One of the most difficult predictions to make is the amount of income you will need for your golden years. This is a critical topic which your professional adviser should discuss with you. He will need to make detailed calculations and come up with an amount sufficient to produce income to last you the remainder of your life. In the majority of cases the principal will depreciate as time goes on because having sufficient capital to enable you to live purely on interest is rare.

This 64,000 dollar question about your financial future has a number of related assumptions which can vary slightly and yet have devastating effects on you.

When you receive projections from most major institutes they usually project future values at fixed rates of 5%, 7% and 9% per annum (pa). But you could be falling into a very significant trap. Achieved growth rates have fallen ominously in recent years and those who assume very high rates are not being realistic about looking after you.

There are also two different types of asset growth. The first is on an investment of a single amount for a set period and the second is a regular savings regime over time. Because dollar cost averaging assists investment growth over a period of time with varying prices, with the latter it is quite common to achieve a higher rate of return. When a lump sum value declines it takes longer to recover.

Many investors also misunderstand the value of growth. If you invest $60,000 today at a compound growth of 5%, in five years’ time it will be worth $77,002. However, if you invest $1,000 monthly for 60 months and achieve a 5% compound growth your pot will be worth $68,289. Same amounts but different timing methods.

Many look at the simple sum and say that $77,002 less $60,000 is $17,002. Divide this by 5 years and the resulting $3,400 represents an average 5.67% pa. In fact it is 5% compounded. On the other hand, $68,289 less $60,000 is $8,289. Divide this by 5 years and you have $1,658 which in simple terms represents 2.76% pa. However, your final instalment has only grown for a single month. Both investments have grown by precisely 5% pa compound growth.

When you estimate that you can live on income of $50,000 pa today, if you take inflation into account this can have a devastating effect on your reserves. If you assume a 4% inflation rate is correct as an average, then your $50,000 requirement today will be $91,015 in fifteen years.

So, if we assume that you require $50,000 pa income today and can achieve 5% return we would need $1mn to generate sufficient income. By the time we get to year 15, with inflation we would need $91,015, which is 9.1% of our $1mn. In today’s world this is extremely difficult.

Computing the amount of assets you need to last your lifetime is a complex and delicate calculation. It depends on three factors: inflation which adds to living costs; growth on your savings; and your projected longevity of life.

Someone may tell you that by saving $1,000 per month for fifteen years, with a growth rate of 7% you will have a nest egg of $318,811. That sounds impressive. However, at a 4% inflation rate it is actually worth $175,142 today. This is still impressive but not quite as much.

Apart from inflation, growth and compounding, what about the commercial viability of pension schemes? The harsh reality is that many of these are slowly going bust. Each year schemes find it more difficult to make ends meet in terms of income, growth and pension pay outs. So, when you get to pension age will there be a scheme left for you?

In the vast majority of cases expats are turning to their own resources and beginning to plan their future in an attempt to create their own private income. Have you actually started to look at the calculations to see if this will be sufficient when you take inflation and growth into account? If not then you ought to go that extra mile. It could mean that you actually need to save and work for longer. Or maybe you will need to live on an income less than you had anticipated. This can be a rude awakening to many. Others simply prefer to hide their heads in the sand and hope the problem will go away.

But at whatever stage you are in your life it is never too late to start to organise, manage and create further assets to assist you as you get older and nearer to living on your own resources.

Questions for Andrew can be directed to PFS International on +662-653-1971 or email viaenquiriesthailand@fsplatinum.com

You can also connect with Andrew on Linkedin here

Andrew Wood has been an expat in Asia for 32 years and is Executive Director with PFS International. He has been writing Net Worth articles for four years and has made a significant contribution to the PFS library of financial service articles dating back over seven years. These articles which cover the complete A-Z of financial planning are available to readers upon request.

1. Reporting - Trustees must notify HMRC of any payments from existing and new QROPS for the first ten years of an individual’s scheme. HMRC wishes to be aware of any illegal payments made by QROPS trustees.
2. New QROPS transfers require an acknowledgement from the member that unauthorised payments will be subject to tax charges. This will preclude pension busters pleading they are unaware of the rules regarding unauthorised drawdowns.
3. QROPS must be recognised as a local pension scheme where they are registered.
4. QROPS benefit payments must be taxed identically for residents and non-residents.  This is controversial and some providers have been disqualified as recognised schemes.
5. Transfers to New Zealand schemes have been restricted to providers who pay benefits in line with HMRC guidelines.

The changes were introduced to stop pension busting. HMRC has always advised that UK deferred pensions transferred to QROPS should be treated in a broadly similar way to the UK schemes they came from, including rules to ensure that the assets were used to provide income for members to sustain them in retirement. However, since the inception of QROPS in 2006, a number of trustees have allowed QROPS members to withdraw the entire amount as a single lump sum payment.

