Creating a lasting legacy to support your loved ones

 

It is estimated that 90%^ of affluent families lose their wealth by the third generation. The economic downturn, low interest rate environment and increased market volatility brought about by the current COVID-19 pandemic, have reinforced a greater need to help your clients get their financial house in order, which includes their legacy plans. A proactive approach is needed to tackle the inevitable obstacles that families may encounter with succession and inter-generational wealth transition. Having an estate plan in place can help prevent your clients’ beneficiaries from dealing with a long, contentious probate process, giving them greater peace of mind when assets remain within the family. Life insurance can ensure a smooth and timely wealth transfer, while creating cash reserves that provide immediate liquidity for estate duty and inheritance tax for equitable distribution, without a loss in value to the next generation.

 

Source:

 ^   https://www.forbes.com/sites/francoisbotha/2019/12/06/multigenerational-wealth-preservation-what-you-need-to-know/#42fe4cb775d8 (best viewed on Chrome) 

 

Key considerations and clients’ needs

 

In different unique situations, clients may have different needs. Some of the common needs that may apply to your clients to help them create a lasting legacy planning through wealth protection and distribution include:

 

  • Assets in a region with political, economic or social instability
  • Assets are tied up in a business 

 

  • Client is a key-person or has key-persons in the company
  • Demise of key-person will affect the company
  • Key person is key to the success of company

 

  • Residing in countries with forced inheritance laws affecting preferred estate distribution
  • Family-owned business where only some children are active
  • Multiple heirs but wealth is  concentrated in a small number of illiquid or indivisible assets

 

 

 

  • Client has plans to build a Trust for tax and succession planning
  • Adequacy of liquid assets to be transferred to the Trust
 
 

How legacy planning can fulfill different needs for key milestones

As a case-in-point, legacy planning has helped one of our high net worth clients, a Singapore citizen aged 69, allocate her wealth and protect her family’s future. The client had invested her inherited wealth from her late husband but her portfolio was badly affected during the early 2016 market sell-off, and she was concerned that the inheritance would diminish significantly. 

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The client wanted a regular income for herself and had planned to grow and pass on her wealth to her future generations. Given her age, she wanted to focus only on conservative investments with capital preservation.

 

A Universal Life insurance policy with Sum Assured of USD 4 Million was proposed, which resulted in the client being able to: 

 

  • Enjoy a comfortable, regular income from conservative returns of investments and drawdown on capital, should her investments under-perform
  • Have an eventual payout from the policy which would replenish all drawdowns and preserve capital for her children
  • Have the option to tap on the cash value in the policy for any unexpected liquidity needs during her lifetime

 

 

Key success factors and takeaways

  • The client was given assurance that her loan interest for premium financing would be well taken care of, as her banker had worked out an investment portfolio so that dividends from the portfolio could comfortably support loan interest payments
  • Given the client’s age and circumstance, she was given a lot of ‘handholding’ by both the banker and PCS by Mercer Consultant which helped to put the client at ease

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