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Family Money

Personal Directions

The Doctor's Consultation by Dr. Iain Corness

Agony Column

Camera Class by Snapshot

Family Money: Estate Duties & You - Part 2

By Leslie Wright,
Managing director of Westminster Portfolio Services (Thailand) Ltd.

Tax-Free Gifts

Last week we started looking at how inheritance tax can affect you and your heirs.

I am frequently asked questions on this issue, which can be complex in its ramifications for individual estate planners, no two of whom have the same situation or solutions.

For instance, I was recently asked how to avoid inheritance tax (IHT) on the sale of a house situated in the UK worth about ฃ1 million, where the beneficiaries would be the client’s non-UK domiciled spouse and their three children.

If she were UK-domiciled, she could inherit the whole estate without any IHT liability. The client could therefore leave up to £255,000 (current nil-rate band) to the three children, and his wife (even if they were separated but still married) could inherit the rest with no immediate tax liability (although when she dies, IHT will become due on any amount above the nil-rate band as it then stands.)

But if she is non-UK domiciled – e.g., Thai in this case – then she can only inherit £55,000 above the nil-rate band without incurring IHT. So the client can only leave her a tax-free maximum of £310,000 (and the children nothing), or divvy up the nil-rate band to the children and leave her only £55,000 – or any permutation of these figures.

PETS

Of course, many people need most of their available cash simply to generate an income big enough to live on comfortably once they are retired. If you feel secure and well provided-for, and have capital to spare, then a certain amount each year can be given away as potentially-exempt transfers (PETS). This means that if you survive for seven years after making the gift, the taxman will not count it as part of your estate on your death.

If you don’t live a further seven years, however, that gift (plus any other PETS that you’ve made within the past seven years) will have ‘failed’ – which means their value (at the time they were handed over as gifts) will be added to your estate. But you cannot be worse off by making PETS because if you die within seven years then you will be liable to IHT on those assets as if you had never given them away. Sometimes your estate is; in fact, better off as the value of the asset in question is frozen at the time the gift was made – useful for assets that may gain substantially in value.

It’s possible to give away a total of £3,000 in any one tax year, so couples have a joint annual exemption of £6,000 (which can be doubled to £12,000 in the first year that gifts are made, to include the previous year’s allowance). Small gifts totalling £250 to any person for each tax year are also exempt, as are marriage gifts of up to £5,000 from either parent (or £2,500 from grandparents or £1,000 from other relatives).

It is worth noting, though, that PET limitations apply specifically to gifts made out of capital. If you have more income than you need, and are prepared to give money on a regular basis then, provided it doesn’t damage your normal standard of living, there are no restrictions on the amount you can give. It would, for example, be feasible for a grandparent with a greater income (from pensions or investments) than she needed, to pay regularly into her grandchildren’s school fee fund – significantly reducing her estate in the process.

If these strategies are not appropriate for one reason or another, then there are other schemes that can be considered as a means of reducing IHT, particularly with regard to the family home. The ideal is to leave the value of the house to the family, but to enable the parents to carry on living in it until they die. This involves finding a way around the knotty problem of ‘reservation of benefit’, which stipulates that if you enjoy the use of an asset then, even if you have given it away, it remains within your estate for IHT purposes.

Double Trusts

One option is to use what’s known as a ‘double trust’ plan or ‘home loan scheme’. In a nutshell, this involves getting the house valued, then setting up a property trust and selling the house to it. The UK-resident homeowner is a lifetime beneficiary of this trust, which means he can continue to live in the house during his lifetime. The property trust is only obliged to pay for the house on the death of the homeowner, and therefore simply gives the homeowner an IOU. Another trust – this time a discretionary trust for the benefit of the children after the homeowner’s death – is then set up, and the homeowner gives the IOU to it as a gift. He then needs to live another seven years in order for the gift to fall out of his estate.

When the homeowner dies, the property trust will be assessed for IHT because he has been a beneficiary of it. However, the IOU is deductible against the value of the home owned by the trust, so only its net value is subject to IHT. Importantly, the property counts as a principal private residence and is exempt from capital gains tax (CGT) when it is sold by the property trustees.

This structure is most appropriate for people in their 60s and 70s, who can be reasonably confident of living another seven years. But it is not cheap: solicitors’ fees can amount to perhaps 2% of the value of the house, with a typical minimum charge of £10,000.

Insurance policies

Another solution – perhaps the simplest for large estates, although not necessarily the cheapest – is to take out a series of term-life insurance policies, or a single whole-of-life policy.

Going back to my earlier example of the client with an estate of £1 million to worry about, his IHT would be about £300,000 (40% of the amount above the nil-rate band) less the £ 55,000 non-UK domiciled wife’s allowance.