The original regulations provided that trustees had to report payments for individuals in their first five years offshore. Thereafter, “illegal” payments were made. The new rule requires that payments are reported during the first ten years after the transfer to the QROPS.

HMRC also introduced a new rule that residents and non-residents must be taxed identically on benefits paid in the country of the QROPS. Thus as a resident of Thailand, benefits paid from a Guernsey scheme would be free from Guernsey tax as opposed to residents of Guernsey who are taxed. HRMC did not agree with the Guernsey government changing their rules by introducing a new pension scheme untaxed for both residents and non-residents, and simply removed more than 300 schemes from their list. This was highly controversial with Guernsey being a global QROPS leader.

So there now seems to be two main issues related to the introduction of these rules. First, what should you do if you are in a Guernsey based scheme? In fact there is little to be concerned about at this time. It has been confirmed that for existing schemes, benefits will continue to be paid gross of tax. When you die the remaining asset value will be paid in accordance with your beneficiary nomination or letter of wishes to the trustees, free from IHT. Trustees are required to report to HMRC any payments made but if these are above board then there is little to be concerned about.

QROPS were introduced as a result of the EU’s freedom of movement of capital rules. So, if you are living outside the UK and you have exported your pension to a QROPS, should the UK government impose rules on your pension future?

Some argue that if you are able to withdraw your entire pension, you may squander it, returning to the UK to live on the welfare state.

The second and most representative argument is that a UK deferred pension has been created by using UK tax relieved earnings. In transferring the pension to a QROPS you are exporting it outside the UK tax net. UK tax would be payable on any benefits which are taken if your pension remained in the UK. Thus HMRC are saying if benefits are paid tax free, by manipulating and circumnavigating the “system”, then tax would actually be due in the UK on such payments. This is an arguable point.

The methods of taxing such unauthorised benefits are not equitable with the relief which was originally granted. If you receive an unauthorised payment it will result in a UK tax charge of around 55%, whereas you may have actually only received a tax benefit of 25% when the contributions were made.

HMRC has now placed a very watchful eye on all QROPS. If you have not transferred your UK deferred pension yet and wish to do so, you need to heed advice from a well-versed and qualified adviser.

This is difficult these days because there are so many advisers and some are totally unethical and unprofessional. Adviser relationships should not be made quickly and if you are seeking a good professional you will need to have a session with him to ensure you are comfortable with him and his knowledge and ability to offer you holistic advice.

Questions for Andrew can be directed to PFS International on +662-653-1971 or email viaenquiriesthailand@fsplatinum.com

You can also connect with Andrew on Linkedin here

Andrew Wood has been an expat in Asia for 32 years and is Executive Director with PFS International. He has been writing Net Worth articles for four years and has made a significant contribution to the PFS library of financial service articles dating back over seven years. These articles which cover the complete A-Z of financial planning are available to readers upon request.

What should you do to safeguard your investments whilst placing them in a position for future growth?

The key here is portfolio diversification based on your risk appetite and outlook.

A good professional adviser will help you to accurately assess your own attitude to risk. This is tricky if you go it alone. Quizzing yourself how you would react in a situation of fluctuating asset values is essential. Would you find it difficult to accept a reduction? Conversely, if your portfolio grew well would you wonder why you had suffered so much stress along the journey? In either scenario you likely have the wrong investment allocation because you are clearly not comfortable. If you check your portfolio daily you should be reducing your risk allocations.

The most conservative of us are classed as cautious investors. Usually bank deposits are the only acceptable holding and the greatest concern is that the bank will go under. These investors rarely achieve returns that keep up with inflation but do manage to preserve their capital. They do so in the hope that this is sufficient to sustain them through the future.

At the other end of the scale adventurous investors are prepared to take chances most others will shy away from. They are either wealthy and can afford to place portions in high risk with good returns or there is time for losses to be made up from further income savings.

The vast majority have a balanced risk appetite, meaning we fall in a range rather than being at a point in a scale. If 1 is the most cautious and 100 is the most adventurous, then an approximate range of 34 to 66 will be balanced.

If you fall into the balanced area, which portfolio allocations will be wise to consider? Having a sensible spread of asset classes is key. There are arguments for equities but maybe looking for non-correlated assets will compliment this:

Bonds

Often part of a good balanced portfolio and considered an offset against equities. When equities perform poorly, bonds tend to do well. The advantage over bank accounts is that bonds’ base capital can appreciate and they generate income

Non-correlated assets

There are good non correlated funds around right now, unaffected by most asset classes. They include student accommodation unit funds generating income; life settlement funds which buy life insurance policies from individuals, pay premiums and collect insurance proceeds upon death; legal financing funds which make working capital loans to lawyers. The loans are insured so if the cases are lost there is a guaranteed return of base capital. When cases are won the funds can make higher returns.

