Managing Your Personal Finances Assignment Case Study-

Leonard Ong, a Singaporean, is a Vice President at a large MNC and lives in a Thomson Road condominium with a market value of S$1,350,000.

WEALTH PRESERVATION - TAX PLANNING

Leonard Ong received the following in 2015:

1. He was seconded to work in Vietnam for 9 months in 2014. For his work in Vietnam he received a salary of S$230,000 through a Singapore Bank.

2. He owns a property in Australia which is rented out. After deducting the relevant expenses, he remitted an amount of S$25,000 from Australia to his bank account in Singapore.

3. He has also been appointed as a part-time lecturer for a private educational institution in Singapore. All income earned by him is directly banked into the Standard Chartered Bank, London, and is used by his sister who is studying in London. His annual lecturing income amounts to S$45,000.

4. He recently won S$150,000 in a Big Sweep draw during the year 2015.

5. He has written a book for which he received royalty income in 2015. The following breakdown is as follows:

6. He has bought 2 other properties in his name which are currently rented out. Property 2 was vacant for 3 months. The details of his property investments are as follows:

7. He was given an Option to purchase 100,000 shares of his company at S$2.30 per share under the Staff Share Option Scheme. He exercised the option and later sold the shares. The details of the share prices and the relevant dates are given below:

8. He was given an Option to purchase 100,000 shares of his company at S$2.30 per share under the Staff Share Option Scheme. He exercised the option and later sold the shares. The details of the share prices and the relevant dates are given below:

WEALTH PROTECTION - INSURANCE PLANNING

1. Leonard Ong discovered several lumps around his neck and quickly buys an S$800,000 Term insurance plan with S$700,000 Critical Illness benefit to cover himself in the event he contracts and/or dies of cancer. His term plan covers him until age 99 and costs him an annual premium of S$9,605. For fear of being uninsurable, he does not reveal that he discovered several lumps around his neck and that he is awaiting a medical examination when completing the medical questionnaire in the insurance application forms. His policy was subsequently approved by the insurer.

2. About 8 years ago, Leonard Ong bought a 5-year limited-pay whole life plan with a sum insured of S$90,000. The plan covers him for accelerated Critical Illness benefit of $70,000. The annual premium for his plan was S$8,600p.a. The Cash Value of his plan is S$53,879.

3. When he bought his Thomson Road condominium, Leonard Ong also arranged for a mortgage reducing term insurance to cover the initial loan value of S$800,000 at a discount rate of 1.5% p.a. (feature of the policy is that it pays the outstanding balance of the loan upon the death of the insured). The annual premium for the mortgage protection plan is S$3,515.

WEALTH ACCUMULATION - INVESTMENT PLANNING

1. Leonard Ong bought the following 3 Unit Trusts as shown below:-

2. Leonard invested in a US Index Fund. The purchase price is US$220. However, at the end of the 12 month period, the price of the index is US$208. At the time of his decision making, the exchange rate was US$1 to S$1.70 but at the end of the 12- month period the rate was projected at US$1 to S$1.65.

WEALTH DISTRIBUTION - ESTATE PLANNING

1. Leonard Ong's lawyer proposed the following draft for his "Trust":

"I, Leonard Ong, give the rest and residue of my property whether movable or immovable situated in Singapore or elsewhere to Koh Wai Eng to hold the same on trust for the following:

A. To pay all my just debts and expenses

B. To divide the balance in 3 equal shares to be distributed amongst my children Lynette Ong, Bridget Ong and Daphne Ong upon their each reaching 21 years of age"

2. Leonard Ong, a Singaporean, intends to marry his 3rd wife, Koh Wai Eng in August 2016 with whom he has an illegitimate child, Daphne, aged 2 years. Leonard Ong has other 2 children, Lynette Ong, aged 9 years, and Bridget Ong, 6 years, from his previous marriages. His ex-wives did not remarry. Under the law, Daphne will be retrospectively legitimized once Leonard Ong and Koh Wai Eng get married. However, Leonard Ong dies without making a will before marrying Koh Wai Eng. The couple has a maid to look after the children and their aged parents who live with them.

Question 1 -

(a) Identify and explain to Leonard Ong which of his following income will be subjected to tax in Year of Assessment 2016.

(i) Employment Income of S$230,000.

(ii) Rental Income of S$25,000 from Australia property.

(iii) Lecturing Income of S$45,000.

(iv) Big Sweep winning of S$150,000.

(b) Compute Leonard Ong's tax liabilities for his royalty income.

(c) Determine Leonard Ong's income from the two rental properties for the Year of Assessment 2016.

(d) Calculate the amount of Share Option benefit assessable on Leonard Ong.

(e) What tax relief is Leonard Ong entitled to and if so how much?

Question 2 -

(a) Which insurance policies will pay out, and how much will be paid, if Leonard Ong were to

(i) contract a Major Illness?

(ii) pass away one year after contracting Critical Illness?

(b) You are to help Leonard Ong to compute the annual compound rate of return for his total investment in the 3 Unit Trusts.

(c) Calculate the percentage gain/loss for this investment. Support your answer with appropriate workings.

Question 3 -

(a) (i) What are a wife's duties of maintenance towards her husband?

(ii) How long is a husband duty-bound to maintain his wife?

(b) Identify the "Settlor", "Trustee" and "Beneficiary" or "Beneficiaries" in the draft Trust mentioned in the case study.

(c) (i) Under the Intestate Succession Act, which Rule for distribution allows Leonard's estate to be passed on?

(ii) Identify the persons who are entitled to Leonard's estate.