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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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