Income generating funds

These invest almost entirely into a range of companies producing good dividend income without disturbing capital values

Commodities

There are good balanced as well as highly adventurous commodity funds available. Precious metals are considered a good offset to equity declines in any portfolio. Base commodity funds can provide good steady investment over the longer term. Specific commodities can be great investments but tend to be at the higher end of the balanced risk spectrum. Water is often referred to as blue gold in investing terms, whilst oil, or black gold, tends to be a reasonable base commodity for balanced portfolios.

Fixed return funds

These funds can be a very useful addition to your portfolio as they add steady value. They pay a fixed return, but similar to bank deposits this does not mean they are guaranteed. If you invest £10,000 in such a fund for a one year period, you would be paid a fixed return of 6%. If the fund produces 10%, then the fund itself will retain 4%, paying your fixed 6%. What would happen if the fund made less than the fixed return? In some ten years of operation this has never occurred. If it were to happen, the return to the investor would be reduced. As with any investment there is a risk. Undertaking a proper risk assessment is a must.

Equities

Although considered by advisers to be adventurous there are a number of equity options available with less risk than single shares. Managed funds which hold a range of companies can do well. Some funds specialise in income generating equities as mentioned above.

In looking at these types of option you are going to be better off engaging the services of a professional adviser provided they have completed research and due diligence on their selections, giving you the benefit of experience and knowledge of the available options today.

Questions for Andrew can be directed to PFS International on +662-653-1971 or email via enquiriesthailand@fsplatinum.com

You can also connect with Andrew on Linkedin here

Andrew Wood has been an expat in Asia for 32 years and is Executive Director with PFS International. He has been writing Net Worth articles for four years and has made a significant contribution to the PFS library of financial service articles dating back over seven years. These articles which cover the complete A-Z of financial planning are available to readers upon request.

Are you an expat with an investment such as a mutual fund; investment scheme; savings plan; shares; ETF; mini investment bond or full offshore personal portfolio bond? If you are, someone qualified should be looking at it regularly, ensuring it is correctly managed. Using a medical analogy, if something was wrong with you and you needed expert advice, you would not go to a back street doctor. If you have not recently seen an investment specialist for a financial health check-up you should swiftly do so.

Since 2008, the world has changed almost beyond recognition. Experts could once project with some certainty that markets would respond in a defined way to specific events. But since the financial crisis things have gone in any and all directions. The previous realities of investing have changed making it very difficult to predict with any certainty of the past.

Now there are numerous opinions about what will happen in the world. For example, the ‘doom mongers’ believe that the vast majority of assets and currencies are headed for total meltdown and the only asset with any substantial value will be gold. Precious metals certainly have a place in portfolios but whether gold will become the master currency remains to be seen.

Much of the science used in managing your assets is common sense. There are also real factors as well as ‘not so real’ considerations to take into account when interpreting “market sentiments”. Often, baseless rumors emanate from nowhere and short term damage is done.

So, what is the common sense part? Surely to look at the degree of diversity and risk that you are comfortable with. For example, would you have placed your savings in 10% Greek bonds last year? Many investors were concerned that their capital would not be returned. Thus the risk was too high for the majority.

Would you have put your savings in a single equity investment such as BP after their Deep Water Horizon catastrophe? For a while the company looked like facing a great deal of long term trouble but this has now stabilised.

Prior to the financial crisis a new breed of non-correlated assets for risk adverse investors emerged. One of these was a student accommodation fund, making good returns with non-declining assets during the crisis. A sudden substantial redemption demand in 2009 forced the fund to suspend trading and stop redemptions until the situation was resolved; the fund is running smoothly again. However, some expats placed their entire portfolios in this fund and had to wait nearly two years for their money. This demonstrates it is unwise to invest an entire portfolio in a single asset.

These are mere examples of high and low risk and how they can affect you as an expat. With today’s investment universe constantly growing it is becoming increasingly difficult for an individual to access innovative investment solutions. This is just one of the reasons why you should engage a specialist firm which employs qualified personnel. They cannot guarantee to get it right 100% of the time but their qualifications, experience and in-depth research are likely to get it right more times than you.

So, if we assume it is best to diversify across a number of asset classes how should you determine the right mix to satisfy your risk return?

Whereas geographical diversity used to be important to any investment, today it is far less so. The world is shrinking due to globally interconnected markets.

If you study equities the world tends to follow market movements in New York. Oil, gold and other commodities follow their own global trends. Therefore asset classes have become more important to your investments and your personal risk appetite commands which type of asset suits you best.

Should there be a place for equities? It depends on your attitude to risk and the longer term results you expect to achieve. Do you believe that equities will be ahead of current values in five years’ time? Yes? Do you require use of the assets before then? No? If so, there is a case for equities. Even if you require an income, by investing in dividend stocks you may draw this without disturbing the underlying values.

