What Happens to Assets of Incapacitated Person? (Part II)

What Happens to Assets of Incapacitated Person? (Part II)

 

Last month we discussed on the topic of incapacitated property owner and the legal difficulties surrounding the issue. This month, we will look into what the property owners and family members can do prior to and after the unfortunate event of incapacitation.

To recap, incapacitated person generally means person who has undergone unfortunate event that either caused them to lose sanity of mind, or physical impairment that ultimately resulted in limitations to make their own decision.

Normally, the assets will be maintained just as it were prior to the occurrence of the incapacitation. Our family member cannot simply think that they have inherited the rights or duty to help us to make conscious decision for us on how to manage our assets when one became incapacitated. Having said that, you cannot sign on behalf of your spouse who was incapacitated even though you have a medical officer certified on the condition. I have helped a client completed a permanent disability life insurance claim before, in doing that, we had to get the thumbprint of the incapacitated person in place of signature, the spouse could not help to sign on behalf despite the obvious close relationship.

Do the Right Thing Right
It is obvious and simple, but yet many people has failed to do this right, the first thing everyone who still healthy now can do is to do planning for insurance, especially have adequate coverage for critical illness and medical coverage. Looking at this topic that we are discussing now, hope that people will also aware that the total permanent disability coverage do carry certain significance as normally the TPD coverage is linked with death coverage, and most people have a blind spot thinking that because “I do not have family, I am alone, therefore I do not need to have life insurance coverage”.

You may not have to worry about leaving behind a chunk of money to your family should you pass away, but what happen when the dread event is only TPD, or critical illness? Since you have no family member to care, it also means you are likely to have no one to rely on during this rainy day. Hence it is only wise for us to have some funds prepared to carry us through financially through this sort of events, and insurance is the best tool to use for such planning.

Know Your Objective
Do not use insurance product with aim for investment, but merely for protection. Having done this right and properly, dependents and family will be better off while they are already emotionally drained and tasked with dealings of such misfortunate events, at least the financial burden side is not as heavy. Another advantage is that claimed proceed from life insurance is creditor proof.

Declaration of Trust
Secondly, when one is healthy, one should set up a declaration of trust. It means setting up of a trust when one is healthy, and become the trustee for the trust while appointing a trust company to be backup trustee when triggered event happen.

This trust is unique in the sense that prior to the triggered event, all the wealth and assets do not have to be transferred into the trust first, it allows the settlor (trust settler) to still retain control on how to manage the assets and wealth; when the triggered event (death, mental incapacity, TPD, critical illness), the backup (or substitute) trustee will step in and becomes the trustee and distribute the assets inside the trust according to the trust deed outlined by the settlor before the occurrence of the triggered event, ie. Distributing assets to named beneficiaries etc.

Now, what kind of assets can we use in a declaration of trust? Can we put into the trust assets that are still under encumbrance? The answer is yes, so, assets from real estate, money in bank account, shares, unit trust funds, etc can all be part of a declaration of trust. An alternative to a declaration of trust is living trust. A living trust can provide the benefits outlined earlier, but the settlor will have to transfer the asset into the trust at the point of time where the trust was being set up, which means losing out on the control of the assets. Therefore, a declaration of trust will be more suitable for this kind of planning.

What is a Durable Power of Attorney?
If you have a brain disease that gets worse over time (such as Parkinson’s disease or Alzheimer’s disease), you may wish to create and sign the DPOA (Durable Power of Attorney) papers early in the illness.Once you have signed a living will and DPOA, keep them in a safe place. Do not put them in a safe deposit box because others may not have access to them when the documents are needed. It is a good idea to discuss your wishes with your friends, family members, and your healthcare provider.

Give these people copies of your living will or DPOA-HC (Durable Power of Attorney for HealthCare). Then they will have easy access to the documents if they are needed.

I have written my Will, what else?
Many people will have a misconception that when it comes to estate planning, it means writing a will. Actually, writing a will is only a small part of estate planning, albeit it is a very important and critical part. But for a comprehensive estate plan to work, it may involve use of trust, sometimes, testamentary trust (setting up only after death), or living trust, or it may involve the use of power of attorney; of course, what solutions or how the estate plan design should be, it all boils down to the situation of the client and what are the intention of the clients is.

