Leave a legacy for your loved ones
In this third instalment of a six-part series brought to you by Tokio Marine Life Insurance Singapore, we explore the concept of legacy planning.
We all want our loved ones to be well taken care of, even after we're no longer around.
One way to do that is by passing on one's wealth to the next generation through a legacy-planning-specific insurance policy.
But what does the concept involve and how should one decide on an appropriate, purposeful plan?
My Paper spoke to Ms Michelle Teo, a financial-planning director at Tokio Marine Life Insurance Singapore, and asked her to shed some light on the topic.
What is legacy planning?
In the financial-planning arena, the term "legacy" commonly refers to the money or property bequeathed to a party in a will.
Legacy planning involves a process of identifying, defining, preserving and distributing or transferring a person's wealth in a deliberate manner. It allows you to pass on what is most important to your loved ones for many generations to come.
Who is likely to require legacy planning?
Legacy planning is no longer discussed only by the rich and famous.
As long as you desire to make a difference to someone else financially, you can devise a legacy plan to make that desire a reality.
What are some of the considerations one should keep in mind when constructing a financial legacy plan?
The topmost priority of a legacy plan is financial security for yourself and your loved ones. You are best able to continue to give or provide when you are financially secure.
So, you may want to consider taking a closer look at your personal portfolio. Also, prepare for health-care needs as this can have a significant impact on your finances.
Preservation of wealth
As the plan is developed, you would want to consider if the strategy would put your assets at risk under certain circumstances. The sharp decline in asset prices in the recent economic downturn brought home this realisation to many people.
The who, what, when and how
Establish goals for transferring or distributing wealth to your loved ones. Often, the spouse and children are the first beneficiaries to the wealth. There may also be grandchildren and even charities as recipients of the wealth.
If you are a business owner, you would want to consider who should be the successor to your business.
You'd want to consider how much each beneficiary is to receive from the estate and when you want them to receive it.
There are non-financial aspects to legacy planning as well, such as constructing a will or setting up a trust to protect assets from creditors. Some clients may engage the services of a financial consultant, lawyer and accountant to support the process.
When should one start thinking about legacy planning?
In purchasing a life-insurance policy, an estate is immediately created.
This comes about when the policy owner dies and the life-insurance policy pays out the insured sum of money, which forms part of the estate of the deceased.
This estate is the wealth that can be distributed.
Time and again, we see family members fight over the estate of the deceased. On many occasions, the disharmony stems from unequal wealth distribution.
While some cases are due to deliberate wishes and acts of the deceased, it is good to understand that insurance policies also create liquidity to support an equitable wealth distribution.
For more information on the types of insurance available, speak to your preferred adviser or visit www.tokiomarine-life.sg