Wealth transfer is a term used to describe the distribution of money and assets from one individual to another, or a group of individuals. It typically occurs after the death of the person whose wealth is being distributed.
For the ultra-rich, the process of wealth distribution may start well before death, because in this case, the wealth distribution exercise could be complex, especially if family businesses or heirlooms are involved.
However, individuals from all walks of life should look into some form of planning on how their wealth will be distributed upon death.
To us, wealth transfer is about the smooth transition of wealth through multiple generations. It involves protecting your wealth to ensure that your progeny enjoys what you have worked hard for.
This is because wealth transfer is not just about giving away the money in your bank accounts. Beneficiaries from life insurance, retirement plans, and other assets also receive money that must be planned for. One can designate in a will to whom items like houses, cars, and material possessions will go to. The entirety of what makes up a person's wealth should be accounted for prior to death.
Keeping in mind that every family is different, we believe that ultimately, wealth should be safeguarded and managed, such that the many successive generations that follow will grow their inheritance rather than fritter it away.
The broader interpretation of the concept entails ensuring the needful is seen to, before thinking about the extras.
For the average person, this would include adequate provisions for all liabilities, even before thinking about lifestyle preservation and other matters of inheritance. As far as possible, ensure that your debt is not handed down in case it turns into a multi-generational burden.
The last thing you want is for your family to worry about never-ending phone calls and letters demanding payment, taking on additional loans to pay off your debts.
It is crucial that your wealth transfer plan includes ways to address any debt.
Take a step back and assess your current living expenses and the financial needs of your dependents (are your children still in school or planning to study overseas?), what outstanding loans you have (how could it be paid for in the event of your death?) and if the income from your investments will prove sufficient as a source of financial support to the family.
Ensure that your credit card bills are paid for or would be paid for and that your loved ones are not in danger of losing the roof over their heads due to their inability to manage the mortgage payments on the home.
Some of you may be "asset rich, but cash poor", with much of your wealth locked up in illiquid assets like real estate, collectibles, businesses and even complex financial assets that may take time to unwind.
In such cases, you may find it difficult to ensure that wealth is equally distributed among your loved ones upon death. It may also take your loved ones time to sell these assets. There may be special circumstances where you want the next generation to hold on to assets for familial or sentimental reasons instead of liquidating them.
Conflicting goals can be another important challenge. For instance, you may like to retire comfortably and yet have enough to pass on to the next generation. However, what if it means that to do one, you may have to sacrifice the other?
Often, such concerns can be addressed via several insurance plans where you can nominate various individuals as beneficiaries upon your death.
There are insurance plans too that allow the sum assured from the policy to be distributed sooner to your beneficiaries. This helps them to tide over their immediate needs while your assets are being unwound.Such plans however, can be expensive.
Customers with certain pre-existing health conditions may find it difficult to consider wealth transfer through the use of insurance, as they may not pass the medical underwriting.
For such circumstances, look for plans that do not require completion of a medical questionnaire, as these are the most appropriate.
Plans are not static
Wealth transfer plans are never static; circumstances and financial situations change and your plans have to keep up with the changes.
Schedule regular and comprehensive follow-up appointments with your financial planner to ensure your plans are on track. Look into how your wealth transfer plans can be complemented with a carefully considered and planned will.
Always ensure that the plan is tailored to suit your financial situation, needs and goals.
Source: OCBC Bank Website. Reproduced with permission. View original source.