What can We Claim from SOCSO and EPF?
In addition, i can share more on what people can commonly look at here, under Employees Social Security Act 1969, when a member becomes invalidated, he or she can get payment of benefits introduced under Invalidity Pension Scheme provided their income does not exceed RM3,000 and are below 55 years old. One thing worth to pointed out here, it will be The Medical Board but not the Social Security Appellate Board who will determine the invalidity of employee.

Furthermore, an employee also entitled to get disablement benefits, which divided between permanent or temporary disabled. Also, invalidity means a serious disease or disablement of a permanent nature that is either incurable or not likely to be cured, as a result of which an employee is unable to earn at least 1/3 of what a normally able person could earn, and it also covers heart attack, kidney failure, cancer, mental illness, chronic asthma and other similar conditions are chronic ailments or diseases that could be considered for invalidity.

On another note, if conditions are fulfilled, one can also seek to claim incapacitation withdrawal from your KWSP account and in addition to that, you will receive an incapacitation benefit amounting to one-off payment of RM 5,000.

However, the conditions are not as lenient as one would expect it to be however, the applicant must be younger than 55 year old when KWSP receive the application, and must not be working, have savings in KWSP account, ability to provide evidence of medical record by Doctor, and also have to attend interview session prior to knowing if the application will be approved.

Regarding cases and numbers related to mental incapacitation are on the rise one part is that we are culturally lacking the awareness of consulting with psychologist or psychiatrist, be open to communicate on our personal stress and pressure with loved one, their supports could mean a world when we are facing mental stress, do not let it develop into serious issue.

Think Twice Before Being Adventurous
On physical impairment and critical illness, stay healthy and live a balanced lifestyle, sometimes it means think twice before we decided to do something that is exciting such as participating in extreme sports, or ensure we have done proper planning to deal with the consequences.

Who can i rely on for a comprehensive estate plan?
At VKA Wealth Planners, we will conduct our first line defense by conducting a comprehensive Financial Plan for our client. By doing such processes, we are able to identify areas of financial concerns and find ways to address them before it happens. It will limit or even address most of the financial concerns we talk about earlier.

As financial planners we always advocate preparation before such major disability occurs. Different scenarios have to be discussed to simulate possible financial stress to the family and assets. With a proper financial plan in place, client will be much prepared to face situations like these because the finances are not tied up but more money can be released to the family members to carry on their daily living.

The above was an interview on the topic in Property Insights Malaysia and published on March 2015 issue as a follow up story to the Feb 2015 issue (Click here to read it)

What Happen to Assets of Incapacitated Person? by Kevin Neoh What Happen to Assets of Incapacitated Person? by Kevin Neoh

What Happen to Assets of Incapacitated Person? (Part I)

What Happen to Assets of Incapacitated Person? (Part I)

Generally, according to act such as Income Tax Act, “incapacitated person” means a minor or a person adjudged under any law to be in a state of unsoundness of mind, whereas for some circumstances, we may use incapacitated to refer to “persons with disabilities” include those who have long term physical, mental, intellectual or sensory impairments which in interaction with various barriers may hinder their full and effective participation in society.

However, in any given instances, incapacitated person generally means person who has undergone unfortunate event that either caused them to lose sanity of mind, or physical impairment that ultimately resulted activity limitations.

Normally, the assets will be maintained just as it were prior to the occurrence of the incapacitation. Our family member cannot simply think that they have inherited the rights or duty to help us to make conscious decision for us on how to manage our assets when one became incapacitated. Having said that, you cannot sign on behalf of your spouse who was incapacitated even though you have a medical officer certified on the condition. I have helped a client completed a permanent disability life insurance claim before, in doing that, we had to get the thumbprint of the incapacitated person in place of signature, the spouse could not help to sign on behalf despite the obvious close relationship.

All movable and immovable assets shall remain in the ownership of the incapacitated, thus rendering them in passive state. Any stock investment will be riding the volatility and next of kin can only watch in pain as the family wealth shrink in a falling market.

Many people have not thought about this consequences but it will be hugely impactful and could be worse than the event of death because at least we could distribute the assets to the beneficiaries in that case.