The premium for a £300,000 life policy would be about £7,000 a year for a 5-year term-life policy, which would pay out the full £300,000 to his estate should he die while the policy was in force. If he survives the 5-year term, he gets nothing back, and has to renew the policy for a further 5-year term. Not cheap, but simple, and a lot less expensive than his estate would otherwise have to pay in IHT!

As always, those who fail to plan, plan to fail.


Personal Directions: You are your best investment

By Christina Dodd,
founder and managing director of Asia Training Associates

How did you go with last week’s exercise? Did you give yourself 24 hours? Were you able to find this small amount of time to invest in your life?

Most of us think that we need to set aside special moments in time for very special events or undertakings. The reality of it is that if something is so special, it should be with us at all times. We should be willing to make it a part of our lives every day. But then again, once something becomes a part of our routine, we no longer call it “special”. We really are strange creatures.

Take the fact that we allocate a special day to children, mothers and fathers - to celebrate them and the impact they have on our lives. Shouldn’t every day be celebrating this?

We become so conditioned by what is around us that it can suddenly become very difficult to peel away the outer surfaces to find out and see what lies beneath. To my mind we are special all of the time. I like to adopt this approach to my life because I am so overwhelmed by our power and ability as individuals. The enormity of our potential has not been fully explored and we have only just scraped the surface. Each of us is extraordinary.

For a day in your life, spend a period of five minutes every hour to just study the face of someone around you. You may or may not know them. It doesn’t matter. In this small amount of time engaged in this activity try to look for the good points in that person. Don’t think of the negative. Don’t think of their downside. Think of their high points, or imagine from their behavior or characteristics the goodness that is in them. Watch how they smile, or frown, or move their head or walk. Listen to their voice and gauge from their body language a “feel” about them. Take a look behind the face that you see. Try to see what they see as you look at them. You may very well be surprised to understand in a quiet moment and part of you that people are all special and have their own stories, hardships, times of happiness and so on.

Every face tells a story. I found this so incredibly true when I lived in Vietnam many years ago. Up until that time I thought that I understood this point quite well. But when I was able to sit and take the time to make a private study of people as they sat and talked and went about their daily lives, it was profoundly moving. Looking behind the eyes and the face into more or less the soul and the actual being, certainly requires patience and empathy. It is a task for the dedicated, but one we can all perform. It is a very worthwhile exercise to perform once in a while because it keeps you in touch with life.

It is a silent time - which we should all embrace eagerly - where we can lose ourselves in the study of our fellow human being. It could be a child, an old woman, a young mother, a lively puppy, a group of teenagers, or even your own reflection. Have you ever sat and pondered your own face? Have you taken the time to look behind the lines, the expressions and consider the person who lies behind them? On occasion I have done this in my programs and have found that most participants become visibly moved and touched by such a simple task, but one never really undertaken before in their lives. Try it yourself with good intent and see how you feel.

No matter the culture, there is the ability to communicate regardless. Culture has a major role to play in who we are because of the immense influence it has on almost every aspect of our lives and how we have developed, but the point I also like to remind many people of is that whilst we have many differences, we also have many similarities. When you look deeply inside you will find that we are all individuals and human beings. We act and behave in different ways, but there are a lot of common characteristics, attitudes and behaviors that bind us together.

Quite frequently I hold cross-cultural programs for executives taking up postings in Thailand and indeed the region. Many of them come with an open mind about the country and the culture of their hosts and are very eager to understand what and what not to do. The one thing that I try to impress upon them though, perhaps more than anything else, is that although cultural differences exist, people should still be regarded for who they are as individuals first. When we are born the doctor doesn’t announce “it’s an Australian, or it’s a Thai”, he announces “it’s a boy or it’s a girl”.

Get to know the person first. Get to know about them and understand them as an individual who happens to be a certain nationality.

Feel the culture, be aware of how it shapes behavior, be aware of the demands it places on an individual - but consider every one as a human being first and this will take you a long way. So many times we fall into categorizing people according to cultures and nationalities and using them to explain or excuse certain behaviors and events. This may hold true to a certain extent, but it can also be an extremely dangerous thing to do as it can cause us to lose perspective of the real person and the real situation.

For more information on our cross-cultural programs, or indeed any of our professional and personal skills programs, please don’t hesitate to contact me at [email protected] gassociates.com or visit our website at www.atasiam.com

Until next time, have a great week and don’t forget, give yourself some time.


