Getting Your Finances in Order

The best gift one can leave one's family should the worst happen is a headache-free process to deal with one's asset distribution after death

My grandfather passed away three decades ago. In many ways he was the archetypal Chinese patriarch: multiple families in different cities, and his wish was for his assets to go to the male heirs, with the majority to the eldest son. While my mother was the eldest child, as a daughter, she inherited next to nothing. He never discussed his assets with anyone, least of all his wife, and never wanted to confront his own mortality, finally passing away with no planning whatsoever.

Modern thinking on asset distribution has become more equal amongst sons and daughters. But one thing still hasn’t changed, the unwillingness to plan for the eventual end. After my grandfather’s death, a notebook was found listing out all the people that he had lent money to. Of course, with no legal documentation, all these debts went unpaid.

On the assets, it took over a decade for the probate courts in Hong Kong to find bank accounts all over the world and to distribute them to my grandmother. And even after all this time, there is still a building in Macau which, due to Macau’s archaic succession laws and that there was no Will, cannot be transferred to the heirs as some of them have in turn also passed away and has fallen into disrepair.

All of this caused many problems and immense stress to my grandmother, but she thankfully had her many children to help her. Despite examples like this, many still do not plan ahead since thinking about one’s mortality is a difficult topic to face but is a must if you do not wish to leave a mess for your family.

In our business, we emphasise that before even thinking about creating an investment portfolio, a good asset structure and succession plan need to be put in place. The more complicated the assets (especially when it includes assets in different countries and hard-to-value assets like a business), the more important this is.

Below is a simplified list of the five most important steps to take to protect your assets.

Have a will in every geographical jurisdiction where you hold assets – probates can take years to sort out, and during the process, the heirs may not be able to use the assets until all the legal proceedings have been completed. In our experience, less than 20% of investors have done this, but it is an essential part of one’s estate planning. These wills need to be reviewed every 3-5 years to ensure your intentions and situation remain properly addressed.
Your spouse and children may not be the best people to be your executors – it is common to appoint a family member to be the executor of a Will. When the estate is simple, say an investment portfolio, cash, and the primary residence, this is usually not a problem. When it is more complex, are you sure your spouse or children can handle overseas legal paperwork and negotiating sales of assets? On average an executor of an estate across multiple jurisdictions spends over 570 hours in the whole process.
Be aware of applicable estate duties – for example, we all know that the US is one of the world’s most onerous jurisdictions for taxes. US shares are considered US assets irrespective of the nationality and residency of the owner, and therefore subject to US estate duties upon death.
Complete your Advanced Medical Directives and Lasting Power of Attorneys – The COVID pandemic has made many people re-assess their life goals, as well as the risk of falling ill. The Singapore government has done a great service in creating these directives in the unfortunate event of a terminal illness or incapacitation. Do you own your primary residence in joint-name with your spouse? What happens if one of you is incapacitated and unable to sign a document to sell the property? What if your spouse or children need access to your bank account in order to cover the costs of your medical emergencies, and you’re unable to instruct the bank yourself? In the event of a terminal illness or falling into a coma, do you really want to give the burden to your spouse and children of deciding whether to spend all your savings in keeping you alive, or to switch off the respirator? Contact your doctor to have these executed.
Last, but definitely not least, have a succession plan that ensures family harmony – money is at the source of most family arguments. The bigger the estate, the more bitter the arguments. There are far too many cases that become public when heirs fight over inheritances, in some cases extreme ones like the 2015 double murder and suicide of Taiwan’s Huang family over the Mayfull Foods inheritance. While this was an extreme case, children fighting in court and not speaking to each other is a very common occurrence. Achieving family harmony around money is easier said than done, especially when there are deep disagreements between generations, and needs to be tailored to each individual situation.

Confronting one’s mortality is a difficult thing and is often postponed until it is too late. The COVID pandemic has made many of us re-assess our life goals, but should also make us realise how fragile life is, especially as the new variants are infecting younger demographics as well. The best gift one can leave their family should the worst happen is a headache-free dealing of its finances.

By LEONARDO DRAGO

Co-founder of AL Wealth Partners, an independent Singapore-based company providing investment and fund management services to endowments and family offices, and wealth-advisory services to accredited individual investors.