In the vast majority of cases it will also be wise to diversify into commodities, non-correlated assets, maybe bonds and perhaps fixed return holdings which generate higher returns although may be slightly riskier than a bank deposit.

In a fixed return holding the fund manager takes a portion of the risk, being rewarded with any returns above those paid to the investor. Rates for such investments are attractive compared with bank deposits. Currently they are between 5% and 8% depending on currency and term. It would be unwise to pile all your savings into this one asset class but there is certainly a place for a portion without needing to be concerned until maturity.

Questions for Andrew can be directed to PFS International on +662-653-1971 or email via enquiriesthailand@fsplatinum.com

You can also connect with Andrew on Linkedin here

Andrew Wood has been an expat in Asia for 32 years and is Executive Director with PFS International. He has been writing Net Worth articles for four years and has made a significant contribution to the PFS library of financial service articles dating back over seven years. These articles which cover the complete A-Z of financial planning are available to readers upon request.

Living abroad means you need to become financially independent in the country where you reside. Your financial arrangements back home may be totally insufficient for your overall needs because circumstances abroad are so different. Back home we tend to be more narrow minded whereas as expats, out of necessity, we take a more holistic approach to our thinking.

We live in an ever changing world. Just when you think you are all set you are forced to rethink your overall strategy. For example, HMRC recently imposed unexpected operational amendments onto the world of QROPS which temporarily stunned pension providers. These changes, and the subsequent amendments from providers, will be the subject of a separate article in the near future.

In the UK the National Health Service has a new policy of refusing treatment to any person once they have lived abroad for more than three months, without a fixed date of intended return.

Deferred pensions back home, where you have no control over how investments are managed, frequently languish, deteriorate in value and are forgotten. They are neglected by the manager and are usually going nowhere except downward.

Most expats realise the dilemma they face in becoming financially self-sufficient. They build wealth and then have difficulty in managing it successfully, to the point where the reserves they have accumulated may not sustain them in the future.

If you self-manage your offshore investments you likely spend a great deal of time trying to become successful. Others have invested in specific products through so called professional advisers who then neglect any further attention to their clients. They have ailing investments falling way behind in terms of inflation.

Are you one of those who have such an investment plan? You may have found out that its value is less than you had anticipated and if you try to withdraw you are hit by surrender penalties, so whichever way you choose you are going to be a big time loser.

Such an experience may have shredded your confidence in financial advisers. However, there are solutions available and one of the key factors is to find an adviser you can trust. If he is worthy he will know how to use the investment vehicles and offer you the best solutions moving forward. He will offer you ongoing management of your investments and will not let things fall back into neglect. He will guide you through the investment decisions so that you have a clear idea of strategy, target growth and achievable goals.

To get your finances back in shape your adviser may suggest that you restructure your investment into a new portfolio, with much lower charges, greater investment choices and no surrender penalties. When restructured correctly your adviser will be able to arrange for any exit charges to be recovered in full, making the overall cost of the exercise to you zero. If not, you should seek advice from an alternative adviser.

Your adviser should profile your risk appetite and assist you investing consistent with that appetite. If you expect annual growth of 10% but you are a cautious investor your adviser will let you know that these two factors currently do not gel. Therefore the risk profile is important and will help the adviser understand you and your objectives, fears and attitude toward risk.

It is also very important that your adviser understands your overall situation so that he can offer you holistic advice. I once met an expat who was discussing his specific portfolio of some $250,000. He was risk adverse and his portfolio had lost some 20%. But when we explored further he revealed this was only a relatively small part of his overall net worth of some $5.8m. After lengthy discussions we agreed that this specific portfolio should be placed in adventurous holdings because the remaining assets were actually producing good results in their cautious and balanced strategies. It was relevant to invest this part in higher risk areas to try and make up for the losses already suffered. This strategy worked very well and the investor was happy with the results.

Your adviser should be meeting you on a number of occasions, explaining his thinking and the strategies he is intending to employ with you. This should be an open discussion and it would be wise for you to question and challenge him so that you both have an understanding of each other, feel comfortable and can agree on the overall approach.

The relationship is very important and having an adviser and confidante rather than a product pushing salesman is imperative. Your adviser ought to be a long term addition to your financial planning.

There are many neglected investments held by expats and they are often falling into decay because of disregard. Get a second opinion and make sure you are one of those who do not suffer as a result of such neglect.

Questions for Andrew can be directed to PFS International on +662-653-1971 or email via enquiriesthailand@fsplatinum.com

You can also connect with Andrew on Linkedin here

Andrew Wood has been an expat in Asia for 32 years and is Executive Director with PFS International. He has been writing Net Worth articles for four years and has made a significant contribution to the PFS library of financial service articles dating back over seven years. These articles which cover the complete A-Z of financial planning are available to readers upon request.

