To highlight the importance of financial planning and its relevance to the ordinary man-in-the-street, I want to cite a real life example of a tragic case in which a 87 years old grandmother was forced out of the HDB flat by her grandson. The related newspaper article from Straits Times Man goes to court to get grandma out of his flat. The case is summarized as follows:
- Mr. Chee Han Meng divorced his wife in 1990. His ex-wife brought up their only son, Garry Chee then only six, elsewhere.
- In the meantime, Mr. Chee Han Meng lived with his mother Madam Foo in a 3-room HDB flat at Bedok Reservoir.
- In April 2006, Mr. Chee Han Meng died of cancer at age of 49. It appears he died intestate (i.e. no Will). Since he had no spouse (divorced) but one issue, his only son, Garry Chee, inherited the entire estate. There was only $900 of CPF monies which if there was no nomination would also be distributed according to intestate law. Thus, the same son inherited everything.
- For life insurance policies, Mr. Chee Han Meng was insured for $53,000 (I suspect part of it was DPS), which if there was no nomination would be inherited by Garry Chee as well. According to the newspaper report, this amount was claimed by an aunt on grounds of looking after the elder Mr. Chee.
- The largest asset was the 3-room flat. Since Mr. Chee Han Meng held the flat under his own name, this estate was inherited by Garry Chee as there was no Will.
- Madam Foo contested this indicating that the flat actually was held in trust by the late Mr. Chee Han Meng on her behalf. The court did not think otherwise and ruled in favor of Garry Chee to be the sole beneficiary of the HDB flat.
- Mr. Garry Chee, a 25 years old young man now, wants to sell the flat to study in Australia. Since Madam Foo refused to leave the flat, Mr. Garry Chee took his 87 years old grandmother to court for contempt-of-court charge.
This case appeared in the newspaper in 2 June 2009. No news was heard since. I hope that the family has settled the issue. But there are many things we can learn from this tragic story. This is especially so since this can happen to anyone including you and me. Here are some issues which a professional financial planner could have helped:
- At the age of 49, the decease only had $900 in CPF money and $53,000 in life insurance policies. So he appeared to be quite poor. However, with a basic eldershield, the monthly payout might have defrayed some of the cost of being looked after by the aunt during his last days. Of course this assumed the elder Mr. Chee meets the definition of unable to perform 3 out of the 6 daily activities.
- With a good as-charged shield plan, perhaps Mr. Chee Han Meng might have lived longer and sought better treatment. Of course I am just speculating this but for us who are reading this, it will be quite important to have a shield plan which we can rely on for the best medical treatment in the event of such illness.
- The $53,000 of life insurance payout was too little. I suspect part of it was probably from Dependent Protection Scheme (DPS). However, if he had bought a cheap term insurance for additional coverage, it would have been just a dirt cheap premium insuring a high sum assured. This could have been used to create an estate so that his dependents could use.
- The crux of the matter was that the elder Mr. Chee died without a Will. If he had made a Will naming his mother as the beneficiary of the HDB flat, this tragic would not have happened. It is very likely that writing a Will was the last thing he had in mind.
As I think about the situation, writing a simple Will may not been enough. Since there is a high chance of the 87 years old lady not able to manage the affairs of her own finances, the elder Mr. Chee could have setup a testamentary trust to hold movable and immovable assets on behalf of the Madam Foo so that she can live in the flat and having her living expenses provided for from the trust. For a HDB flat, the transfer to a trust requires prior approval from the authority. For private property, approval is not required.
Perhaps some people think that only the rich can afford the cost of writing a Will and having a trust. This is not true. For example, the lack of money can be created through estate creation technique by using a plan vanilla term insurance. However, many financial advisers refuse to sell this because the commission is negative after deducting for the adviser’s time and effort. Also, by my estimate and based on the clients I have met, the average family (consisting of two spouses and two children) are overpaying their insurance premiums by as much as $10,000 per year per family. This is enough to setup 3 “full-blown high end” private trusts to be managed by a professional trust company! Or put it another way, that overpayment can have a Will written every month and there is still spare cash at the end of the year!
So what has this news article to do with you and me? It has everything related to you because this can happen to you. For example, your children could end up being kicked out of their home if you don’t plan in the event you are no longer around. Most parents would buy insurance to cover all debts and to provide a lump sum for their children if the sole breadwinner dies. But exactly how are these lump sums going to be utilized for their children? Also do you know exactly how are the insurance proceeds going to be paid up for your mortgage? What is the exact procedure and who is responsible for these payments? Can your 10 years old child inherit your HDB flat if you pass way? If you do not know exact answers to these questions, your children could indeed end up having nowhere to stay and get nothing out of your insurance proceeds. Financial planning isn’t completed when you don’t even know the actual practical steps to enforce what you have plan for your family. Of course the same argument is applicable to any of your dependents - be it your non-working spouse, retired parents and young children.
If financial planning is so important, why is it that 99% (my estimate) of people do not do it? There are only two reasons: 99% are ignorant and 99% of financial advisers do not wish to learn as there is no commission to earn. Ignorance by itself is not wrong since everyone is born ignorant in everything. However, continuous ignorance due to refusal to learn is totally wrong.
Therefore, start reading up now and equipped yourself with knowledge because nobody will take care of you if you do not.
This blog first appeared at CPF's IM$avvy / IMSavvy website:http://www.cpf.gov.sg/imsavvy/blog_post.asp?postid=705642960-69-9720880388
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