Brendan Harper of Friends Provident International discusses the components of an effective estate plan, and explains how individuals and their advisers can implement an appropriate strategy.
Date: Mar 2011
Tags: Wealth transfer, Succession planning, Wills
This has always been an important issue for individuals who have a lot of assets, especially if those assets are spread globally, he said, given the aim of ensuring the money is left in the right hands and at the right time.
Some of the main things for individuals to think about, therefore, include ensuring that their chosen heirs are financially secure after the individual has passed away.
At the same time, Harper said heirs need to be able to gain quick and easy access to the capital. This need often arises to meet financial commitments on the death of a loved one, yet if this capital has not been dealt with and planned for effectively under an estate planning arrangement, it might take months or even years for heirs to gain access.
Finally, he said, it is key for individuals to ensure that the capital is distributed in the manner to which they want.
Components of an effective estate plan
According to Harper, estate plans can be as simple or as complex as an individual dictates with their advisers.
At the most basic level, people should have a will to ensure capital is distributed to the right people at the right time.
After that, he said individuals might like to break up their capital, to leave specific legacies to certain people, or they might want to ensure assets are held in joint names so they pass automatically to the survivor upon death.
As people get wealthier and accumulate larger amounts of capital, Harper said more sophisticated estate planning techniques might be required, such as using private placement insurance in conjunction with a trust to bypass a spouse to transfer directly to children. Or it might be that an individual has an inheritance tax problem in another jurisdiction – in which case people need to build a plan which deals with this as well as gives the right access to heirs, yet without breaching anti-avoidance provisions.
What can go wrong
The main thing which tends to go wrong with estate planning relates to the fact that people ignore it, said Harper, adding that individuals generally don’t like focusing on their own mortality, especially when talking to their advisers.
The big mistake in choosing to ignore it, however, is that by the time it becomes essential it can often be too late.
Another thing which can go wrong, added Harper, is the potential for plans to fail if individuals are not advised properly and the plan has not been set up correctly.
For example, trust structures might be contested in court, or there might be a claim to the capital from individuals who the owner of the capital didn’t perceive as heirs to the estate. Or the plan might not have been set up in a flexible way to keep up with changes in law or taxation.
As a result, he said, individuals must get independent advice and review it on a regular basis.
Helping clients develop appropriate strategies
In Asia, Harper said it is important for advisers to be able to lead gently into conversations about mortality.
Case studies are also a good way to highlight the pitfalls of not preparing a good estate plan, he advised. For example, people who have had personal experience in the challenges arising from there not being an adequate estate plan, for instance upon the death of a parent, are likely to be shaken into some form of action on their own wealth.