Power Of Attorney (POA)
Power of Attorney (POA) is a legal document where the principal appoint an agent to act on the principal behalf to deal with certain things and scope that will be outlined in the document. Related to healthcare and incapacitation, a special type of power of attorney that is used frequently is the “durable” power of attorney. A durable power of attorney (DPOA) differs from a traditional power of attorney in that it continues the agency relationship beyond the incapacity of the principal. Most often, durable powers of attorney are created to deal with decisions involving either property management or health care. One can use durable power of attorney to appoint a family member or friend to make medical decisions if one cannot make them for him. Of course, you must be legally competent at the time you sign a DPOA for it to be legal.

If the incapacitation is on physical impairment or disability then you will pretty much still have a say on how to handle your stuffs, but if it is related to mental incapacitation, then of course the patient will not be able to make informed and sound decision as he or she is of unsound mind. Interestingly, even if the incapacitated person who are of unsound mind had the awareness and wrote a will in that condition, the will would not stand and assets are going to be ‘frozen’ as well since no one could do anything to those assets.

The assets will still be at its status quo, as of prior to the unfortunate event. Next of kin also cannot do anything to ‘represent’ the patient to do any decision on how to manage the asset, unless there was a power of attorney signed prior to this.

A will is a legal document. For it to be valid, some conditions must be fulfilled. For instance, there must be two witness (who are not the beneficiaries of the will), and more importantly, the person who write the will (Testator) must be in sound mind. A person can be conscious, have awareness, but he may not be having a sound mind and be able to make independent decision and thought process, if such is the situation, the will will not be valid if it is challenged because the Will is resulted from someone who is not able to think independently and logically.

What’s In My Mortgage Agreement?
Obviously,  liabilities of the incapacitated person will continue to be liable against his wealth and capacity. Generally, in our mortgage agreement there is a clause stating “any legal limitation, incapacity or the borrower or the power of any attorney, partner, agent, or other person purporting to act on behalf of the borrower or irregularity in such borrowing or the incurring of such liabilities shall not affect the borrower’s liabilities under this agreement”. So, someone has to come out to help on the repayment, or that most conveniently and wiser way is that there will be insurance proceed that is planned for the purpose of debt cancellation, if the incapacitation has its root in being permanently disabled or due to critical illnesses such as cancer.

If the properties are still under encumbrance, such as mortgaged to a bank, then the bank may execute its rights and execute its power of attorney to foretell the property and recover the bank’s stake in it, should the repayment ceases.

If the property is not mortgaged to bank, then it means the part-owner will have to be stuck to the property for good until the other part-owner who is incapacitated regain the capacity or pass away (and that shareholding will be inherited by the beneficiary, who may cause some challenges to the part-owner, such as objecting to sale of the property, or insisting to have the right to reside in that property since they hold equitable share of the said property).

If the property is shared, and mortgaged to bank, then the part-owner will have to make sure the repayment will continue to be made or the property will be repossessed or simply, be force-sell, if the proceed from foreclosure exceed the total debt, the balance will have to be divided and share among the part-owner and the other owner who is now incapacitated. Therefore, it is imperative that we have a properly planned debt cancellation program such as MRTA or MLTA in place.

Cases and numbers related to mental incapacitation are on the rise one part is that we are culturally lacking the awareness of consulting with psychologist or psychiatrist, be open to communicate on our personal stress and pressure with loved one, their supports could mean a world when we are facing mental stress, do not let it develop into serious issue.

The obvious one, consult medical advisor, and the not so obvious but equally important one, consult a legal advisor as well as financial planner, both will be able to help you to deal with different aspect of the problems.

Under financial planning practices, we will conduct our first line defense by conducting a comprehensive Financial Plan for our client. By doing such processes, we are able to identify areas of financial concerns and find ways to address them before it happens. It will limit or even address most of the financial concerns we talk about earlier.

Read more next month to understand what property owner and their family member can do to prepare themselves before to or after the onset of such unfortunate event. (Click here for the follow up story)

The above was an interview on the topic in Property Insights Malaysia and published on Feb 2015 issue.

What Happen to Assets of Incapacitated Person? by Kevin Neoh What Happen to Assets of Incapacitated Person? by Kevin Neoh What Happen to Assets of Incapacitated Person? by Kevin Neoh

Why is the Client-First Belief so important to me?

Why is the Client-First Belief so important to me?

I don’t really know how stubborn is an ox, or a mule, but i know i am stubborn.

My stubbornness is validated when it comes to manifest my belief about always putting the client first.

And i will stand firm to make sure that this will not be compromised even when someone comes to me presenting an opportunity for me to conclude a transaction that will add on to the profitability of my practice as an Independent Financial Advisor (IFA).

