Financial Planning

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By Shirley Cheung

As we reach retirement age, it is advisable to start early on devising a holistic financial plan, including arrangements for yourselves and your spouse, the allocation of assets and your legacy. This would serve to protect yourselves as well as your family members, and ensure there is no question about the inheritance of assets which may, if not handled carefully, would leave behind nothing but regrets.

The following main principles should be considered in financial planning:

Risk management: There are many personal risks beyond our control in later life. These include serious illness or accident which causes your medical expenses to surge, and worse still, to eat into your pension. Therefore, to prepare for the unexpected, it is advisable to shift this financial risk to an insurance company and protect the assets which you now own. This will also ensure that your family members can have the funds from the insurance right away to cover the expenses or taxations on assets (such as inheritance tax in foreign countries) during the initial period when the assets are frozen.
Maintain a balanced assets allocation: keep a reasonable ratio between movable and immovable properties; ensure that there is a sufficient amount of disposable cash to meet daily and contingent expenses, hence avoiding the need to sell assets at an unreasonably low price and at an inappropriate time.
Reasonable rate of return: Assets should be managed under the principle of prudent financial management. The aim is to preserve capital and resist against inflation, while ensuring a steady source of income that can serve as a pension. Investments should be easy to operate and avoid high-risk products.
Taxation issues: If you own properties overseas, you should learn about the local tax regime and rates. You should find out whether or not inheritance tax is imposed, and how to calculate the tax rate. In general, the successor will have to pay the inheritance tax within a specified period of time before they can inherit the assets. In addition, the successor should have the financial means to pay for their own expenses in the first place, otherwise, they could be forced to sell the assets at unreasonably low prices to pay the taxes.
Give clear instructions: Set up an enduring power of attorney (EPA) for appointing attorney(s) and specifying how your assets should be used. The authorized person(s) should be someone whom you can trust, and preferably an independent person without vested interest. The will or family trust which comes into effect after one's death should be clear as to how the inheritance is to be distributed, while treating 'harmony in the family' as the primary objective.
Family precepts and philosophies as part of the inheritance: You may write about your expectations on the children and grandchildren, the pursuit of the meaning of life, any ideals and wisdoms to be followed by the future generations of your families -- as the final words for your kins.

Financial Planning

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Inheritance: the final part of financial planning, and the quintessence of one's life

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