C.A.P.S CHAPTER SIX

Case Study 1 – Peter, Mary and Elderly Parents
Peter is a loving husband to Mary, and a filial (only) son to his elderly parents. Peter and Mary married recently, and Mary is pregnant with their first child. The family is very close, and the mutual relationships are respectful. Peter’s parents sold their HDB flat and help pay for the down-payment ($100,000) of Peter and Mary’s matrimonial home. As a gesture, Peter and Mary invited Peter’s parents to move in and stay with them. This is a happy family, and Peter’s parents were eagerly waiting their first grandchild to be born. Unfortunately, Peter dies in a road accident. The family is devastated. Peter leaves behind no valid will.

After the funeral, Mary and Peter’s elderly parents sat down to administer Peter’s estate (i.e. assets left behind). Peter’s estate is as follows:
Assets Market Value Ownership Structure
Immovable Movable
Property $800,000 Joint Tenancy(wife)
CPF $ 80,000 No nomination
Life Insurance $100,000 No nomination
Employee Benefit $ 50,000 Estate
Cash @ Bank $ 50,000 Estate
Investments $ 20,000 Estate
Total $800,000 $300,000

Peter’s liability (which must be settled before the net estate can be distributed) is as follows:
Liabilities Outstanding Value Liable Parties
Mortgage Loan $600,000 Wife is Joint & Severally Liable
Total $600,000

As Peter dies without a will, no nominations on CPF and life insurance. Based on the Intestate Succession Act in Singapore, the stakeholders of Peter’s estate are as follows:
Mary (wife) Child (assume born alive subsequently) Parents
Immovable Assets $800,000 Immovable Assets $0 Immovable Assets $0
Movable Assets $150,000 Movable Assets $150,000 Immovable Assets $0
Estate Liabilities
Jointly & Severally Liable $600,000 $0 $0

Outcome of Peter’s Estate
  1. Peter’s share in the property will be distinguished, and Mary (wife) will assume full ownership of the property
  2. Mary will inherit 50% of the movable assets, which is estimated to be $150K.
  3. Mary’s child will inherit 50% of the movable assets, which is estimated to be $150K.
  4. Mary is jointly and severally liable for the $600,000 mortgage loan; and she needs to pay up the loan and she might not have enough liquid assets to discharge the loan.
  5. Peter’s elderly parents inherit nothing from Peter’s estate.

From above example, it clearly demonstrated that Peter’s death creates an outcome which is not acceptable to Peter

  1. Wife is short of liquid cash to pay the bank,
  2. Parents inherit nothing and could potentially be invited out of the house as Mary becomes its sole owner.

This outcome creates problems to the family, which can tantamount to breaking up of family relationships of the surviving family members.

The “What” of Wealth Succession

The “How” of Wealth Succession

The following diagram shows the general wealth succession strategies and reasoning as described above:

Financial Planning Tools – Estate Planning Summary

Just like the rest of the planning processes, it is important to organise and keep track of your wealth succession plan into an estate planning summary

Table 1: Estate Planning Summary

Estate Planning Documents Remarks (Name & Contact Details of Advisers)
1. Insurance Policies,
  1. Policy Number
  2. Insurance Company
  3. Sum Assured
  4. Beneficiary
  5. Trustee (if any)
  6. Name & contact details of advisers
2. CPF
  1. Nominees
3. Will
  1. Executor
  2. Trustee
  3. Guardian (if children is applicable)
  4. Beneficiaries
  5. Name & contact details of advisers
4. LPA • Donee

It is wise to work with a licensed and well-trained adviser to work through these processes.

References

The CAPS Wealth Planning Framework is based on the following references:

  1. The Methodology of Financial Planning from the Chartered Financial Consultant/Singapore (ChFC/S) Course.
  2. The following statutes:
    1. Insurance Act (Cap. 142)
    2. Securities & Futures Act (Cap. 289)
    3. Financial Advisers Act (Cap. 110)
    4. Intestate Succession Act (Cap. 146)
    5. Central Provident Fund Act (Cap. 36)
    6. Wills Act (Cap. 352)
    7. Mental Capacity Act (Cap. 177A)
    8. Bankruptcy Act (Cap. 20)
  3. Singapore Deposit Insurance Corporation Limited (SDIC)
  4. Financial Industry Disputes Resolution (FIDRec)
  5. Insurance and Financial Practitioners Association of Singapore (ifpas)’s Code of Ethics.