Bank accounts are essential. We use them for convenience, to keep our cash safe and manage personal finances. Cash is available via ATM machines for everyday expenses.

Most expats bank accounts in different locations. If you live in Asia you will probably have an account where you live, although there can be restrictions. In Thailand a work permit or a retirement visa makes it relatively easy to open an account. Others are often refused by the bank they approach. I am told that it is legal for such expats to have accounts but depends on which bank and branch you apply to.

Expats rarely completely cut ties with their home country so they most likely have an account there, too. These are useful to receive local income, avoiding high costs from international transactions or FX conversions when not wishing to do so.

The same applies to offshore locations where we often have a financial connection. Perhaps we own property in another country preferring to match local rent income with running costs. We may also hold various currencies, wishing to preserve their value in tax havens feeding offshore investment vehicles if so desired.

Having accounts in various locations and currencies affords convenience and relatively easy financial management. Have you considered the costs of maintaining your accounts? These can be very high indeed all told.

Have you also weighed up the counterparty risk of banks? Some expats held accounts with Icelandic banks in 2008 because they paid higher interest. These banks collapsed during the financial crisis, leaving depositors with significant losses. There was also Lehman Brothers bank driving home the point that this happens to any bank.

Mike is a British expat in Thailand with a number of accounts in various locations. He owns property in Australia, UK and Singapore and maintains accounts there to receive rents and pay bills. He also banks in the Isle of Man because he has investments there and keeps reserves in USD, GBP and EUR. Many banks in America, the UK and Europe would be unable to easily transfer money around the world for him via internet banking.

Mike works in Thailand with accounts at two banks, for savings and salary receipts/payment of local bills. He did work in Malaysia, leaving behind a relatively small balance in an account he forgot to close.

Mike found that banks often offer debit cards, also for ATM withdrawals. So debit cards were issued for most of his accounts.

Mike was shocked when we assessed the necessity for each account and actual costs incurred. Many transactions cost the equivalent of USD45 each. He had forgotten this when moving funds around unnecessarily.

When he needs cash he just opens his wallet and uses the first ATM card in view. This racks up high transaction costs and even higher random forex costs. For example, in Australia last month he had to withdraw from his GBP account as he had forgotten his AUD card. This cost heavily in fees and currency exchange.

We added up the costs of his banking over a year and Mike was astonished that the charges had totaled some USD4,700. His account in Malaysia was empty as a monthly service charge had eaten the balance away. Similarly in Isle of Man, service charges had been applied to low balance accounts whilst other currency balances with the same bank were much higher. The interest Mike had accrued was less than USD500 to offset his charges.

Had he used his investment vehicles more wisely with available cash the entire costs plus a surplus would have been achieved.

Mike has now completed his banking review, closed the unnecessary accounts and manages his ATM cards and cash with each bank efficiently.

In conducting his review he evaluated the strength of his banks resolving to change some. He was not an account holder with Lehman Brothers or any Icelandic bank and has no desire to experience a bank collapse.

Do you regularly review your banking arrangements? Do you have accounts which are dormant costing you fees and charges? Are you managing your cash to ensure you get the best value for money from your accounts? Perhaps it is time you made an analysis and assessed your situation to confirm your arrangements are sound.

Questions for Andrew can be directed to PFS International on +662-653-1971 or email via enquiriesthailand@fsplatinum.com

You can also connect with Andrew on Linkedin here

Andrew Wood has been an expat in Asia for 32 years and is Executive Director with PFS International. He has been writing Net Worth articles for four years and has made a significant contribution to the PFS library of financial service articles dating back over seven years. These articles which cover the complete A-Z of financial planning are available to readers upon request.

The Concept

Many expats are intransigent about the fact that they have changed their lifestyle to that of a foreign land. We often do not make allowances for being visitors where we live, respecting local culture. We must realise that we need to be independent when planning our financial future.

“Failing to plan is actually really planning to fail”

The Challenges

Take a close look at the overall picture in planning your future financial needs. There are many economic and commercial challenges today. 25 and 50 years ago it was similar. Remember the good old days? Well they are actually happening today.

Get to grips with what inflation means for you and how you can combat this with the power of compound growth. See a financial adviser and let him help you calculate the numbers so you can see the real challenges.

Wealth Creation

Start your wealth creation plan now. Some expats feel they have accumulated sufficient wealth but they are often mistaken. A solid base is good to build on but maybe you need to add further to that base.

Wealth Preservation

Once you have some wealth the key is to protect and make it work for you. People view the same assets in different risk categories. Many see blue chip shares as balanced or safe.

A financial adviser will tell you equities are adventurous. If you disagree look back to almost any share in 2008. Your risk appetite defines your return relative to various asset classes.

Asset Allocation

If you have a lump sum your strategy should be different from pumping new money into investments. Dollar cost averaging into the markets with regular contributions works well in adventurous areas over time.