First thing first, i believe that it is imperative for me to care for the client’s best interest and always putting it on top of the list because my work requires that i have a duty to care, a fiduciary so to speak. As such, i would like to believe wholeheartedly that clients not only come to me for purchasing of financial product or for advise as to what products suits to their objective and unique situation, but they have come to me for professional advice which should be unbiased to begin with.

Since the day i decided to get involved in the financial services industry, i have knew that i am stepping into this not with the anticipation to be rich or be wealthy by making high volume of transactions; but instead, making the right transactions.

Right in the sense that, it is right for the clients, which may not always be right for profitability.

But it is not easy, i discovered that the system was put in place to encourage a more sales-focused culture than client centric culture. Perhaps that is why we see sales quotas, promotion quotas, maintenance quotas, sales contests, promotion campaigns etc, these are means to promote efficiency in sales turnover and sales generation.

But hey, i was lucky and blessed, that i managed to still fulfil the maintenance quotas to stay in the business; i said i am blessed because i managed to get enough people whose need and objective actually fitted into what i could do for them, which essentially means i was able to do it by not compromising the client-first promise. But then, if you could get pass the quota by doing good, you might still find it frustrating sometimes as most of the advisors out there would be tied to a Single product provider, which would limited the choice of products and solutions they would be able to design for the client. This was when i started to tell certain clients and prospective clients that they had to go find someone from some other firm to buy something from them, which with better hindsight today, i realised might not really be the best for the client as they might got someone who had a strong persuasive skill that eventually swung their decision to buy something else that would be entirely different from my recommendation.

Difference between Independent Financial Advisor (IFA) and Tied Financial Advisor (TFA)

I call this a Tied Financial Advisor (TFA). In case you have not noticed, the product provider that each of us has a contract to as an agent, these product providers are the principal to the agent, not the client. In an Agent-Principal relationship, ideally, the agent should actually put the best interest of their principal on top of the priority list. If we come to this, it means i have not been a good agent, as i put the benefits and best interest of my clients above the principal.

So, i was like a double agent back then.

Well, things are different now. I have completed the certification requirement by Malaysian regulators and Malaysia’s Financial Services Act 2013, and obtained the various licenses required to become a practicing Independent Financial Advisor (IFA). With this licenses, i feel like i am alive. The idea of becoming independent is that you are no longer handcuffed to someone, or having to rely for anything.

Now, i can give out recommendations to my client and at the same time tell them how the execution can be completed, as well as how the solution can be structured together, by having the whole universe of products and tools available in the market, be it Malaysia, or offshore to choose from, of course, the selection criteria is determined by client’s planning objective and goals.

Well, it simply means i have to make good use of the ‘power’ i have, and continue to protect my belief and raising financial literacy of Malaysian, even it means having to stay more bullish than an ox!

Protect Your Money with InvestSmart Mobile App

Protect Your Money with InvestSmart Mobile App

Securities Commissions of Malaysia (SC) has recently launched a mobile app to empower financial consumer in Malaysia to take control of their personal life, at least financially in control.

This is kind of an exciting development and this move is certainly a very smart move, given that smartphones have transformed how we engage in our daily lives, and how we benefit from using mobile app to simplify our daily activities. This app that is launched by SC is available in Apple App Store for devices running iOS mobile operating system and Google Play for phones running Android operating system.

We would like to share with the readers on our hands on experience with the App.

This is how the landing page looks, the elegant design surely is telling sign that we can expect great features from the app. As you can see, we can choose the language, either English, or Bahasa Malaysia

InvestSmart mobile app landing page

After you have chosen the language, you will see the list of rich function and task this app can perform for us. The most notably and intriguing one for any financial consumer maybe will be the “Is this a genuine investment?”

Menu of InvestSmart Mobile App

When we click into this function, we will have to answer a few questions to ‘screen’ whether an investment opportunity that being offered to us is genuine, or more likely will end up being a scam.  Below is one of the question that will be asked. Take note that after we answered a particular question, the ‘thermometer’ on the right hand side will see its level raised or maintain as status quo, when it rise to Warning level, it means we should really pull hand brake on the scheme. InvestSmart mobile app help us smell scam.One function i find very useful for lay man on the street is none other than the Financial Calculator function. This calculator can help user to do two tasks:

  • Calculate how our investment will grow over time.
  • Calculate what is the ‘cost’ we end up paying when investing in mutual funds.

