The following story is based on an actual series of events, with some names and circumstances fictionalised. Any similarity to any person’s name, character, or history is coincidental and unintentional. It is about who protects your insurance money.
Heng could not help but feel emotional as he saw little Tim at the playground without a care in the world. His thoughts were how Tim meant the world to his late sister and that she is weeping in heaven now that all the insurance monies meant for him is gone.
A cruel twist of fate had robbed Tim of what is rightfully his.
Being a single parent, June is ever careful of making sure that there is something for Tim in the event that something happens to her. She dutifully took up a life insurance policy which will serve to provide for Tim’s living expenses and education when she is not around.
Putting Ownself As Trustee, Who Protects Your Insurance Money?
But little did she realise that by naming herself as trustee in the insurance policy, she started a chain of events that made Tim an innocent victim of circumstances. Poor Tim.
Not well versed in insurance matters, she just followed the norm to name herself as trustee. June who had come to terms with her terminal illness and had got Heng’s consent to be Tim’s guardian, was at peace in her final days thinking that Tim’s welfare would be well taken care of, financially as well.
After the funeral, Heng set about to handle June’s financial matters. It was only after submitting for insurance claims did Heng learn of an oversight by June which turned out to be a costly mistake.
Heng was told that since the policy owner had passed away, the nominee in the policy will be the trustee. However, for that to happen, the nominee must be at least 18 years old and not incapacitated mentally.
Read: The Amazing Reconciliation Of Father And Son, And This Reflected Inside The Will
Who Protects Your Insurance Money, When The Nominee Is Not Yet 18?
Then comes the hard question of who protects your insurance money? Since Tim is not 18, the trustee will be his surviving parent, which is in this case is his father, who left both mother and child some time ago.
Heng knows that once the money reaches his hands, Tim would never see it again. If she had known, June would have appointed a new trustee – an individual or a trust company who can hold this insurance money for Tim until he grows up.
This is reaffirmed by the new Financial Services Act (FSA) which repealed the Insurance Act and made it invalid for the policy owner to be trustee of the insurance policy. Those who named themselves as trustee even prior to the FSA coming into force would have to change trustees for complete protection of the money.
As this is a common situation, the best solution for a single parent to protect their insurance monies from ending up with an unintended person or used for unintended purpose would be through the setting up of a Single Parent Trust.
In June’s situation, she can easily set up this trust by assigning the life insurance policy to the licensed trust company. This will enable the trustee to claim the insurance proceeds upon her death or disability.
Read: Special Needs Trust: I’m Nobody’s Child
Setting Up A Trust Deed
She could provide instructions to the trustee through a trust deed, for example; to cover her medical expenses if she is critically ill, for scheduled payments for Tim’s living expenses and education, thus ensuring that his needs will be provided for as she would have wished for him.
In this manner, she is also rest assured that another problem is averted – an inheritance being squandered away in the hands of a young heir who is inexperienced in handling a large sum of money so early in life.
A trust is indeed a viable approach to ensure total protection of insurance monies to be utilized according to one’s wishes. It is also an advantage to have a trust company as trustee instead of an individual as the trust company is impartial and is duty bound to follow the terms and conditions in the trust deed whereas an individual may not be so compliant with regard to other people’s money.
The perpetuity of a trust company is also another advantage as a natural person is liable to die, fall ill, meet with an accident and be in capacitated, become of unsound mind or go bankrupt. At least you will have a peace of mind, knowing that there’s an organisation who protects your insurance money.
Read: Bob’s Dilemma: How To Convert Highly Illiquid Assets To More Liquid And Easily Realisable
About Rockwills International Group
Rockwills International Group, now in its 28th year, pioneered professional will writing in 1995 and has since evolved into the leading estate planning specialist in the country. It is today the largest provider of solutions and support services in the areas of trusts, succession, management and distribution of wealth. It has done over 300,000 wills and 16,000 trusts and holds more than RM25 billion in assets under trust.