The Doctor's Consultation: The ante-natal clinic, or chivalry is not dead!

by Dr. Iain Corness

Being pregnant is every woman’s birthright. At the risk of raising the wrath of some of the more militant feminist groups (“Hello girls!”), women have the equipment needed to nurture the next generations. Men do not. Women therefore have the choice to continue the line of homo sapiens or otherwise. Men can withhold supply, but have no say or choice in the ante-natal nurturing.

After a break of many years, I find myself in the situation called impending fatherhood. My new young wife and I discussed the subject of progeny, and our decision was that since we were prepared to make a go of making a life together, if that also included children, then we should simply prepare for it. This we are doing, and it was with much joy that we celebrated the two little red bars on the home pregnancy kit a few months ago.

Despite the fact that I am a doctor, and even used to run ante-natal clinics in Australia, this is not a situation where one should treat family members. There are several good reasons for this, not the least being the need to keep a clear head and make dispassionate judgments at times. It is not a ‘healthy’ situation if the doctor is too ‘close’ to the subject (patient).

So, like any ‘new’ father I have been attending the ante-natal clinic at the Bangkok Pattaya Hospital, and I have been impressed by my fellow fathers. There are not too many women with the enlarging tummy syndrome sitting on their own in the waiting area. And the vast majority of fathers-to-be are also accompanying their wives into the consultation room. They are actively involved and not just taxi drivers. Chivalry is not dead, it seems! Well, not in Thailand anyway. You do not see the same degree of commitment in ‘macho’ Australia for example.

I have also been impressed with the thoroughness of today’s ante-natal care. Many years back, when I first started, the sex of the growing baby could not be determined, other than by practitioners of black magic, who were always 50% correct, no matter what method was used! These days there are ultrasound scans that can tell the gestational age of the baby, look for developmental abnormalities and even visualize the foetal heart beating - and if you want, can indicate the likely sex of the child. ‘Our’ scan was a little early because we were checking whether or not we actually were going to be having twins, or just a big baby (it’s the latter), and it is likely we will be having a daughter, or a very shy boy!

There are also some very sensitive blood tests that can be done these days to predict other foetal problems, such as Down’s Syndrome. Today’s young mother can rest assured these days that the baby she is carrying is healthy. There is no need to go nine months and have some painful surprises at the end.

Our knowledge of the needs of the foetus is also such that we can prescribe medication for the mother-to-be to ensure that developmental problems are not brought on by a lack of such compounds as folic acid, for example. Mind you, getting mother-to-be to remember to take the tablets is another problem all on its own. Probably another area where father can help! See you at the ante-natal classes!


Agony Column

Dear Hillary,
I placed an ad in Chiangmai Mail seeking a lady for friendship and possible lifetime relationship and got a reply from a lovely educated girl, in her 20’s and claimed to be a tour guide. We met and it seemed that she was very warm, honest, sincere, and showed some interest in me. I asked her if she would help me find a condo. After looking all day, she recommended her friend’s uncles condo. She could get a good price if I wanted to stay there. She got the rental price from B. 6000 to B. 5,500 per month. I thought that was really nice of her to do that for me and was getting a real bargin (sic). I was required to give 2 months rent in advance for the deposit and B. 5,500 for the 1st month’s rent. Which totaled B. 16,500. I gave her this in cash and she went to sign the lease agreemant (sic). As she was doing this, I was busy putting my things in the unit and did’nt (sic) bother checking the lease. After everything was done, she told me she will be busy working for the next 2 days and will not see me until Monday. Sunday comes and she tells me that her father has a motorcyle (sic) accident in BKK and had to go by bus and see him in the hospital. When she arrives, her purse, money and mobile phone is stolen. Sounded kinda fishy, but I believed her and offered to help pay for her father’s hospital bills. She has no phone and only contact her thru email. Four days later I decide to check the lease agreement thinking that something was wrong with this whole situation. As it turns out, the lease had a totally different amount than what I paid her. She over charged me. The actual rent was B3,600 and the deposit was B5,000. I gave her B16,500 and she only paid B9,400 and stole B7,100. I told her that if she don’t return my money, I will report her to the police. She replied and said she will return it in a few days. My question is, if she dosen’t (sic) show up with the money, should I file a complaint to the police?
Lessons in Life