The Importance of Property

Property is a unique asset. Land supply can hardly be expanded. Property provides our homes and is something we can see and appreciate as well as useful. Once you have realised this you may wish to reach out further adding more property to your portfolio, creating income and capital appreciation.

Asset Diversity

Always take a commercial view of investment assets. Viewing a share subjectively is dangerous to your portfolio. Spread your portfolio over different asset classes diversifying risk. Broadening asset classes to non-correlated areas is a good idea.

Personal Risk Management

Protect yourself against catastrophe. Being disabled makes coping with life difficult. You will become a significant burden on the financial plan. You will stop creating wealth and drain your resources. If you leave loved ones behind with insufficient financial protection they may end up struggling.

Awareness of the Journey

Begin with the end in mind; adjust your plans accordingly as you go. Being ahead of the game will result in achieving early financial independence. No matter what ensure you consider things other expats ignore. Taxation, succession planning and self-protection are some.

Pension Planning

As you journey through, consider your pension and start to plan for what you will need in a practical sense. Review provisions made so far; calculate the retirement shortfall; remember that life expectancy is ever extending.

Succession Planning

Make there are provisions for your estate when you die. Probate is often ignored at the expense of your beneficiaries. Inheritance tax can be painful to beneficiaries and some careful planning now, ensures diminished future problems.

The Use of Trusts

Trusts are a good way of planning for inheritance tax, affording great flexibility in succession planning. Trusts also allow you to keep assets away from potential attacks and prying eyes. Confidentiality can be a great relief to your heirs.

The ‘business of living life’ really is a genuine business, requiring commercial skill and adept thinking. For those who tend to be narrow-minded about their situation there will be future shocks and regret when realising more careful planning would have been prudent. I stress it is never too late to review your situation and make changes to improve the future. Get a free financial health check and some no obligation free discussions on your future.

Questions for Andrew can be directed to PFS International on +662-653-1971 or email via enquiriesthailand@fsplatinum.com

You can also connect with Andrew on Linkedin here

Andrew Wood has been an expat in Asia for 32 years and is Executive Director with PFS International. He has been writing Net Worth articles for four years and has made a significant contribution to the PFS library of financial service articles dating back over seven years. These articles which cover the complete A-Z of financial planning are available to readers upon request.

Trusts are also a layer of protection from the taxman. He will want his share of your estate in the form of inheritance taxes (IHT). This issue has mixed conclusions because it largely depends on your country of domicile and whether that tax regime charges estates with IHT. The vast majority of jurisdictions do have rules about inheritance and whether assets from an estate are subject to death taxes or perhaps to tax on income or capital gain, to be levied on the beneficiaries of the estate.

The vast majority of expats have assets in a number of jurisdictions. Probate is the authority given by the probate court to the estate executors, allowing them to administrate the estate and distribute the assets to the beneficiaries. When you die, probate is required for each jurisdiction in which you own assets, before the executors of your estate may administrate the assets. There is always a tie up here between the jurisdictions and there will always be a referral back to your assumed domicile via your passport.

This fact makes succession planning essential and estate administration more complex than for most non-expats living in their country of origin and domicile. An expat often leaves his or her beneficiaries without access to the means to live because probate takes such a long time to obtain from the different countries in which it is required. If IHT is payable in these countries probate is withheld until such taxes have been resolved. This can leave your family in a situation where they spend years without being able to access any money at all from your estate.

By properly planning and using trusts to your full advantage you may successfully remove the assets you settle into trust from your eventual estate after your death. This will reduce the amount on which IHT is charged. By planning very carefully you will often be able to eliminate the IHT altogether.

By enrolling the assistance of a professional adviser you will be able to streamline the situation and ensure that you plan the process properly, minimising any taxes which may have been due had you taken no action. Your adviser will be able to show you ways that may allow your beneficiaries to receive money very quickly to keep them going. This can be achieved through whole of life assurance policies with beneficiary nominations, which avert the need to obtain probate.

The remainder of your assets can then be considered and, where necessary, settled into appropriate trusts. These actions remove your ownership of the assets in favour of the trustees so that when you die the trust assets are not included in your estate. These assets are then not subject to probate and will also not be assessable for IHT.

You should also note that because the assets are owned by the trustees they are not necessarily automatically passed to your heirs upon your death. You write a letter of wishes to your trustees advising them what you would like to happen in certain events. These events may be your death or a number of situations which occur either during or after your lifetime.

The use of trusts requires very careful planning to ensure that they comply with the rules and laws of your country of domicile and your country of residence. For example, Thailand does not recognise trusts under Thai law. However, even though you live in Thailand you are able to transfer assets into a trust outside Thailand, provided the assets are not physically situated in Thailand itself.

There are further ways of dealing with Thailand based assets but these can be complex and require bespoke planning. In looking at other possible jurisdictions, where assets may be settled into trust, there may be a number of different types utilised to suit the individual circumstances.

