Why Inheriting a Private Property Might be a Headache for the Financially Unprepared

This article was contributed by Wong Kum Soon, Financial Advisory Manager, Financial Alliance Pte Ltd. It first appeared on the Financial Alliance website and has been republished on Nudge with permission. The information herein is for general information only and is not intended to provide legal advice on any general or specific matter.

Instead of focusing on how my financial advice has helped my clients to retire well, I have decided to write about a matter close to my heart that puts a different perspective on things.

Singaporeans love Real Estate. Many pass it from one generation to the next with the belief that property is the safest asset to grow wealth and to be passed on to future generations. And the story begins….

Mr J, married with a pair of twins who are both 18 years old and waiting to enter the National Service. Since the twin boys were born, Mr J’s wife had stopped working to take care of the family. Hence, he became the sole bread winner for many years until recently, when the wife returned to the workforce. Mr J has inherited a Good Class Bungalow (“GCB”) from his father. It is located at one of Singapore’s prime locations. To most of us, we may never have the fortune to ever own a $20 million asset, but wait, like any Korean drama, the plot comes with some unexpected twists and turns.

As the GCB is also a gift to Mr J’s sister, thus, she is also a joint owner. Mr J’s sibling is married to a well-to-do family and was in no rush to sell off the property. Therefore, it was agreed then that the GCB will only be sold when both families’ children become adults and have completed their tertiary education. This leaves Mr J in a financial struggle.

The property tax from the GCB alone is $20,000 per family and Mr J’s rental income from his HDB apartment is barely able to pay the full amount. Other issues of course include the high maintenance cost for a GCB.

Assuming that Mr J had saved annually $20,000 and invested this amount over the last 18 years at a 4% IRR, he would have created whopping $512,908.26 in accumulated funds.
To rub more salt into the wound, his employment contract was not renewed late last year. Thankfully, he managed to find a new job a few months later, but his salary was reduced to one-third of his previous employment.

Moral of the Story

Of course, every sad story has a light at the end of the tunnel. Thankfully, the investment that Mr J had entrusted to me was making profits year-on-year and some of these profits have been used to subsidise his property tax expenses and his HDB mortgage.

He also had some CPF monies which would provide him an annual lifetime payout when he reaches age 65. The only unfortunate part is that he could achieve FIRE – Financial Independence, Retire Early right now if the legacy planning had been done differently. What if the GCB had been held in a Trust that provides an annual income by being rented out instead of being passed on to the children via a Joint Ownership arrangement, which puts unnecessary stress on them in their decision-making? There is a saying 谈钱伤感情 (Feelings get hurt when discussing money matters). In fact, 谈买卖房子也同样伤感情 (Feelings get hurt when discussing a property purchase/sale).

This client’s plight is something I will need to consider in my wealth planning for my clients. If they have a choice, would they prefer their children to achieve FIRE and how would they want to manage their properties when they are no longer around?

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