Dear Lessons in Life,
Some lessons are painful. Some lessons are expensive. Seems as if you’ve found the latter. However, answer me this - would you put an advert in a newspaper in your own country, looking for a lifetime companion, meet that person and then give her a lump of money to pay your rent? File a complaint? Forget it. It is not an excuse to say the lease agreement was in Thai - the numbers are in English. After looking again at your letter, I suggest that the next lessons you take should be in spelling your native language.
Dear Hillary,
My husband I went for lunch at a restaurant, when we were joined by a farang man whom we had never seen and had not invited to join us! He told his tale of woe and asked our advice. He was in his late 50’s and not at all attractive, but he seemed concerned so we listened to him. As the tale went on, however, we listened to him while nudging each other under the table. His company had sent him to Pattaya to work for six months on the oil rigs, his first time to ever travel outside of Australia. He almost immediately met a bargirl and began going out with her. According to him, “She quit her job to be with me because she fell in love with me.” They had traveled all over the country and were now going to the north because her mother was ill and needed an operation. He would be returning home in the next few weeks and knew he was in trouble. He was, of course, married. He asked if we didn’t think it was a good idea to just ring his wife up and have her come out here and sort it all out. His alternative plan was to show up with the bargirl in tow. Hillary, what is it with these beer-bellied old geezers? Do they really believe these women who are half their age have fallen in love with them? Don’t they realize how light their wallets are becoming? Are they suffering from such a severe case of testosterone poisoning that they’re perfectly willing to toss their families aside and donate their savings, salaries and self-respect to questionable surgeries and the village buffalo? We agreed that he needed to sort it out with his wife without the bargirl in tow, but we left the restaurant wishing he had found other luncheon companions.
Disgusted Diners

Dear Disgusted Diners,
What has to be answered is just why “they’re perfectly willing to donate their savings, salaries and self-respect to questionable surgeries and the village buffalo”. You are suggesting it is testosterone poisoning, Petal, but perhaps “these women who are half their age” are supplying something they no longer get at home? Your letter also raises some questions from me - just where are these oil rigs in Pattaya? Shell, Elf, BP and Caltex also want to know, and why were you “nudging each other under the table”? Sometimes it’s hard to be humble.


Camera Class: Flogging your work, rather than a dead horse

by Harry Flashman

Many years ago I discovered the secret to selling one’s photographs. My first successful foray into this field was for a ladies magazine and these days I am ashamed of that article. It was nauseating pap, but they loved it! They even paid what was “big money” for it, and I settled my stomach with the thought of what I was going to do with the cash.

The lesson to be learned was that by using your camera and your ability to string a few sentences together, will give you a very much greater chance of making money with your hobby. It is not enough to just know the subject of your article - you see you have to research the publication that you hope will accept your work.

The reason for this will become self evident as you begin to do your research. Firstly, look at the contents pages, as it will say there whether contributions are welcomed or otherwise. Send to an “otherwise” and you will get your first rejection slip! Different magazines also have a different “style”, and no matter how good, cute or whatever, if your article and photographs are not in the style of the publication - it won’t get published either! However, do not despair, I know of a very successful writer who pastes rejection slips on his wall as wallpaper.

So what do you have to do? Firstly go and purchase copies of the publication you are going to try for, and then read them from cover to cover, absorbing the style of the publication. Is it a “hip” magazine full of words like “extreme, Man, cool” or is it more refined? Do they like snappy short sentences or meaningful long ones? How many words make up their average article? Sending 3,000 words on buffalo breeding to a publication that does snappy little photo essays on fashion and film will obviously get a rejection slip. Sending 3,000 words on Buffalo breeding to the Buffalo Breeders Bi-monthly will also get a rejection if the longest piece they run is 1,000 words. You must tailor your work to suit the magazine. Write nauseating pap for a nauseating pap magazine and you’re away!

So far you have outlaid money for several magazines and nothing has come back in, but do not despair, you will eventually get some rewards. The next thing to work out is what are you going to write about, complete with illustrative photos? The simple answer here is to start by writing about subjects you actually know something about, rather than starting from scratch on some other topic.

Even then, you will have to do some research, either on foot, by phone or net based research. Writing a great story on four Chinese pandas in Chiang Mai, when everyone knows there are only two is not going to get you published - unless you have found two more that were smuggled in on the flight!

The next step is a crucial one as well. You must write your story or feature, to the required length, and then illustrate that story with appropriate photographs. Do not start with photographs and try and write the story around the illustrations.

Let’s imagine you have written 500 words on whether elephants should be allowed in town. What photos should you use? Any old elephant shot will not do. You should be trying to get one strolling down the street in the traffic. An amusing rear view of a pachyderm would also go well, with the caption, “Is this the end of the elephant tale” would also amuse the editor - all of which helps get your contribution accepted.

Once you have had a couple of acceptances, you use these to get you into more publications. You can legitimately ring the editorial office and say, “I have been published by Blank magazine, would you be interested in 500 words and photographs on the problems of elephants in traffic jams in town?” You will be asked to send it in. You may still get a reject slip, but keep going!