The best way to deal with your own situation is to discuss this with an adviser.

Questions for Andrew can be directed to PFS International on +662-653-1971 or email via enquiriesthailand@fsplatinum.com

You can also connect with Andrew on Linkedin here

Andrew Wood has been an expat in Asia for 32 years and is Executive Director with PFS International. He has been writing Net Worth articles for four years and has made a significant contribution to the PFS library of financial service articles dating back over seven years. These articles which cover the complete A-Z of financial planning are available to readers upon request.

There has been considerable feedback with the single most popular theme being that of trusts. This matter was last raised in Net Worth on 11 March 2012 “Journeying Through Your Financial Life Plan”. The section on succession planning in that article dealt with some of the ways in which trusts may be effective for many expats and particularly in their succession planning efforts. The main interests lie in how trusts add security and value to their settlor and beneficiaries and of their practical use in everyday life.

Trusts are not just a way of completing an effective succession plan. Yes, they do have that use when you pass away, leaving assets to be dealt with for known and unknown beneficiaries, such as unborn grandchildren but there is more to a trust that that.

So, what is a trust? It is an agreement between the Settlor, who will be yourself passing assets into the trust, and the trustees, whom you have chosen to care for your assets. The trustees accept the assets and actually legally own them. They agree to care for them acting in such a way as to hold them for the benefit of the beneficiaries you name in the trust agreement.

See also Net Worth 7 November 2010 “The Usefulness of Trusts”; 14 November 2010 “How Trusts May Benefit You”.

As part of the process you issue a letter to the trustees outlining your intended wishes in the event of certain circumstances occurring. These are commonly your death but may also be other events you name such as divorce, contracting serious life changing diseases, such as Alzheimer’s, beneficiaries reaching specific ages, or even passing away themselves. Then there may be the addition of children as beneficiaries in future generations.

Trustees will need to be very reliable from your perspective. These days you may appoint professional trustees to act in these positions and, in doing so, you would be given the comfort that your assets would not be mismanaged, lost or squandered. Professional organisations exist which specialise in such matters. Your assets are held in separate accounts or investment vehicles so that if the trustees were to experience financial disasters themselves the segregated trust assets would be protected from such events.

In addition you may appoint a protector who would oversee the management of the trust and ensure that fair play was always maintained. This could be a person of your choosing which would ensure that you would have an influential effect on actions taken by the trustees. A protector has the right to veto any action taken by the trustees.

Much of the recent feedback was directed at trust operations and focused on potential Settlors feeling uncomfortable about giving their assets away.  Other questions centred around the reasons for the establishment a trust.

Your ‘express wishes’ are one of the key reasons for a trust to exist. In a will you may generally only state that assets should pass to named beneficiaries as they exist at the time of your death. Very little scope exists for specifying other factors you may wish to take into account at the time or after your death within the confines of a will.

Let’s look at some real examples of potential circumstances. Say you have children and wish for provision to be made for them as well as your spouse. You may specify in your letter of wishes that when you die your spouse would receive an income to maintain a good standard of living when living future life. Let us assume that this is your Asian wife who has an extended family of siblings and parents. If you simply left all your assets to her in a will she may suffer from hostile approaches by these family members asking for gifts and investments into start-up businesses from her inheritance. These could be so substantial that the inheritance quickly evaporates, leaving nothing for your wife and children in the future. In this example the trust protects your widow from unwanted predators who she finds difficult to refuse.

Assets settled into a trust are subject to a letter of wishes from you to the trustees stating that upon your death your wife would not receive any capital sums. However, she may receive an income sufficient to provide living expenses for her remaining life. You may also wish to add a rider that such income would cease in the event she remarried. After that perhaps your children would inherit the residue assets from the trust. Or you may extend the income facility for the children also. This would protect both your wife and your children from potential “attacks” on the assets by the extended family.

We can extend this further by thinking of other circumstances. Let’s say that your daughter is coerced into a marriage with someone you disapprove of. If you left assets to her in your will they would become hers in her own right after your death. Your undesirable son-in-law could then stage-manage a divorce where he would claim half these inherited assets for himself. However, if you again specified that your daughter receive an income rather than the actual assets the son-in law would have no access to these assets as they would be owned by the trustees.

We could extend this even further and assume that you also have a second daughter who is disabled and requires constant medical attention. With assets in trust you could specify in your letter of wishes that the disabled daughter be afforded priority in caring and medical expenses before the other daughter receives any income or asset distribution.

In considering carefully the potential circumstances which could occur in the future you are able to cover each event and even make provisions for circumstances which may occur but have not as yet.

