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The Risk – When Your Assets Become Your Estate

Asset retirement

Photo taken in June 2011, Sweden Stockholm, Lake Varnen

 

Singapore does not have Estate Duty Tax but your Foreign assets in US or UK are subject to Estate Duty Tax of up to 40%.

 

Case Study :

Mr Tan – Male, Age 48 (Children : Boy Age 13 & 15, Spouse :  Age 45)

Earning : $300,000/year – Tech Industry

Mr Tan has U.S. Stocks of US$3,000,000 and $250K cash, $300K in CPF with a HDB which is fully paid. His US Stocks are about 70% of his total asset. Mr Tan thinks that if premature death occurred early than expected for him, the US$3 million of stock should be more than enough to take care of his family.

U.S. Estate Duty Tax – 40% on the Assets above the $60,000 exclusion amount.

       

Calculation :-

Mr Tan U.S. Estate Duty Tax Exposure = ($3,000,000 – $60,000)  X 40% = $1,176,000 only

Ans : No, because there is a possibility that Mr Tan may lose more that 40% of his US Stock Value or even put his Family into Debt.

 

Reason :-
  • Presuming Estate Duty Tax is Fixed @ $1,176,000 upon death
  • Death Probate Procedures may take 6 months to 1 years or longer
  • Estimated Cost of engaging a Probate Lawyer in U.S. = $50,000 or more

Lengthy Probate Procedure (from 6 months to 1 year or more) is the next big concern when you are investing in Volatile Assets Class like Stocks, ETFs and Unit Trust.

 

1st Senario :-

Presuming, there is a Global Financial Crisis, 10 months later,

Stock Holdings of $3 million has fallen 50% to
Less Estate Duty Tax
Less Lawyer Fees
Balance                                                                      

: $1,500,000
: $1,176,000
: $ 80,000
: $244,000

Ultimately, what Mr Tan’s family gets back is only $244,000. Thus, in this scenario, Mr Tan loses more than 90% of his US Stock Value.

 

2nd Scenario :-

Presuming, there is a Global Financial Crisis, 10 months later,

 

Stock Holdings of $3 million has fallen 75% to
Less Estate Duty Tax
Less Lawyer Fees
Balance                                                                      

: $750,000
: $1,176,000
: $ 80,000
: – $506,000

In the above 2nd scenario, Mr Tan not only loses all his US shares value, he has also put his family in $506,000 of debts. (Interest will be accrued if the Estate Tax are not being paid)

After the above explanation, my client, Mr Tan, paused for quite a while before asking me – What should he do now to address this area of concern?

I have since implemented a solution for Mr Tan which allows him to continue to grow his US Stocks Portfolio and when he passes on, his family will not be liable for any US Estate Duty Tax. I have also help Mr Tan to set up his Will to reduce the probate period upon his decease.

For Asset Allocation, I have worked out some procedures to progressively reduce Mr Tan’s US Stock exposure and channel them to lower risk retirement products to create perpetual Retirement Income for Risk Mitigation.

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Address :
Phillip Wealth Advisory
230 Victoria Street  #04-01
Bugis Junction Tower
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Contact :
Jonathan Chan : 90-1000-90
Personal Secretary : 84-168-168  (Wan Cheng)

Email :
JC@Advisor4U.com.sg
WanCheng@Advisor4U.com.sg

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