+
Total cost of loan: 3.5%
(USD 105,000 annually)
Expected return: 5% (Annual investment income
USD 500,000)
Allocate portion of the portfolio loan
Covers financing costs with
Investment income
Total Estate: USD17,000,000
Features of Life Insurance
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▪ Large amount of Death Benefit
▪ Permanent coverage for life
▪ Minimum guaranteed cash values for life insurance contract
▪ Flexibility in policy design
▪ Worldwide coverage
▪ Competitive underwriting and pricing
Benefits of Life Insurance
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▪ Provides death proceeds which is a multiple of the initial investments - Leverage
▪ Incorporates assets that are not correlated to the market, currency and/or region
▪ Internal Cash Accumulation in policies which can be accessed during your lifetime
▪ Transfers investment risk to Insurance Company
▪ Ease of distribution if policy is held by a Trust
Wealth Planning with Life Insurance
▪ A life insurance policy can support your wealth plan by providing the liquidity to:
‒ give your family greater financial flexibility;
‒ facilitate the continuity of the operation of family businesses;
‒ ensure inheritance tax liabilities are met and debts are cancelled at death.
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Conclusion
Disclaimer
This presentation, and any accompanying materials are provided for informationalpurposes only and do not constitute an offer or solicitation to purchase lifeinsurance. The information contained herein should not be treated as, legal,investment or tax advice regarding the use of any insurance or financial product orapplication of any particular estate of financial planning technique. An individualwho, relying on this exhibit or any other information disseminated, whether inwriting or orally, acts and/or avoids taking action, assumes sole responsibility forthe outcome resulting there from. The appropriateness of any planning conceptshould be verified independently by the reader’s professional advisors beforeapplying such strategies and techniques to a particular situation. These materialscontain proprietary information and are presented with the understanding that allcontent will remain confidential and the sole property of the author or the author’sauthorized affiliate.
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