Money Mat­ters

“We all love liv­ing in Malaysia. But how would your fam­ily be im­pacted if you were to die? No mat­ter where you live, death can be ex­pen­sive”

Expatriate Lifestyle - - April -

Ben­jamin Franklin once wrote that only two things in life were cer­tain – death and taxes. But what hap­pens if death and taxes oc­cur si­mul­ta­ne­ously? Although it should be the foun­da­tion on which all other fi­nan­cial plan­ning is built, many peo­ple fail to plan for death, and for the some­times crip­pling tax­a­tion which comes with it.

We all love liv­ing in Malaysia. The cost of liv­ing is low; the weather is warm; and there is won­der­ful food around every cor­ner! But how would your fam­ily be im­pacted if you were to die? No mat­ter where you live, death can be ex­pen­sive, and will typ­i­cally in­clude most of the fol­low­ing: hospi­tal bills, fu­neral expenses, repa­tri­a­tion of re­mains and in­her­i­tance taxes (IHT).

In most cases, you will be li­able for IHT in your coun­try of ci­ti­zen­ship, re­gard­less of where you live, and if you have not un­der­taken the proper plan­ning this tax could be very costly for your heirs. If you leave be­hind a siz­able es­tate, it is im­por­tant to do every­thing you can now to mit­i­gate the ef­fects of in­her­i­tance/es­tate tax later.

Us­ing the UK as an ex­am­ple, a Bri­tish na­tional can pass the pro­ceeds of their es­tate to a Bri­tish spouse free of tax, but there is a “nil rate band” of only £325,000 on monies passed down tax-free to any other ben­e­fi­ciary. Cru­cially for many UK ex­pa­tri­ates in Malaysia, how­ever, “any other ben­e­fi­ciary” also ap­plies to for­eign (nonBri­tish) spouses in the form of a max­i­mum tax-ex­empt trans­fer upon death.

Be­cause even non-domi­ciled in­di­vid­u­als (if res­i­dent in the UK) have a £325,000 nil rate band on UK as­sets, there is an IHT ex­emp­tion for the first £650,000 of an es­tate passed from a UK domi­ciled in­di­vid­ual to their non-uk domi­ciled spouse. A non-dom spouse may also elect to ac­cept UK domi­cil­ity, which means they can in­herit their spouse’s en­tire es­tate free of IHT. But if he/she does that, they could be sub­ject­ing all of their world­wide as­sets over and above £325,000 to 40 per cent tax­a­tion on their own death.

If your fam­ily faces a daunt­ing tax bill when you die, there is one nearly uni­ver­sal way to pro­tect them: life in­sur­ance. While

the laws are slightly nu­anced from coun­try to coun­try, the pro­ceeds of an in­sur­ance con­tract gen­er­ally fall out­side of the es­tate of the de­ceased, there­fore they are free of in­come and in­her­i­tance taxes.

There are three ma­jor types of life in­sur­ance to choose from: whole of life, term life and T100. Whole of life com­bines in­sur­ance with a cash/in­vest­ment el­e­ment, and while pre­mi­ums may be quoted as level through­out your life, the rising cost of in­sur­ance as you age means a steadily in­creas­ing per­cent­age of your cash will be de­pleted to pay for the in­sur­ance. Fur­ther­more, be­cause of the abil­ity to ‘over­load’ the pol­icy with cash or in­vest­ment, all or part of the pro­ceeds of a whole of life pol­icy may ac­tu­ally be taxed.

Of the three, we be­lieve that term life and T100 are the best op­tions, es­pe­cially if the in­sur­ance is safe­guard­ing your es­tate.

Term in­sur­ance is very clear-cut. When ap­ply­ing, you se­lect a sum in­sured and a term in years. As long as you con­tinue with the pre­mi­ums, you are cov­ered for that amount un­til the term ends. There is no cash value, and no re­turn of pre­mi­ums. Be­cause of its sim­pli­fied na­ture, term life is the least ex­pen­sive in­sur­ance you can get.

T100 (or Term-100) is rel­a­tively new to the in­ter­na­tional market, but has been a com­mon pol­icy in Canada for years. T100 is a kind of hy­brid. Like term life, the pre­mi­ums are fixed from day one. Like whole of life, the cov­er­age is per­ma­nent (not lim­ited by a pre-se­lected term), but un­like whole of life, there is no cash/ in­vest­ment. Once the in­sured reaches age 100, the pol­icy will pay out in full.

But the need for life in­sur­ance ex­tends be­yond es­tate tax mit­i­ga­tion. If you are still build­ing your nest egg and have a fam­ily re­ly­ing on your in­come, what would hap­pen to them if some­thing were to hap­pen to you, par­tic­u­larly if your in­come were no longer there to cover the daily liv­ing expenses?

Even if there are no in­her­i­tance taxes to pay, life in­sur­ance pro­vides a tax-free lump sum for your fam­ily and peace of mind for you. EL

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