Some of the queries which have been sent also ask about the use of the assets for you as the Settlor during your own lifetime. For example, after you retire how would you draw an income from assets you have accumulated and settled into the trust? You may name yourself as a beneficiary and then you will be allowed to draw income and capital amounts in order to sustain your ongoing living expenses. Yes the assets are not owned by you. Yes you would need to request such withdrawals from the trustees. Today these matters are common situations which have been envisaged and would thus be perfectly feasible.

Once you die the letter of wishes would be used to ascertain what action should be taken next. The next stage of your succession plan would come into force.

Bear in mind that trustees usually have discretion to take action on matters which would genuinely vary from the original plan. For example you have specified that your wife be given an income but she requires some expensive medical treatment to save her life, the trustees would have the discretion to allow such expenses to be paid from the trust assets.

Trusts can be very useful options to satisfy a number of different requirements for your lifetime and during the years following your death. However, they are also subject to specific rules and laws affecting use of the assets depending on your nationality; place of residence; domicile; current tax status and sometimes other factors. It is therefore essential you carefully consider any kind of trust planning with a professional adviser so that you do not trip over some of the pitfalls which exist.

Questions for Andrew can be directed to PFS International on +662-653-1971 or email via enquiriesthailand@fsplatinum.com

You can also connect with Andrew on Linkedin here

Andrew Wood has been an expat in Asia for 32 years and is Executive Director with PFS International. He has been writing Net Worth articles for four years and has made a significant contribution to the PFS library of financial service articles dating back over seven years. These articles which cover the complete A-Z of financial planning are available to readers upon request.

Despite those who say they will just die and never retire, everyone usually gets to a point when they either prefer to stop working or they are forced to do so because of health reasons. So, for the majority who really do not have their heads buried in the sand, getting to the point of financial freedom is important.

There are some major factors to consider:

1. Capital preservation
2. Expenditure requirements
3. Income produced
4. The effects of inflation
5. Far reaching time goals

As with most aspects of life planning people have different attitudes and ideas about what and when they want it, and what they can actually achieve.

I met John, an expat, who said he had a million dollars and could thus retire. That is probably correct if his parameters fit his planning. I asked how much income he needed annually and he said about $40,000 which may seem quite reasonable today.

John thought that his cost of living in Thailand was inflating by 6%pa. So, his $40,000 this year would actually be $171,675 for just one year’s living in 25 years. As John is 50 today he will be 75 then and certainly not an old man. We considered his entire situation some more and agreed to adjust inflation to 4%pa. He would still need $106,633pa at age 75. What a significant effect small rate differences make. But John has to rethink carefully because he cannot choose what inflation will be. It is what it is and none of us can change that.

We then started to look at what might happen if John dipped into his capital as well as drawing the income generated. We agreed on growth of 5%. Certainly a bank deposit is not going to generate that sort of income so investment alternatives are the only way to go here.

In the table you will see that John will actually exhaust his capital over time because his requirement for income is ever increasing with inflation. Using 4% inflation this will happen when he reaches age 78 and at 6% inflation age 73.

There are actually several parameters to consider for a solution. These will be the age from which you will need to draw income; the income you will require to live on; inflation; the growth rate you can achieve and any changes which may occur.

You are certainly able to choose when you stop working. Inflation rates are out of our hands and growth rates are subject to market. The nest egg you accumulate will also have a significant effect on the longevity of your wealth. Thus retiring a little later has a two-fold effect: first it gives you longer to accumulate wealth and secondly you need to fund a shorter retirement period.

Another significant factor is the value of the growth generated within your investment. Whilst it is nonsensical to say you can achieve a 15% income today, there are alternatives. If they generate income this will increase as inflation does, even if not at the same rate. A growing income would also leave possibilities for the base capital value to grow as well.

Equities are a relatively aggressive asset class and so perhaps you would wish to limit your exposure. It may also be wise to invest in a fund rather than specific equities because funds tend to invest in a range of equities and are managed on your behalf.

Another possibility is the long term strength of property. This asset class invariably creates an income and has a growing underlying asset value.

One relatively new asset class is direct ownership of student accommodation units in UK university towns. A management company or the university itself runs the property whilst you enjoy the net rental income. This asset will have future increasing growth to its capital value and the income will increase in line with inflation.

There are certainly ways in which you can manage your life savings to ensure they generate a reasonable income for you to enjoy as well as preserving their underlying value for the future. Careful planning now will ensure that you are not one of the “pensioners” trapped here trying to live on a fixed income whilst inflation and exchange rates work against you.

Questions for Andrew can be directed to PFS International on +662-653-1971 or email via enquiriesthailand@fsplatinum.com

You can also connect with Andrew on Linkedin here

Andrew Wood has been an expat in Asia for 32 years and is Executive Director with PFS International. He has been writing Net Worth articles for four years and has made a significant contribution to the PFS library of financial service articles dating back over seven years. These articles which cover the complete A-Z of financial planning are available to readers upon request.