We just need to key in a few variables, and the app will automatically display the answers we are dying to know.  Yes, it is quite easy to use, not rocket science at all.


photo 4
We can also make full use of the app to find out what organisations or bodies are governing a particular investment scheme, such as Bank Negara Malaysia, Companies Commission Malaysia, Securities Commissions Malaysia, Private Pension Administrator, just to name a few. We can find out what body govern a particular financial products, as well as the contacts, complaint channel for consumer should we want to lodge complaint or seek for help.

Yes, the market place is swamped by many financial predators, ie. people who are hunting for our money, people who are potentially harming your financial well-being, such as those who tell you they are “Financial Planner”, “Wealth Planner”, “Life Planner”, “Financial Consultant” etc. Actually, if you know it, Financial planning is a regulated activity, and only people who are licensed by the Securities Commissions Malaysia (SC) are allowed to provide financial planning services and financial advice. Therefore, be careful whenever someone handed you their name card and you read a “Financial Consultant” designation printed on it, do not get over excited, instead, check out whether they are licensed under the law. By having this app, you have no excuse to say that you do not know how or where to validate someone’s licensing, because you can do so via this app. You only need to ask for this ONE thing from the person, ie. Full name as of NRIC, and you can validate it. If you do not want to hand over your financial destiny to someone who is not licensed, then do it at your own risk.

Using InvestSmart mobile app, we can check if a Financial Planner is licensed under the law.

So, instead of still reading review on this app, why not take a tour yourself? You can download it from App Store, or Google Play.

Tips for responsible financial management

Tips for responsible financial management

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It is always ideal and essential that before you move on with any of your investment plan and bid ambitious money-making idea, try make sure that you have had your back covered.

Do not regard this as an unwelcome distractions or delay to your planning, in fact, this should be dealt with as the first step to any other dreams that followed.

Despite the well accepted fact that everybody’s circumstances are uniquely different from one another, but in general, each of us should do the following:

  • Establish an emergency fund
  • Ensure sufficient insurance coverage is in place for your dependents in the event of death or at the onset of critical illness.
  • Ensure you and your partner have wills on how your estate should be distributed in event of death.


Emergency Fund

Set aside or follow a disciplined effort to built up an emergency fund that is sufficient to cover at least 6 months of your income, so that you will not feel nervous or helpless during sickness, retrenchment, or when looking out for new job after resigning. This emergency fund should be kept in deposit or money market account which will give ease of liquidity when it is needed. With an adequate emergency fund backing up, things could not go too wrong as you have buffer to support you through the rough tide.


Insurance Coverage
Just sit down and imagine that you have stop breathing yesterday. How much is needed to settle your debt today, eg. mortgage, credit card, PTPTN, Hire-Purchase, etc. How will your dependent continue to survive without much challenge and hurdle financially especially if you are the breadwinner in the family or the person who bring home a big portion of the household income is you? If you were to become ill long term, how much of your current income or savings can continue to support you and family, for how long? Just ensure that, if at all possible, you will have at least this amount of life insurance coverage in place. Also, ensure that you have a basic medical insurance in place, so that your emergency fund and hard-earned savings will not be wiped out overnight by hefty hospital bill.

You may seek the help of licensed financial advisor to have a personalized insurance solution for you, as they will be able to integrate plans from different companies to cater to your unique need.


Will
s

A will is a legal document which sets out who is to benefit from your property and possessions (your estate) after your death. There are a number of ways of making a will but, to be on the safe side, it is advised that you ask a licensed financial advisor on how your wills should be drafted in order to cater to your unique situation and wishes.

It is important to have a Will in place as if you were to die ‘intestate’ (ie without having made a will), there is a danger that your assets
will not end up in the hands of those that you would have wished to have them, not to mention that it will take relatively longer time for the court to issue clearance order.

Depending on your circumstances, you may wish to include guardianship arrangements in your will so that, in the event that your children are left parentless, there will be someone to take care of them: you obviously need to get the agreement of the people you intend to name as guardian(s) beforehand.


This may conflict with your priority of achieving your goals but, by building up this financial cushion (and maintaining it), you will protect yourself in the event of things going wrong and in a better position to work out alternatives, and you will be able to focus on the next step with peace of mind.