Estate Settlement of Collective Investment Scheme (CIS)
Some examples of collective investment schemes (CIS) in Singapore are unit trust and single premium investment linked policies. In recent years, such products are popular amongst people because of its ability to gain exposure to certain markets or assets, which would otherwise be inaccessible to retail investors. For example, it would be difficult for an individual to invest directly into corporate bonds and emerging market equities. By pooling the funds into a CIS, like a unit trust, such asset class can be reached.
Usually such products are purchased through 3 types of distribution channels: banks, life insurance companies, and independent financial advisory firms. Each of these channels has its own estate settlement issues.
Estate Settlement of CIS purchased through Banks
The bank acts as nominee for investors in CIS. For example Peter wants to purchase a China Fund (of $50,000) from a fund manager ABC, marketed by bank XYZ. Peter issues a cheque of $50K to bank XYZ. The bank will purchase and hold the units from fund manager ABC as a nominee for Peter.
When Peter dies, the bank will only deal with the legal representative of Peter’s estate. A letter of administration or grant of probate and death is required. Unlike a small savings account where the bank has the discretion to pay-out to Peter’s next-of-kin, there is no such procedure for the settlement of CIS.
It should be noted that the legal representative of Peter’s estate need not liquidate the CIS. The CIS units can be transferred to the lawful beneficiaries. If the legal representative chooses to liquidate the CIS, the proceeds will be made payable to the “Estate of Peter”.
It should be noted that the bank reserves the right to net off the unit trust proceeds with any outstanding debt or liabilities taken by the deceased with the bank.
Estate Settlement of CIS purchased through Life Insurance Companies
If the CIS product is investment-linked insurance policies, the estate settlement process follows the Insurance Act. The proceeds will be paid out to the beneficiaries efficiently via revocable or irrevocable nominations, in the name of the beneficiaries; or to the proper claimant (please see estate settlement of life policy on proper claimant). In the case of ILP, the legal representative cannot transfer the units to the beneficiaries, as the policy must be terminated and the units must be realised in cash for estate distribution.
If the CIS product is a unit trust, and the life insurance company is tied up with a unit trust administration platform, the administration platform company will only deal with the legal representative of the deceased person’s estate. Similar to the previous point, the legal representative need not liquidate the units, and can transfer the fund units to the lawful beneficiaries.
Estate Settlement of CIS purchased through Independent Financial Advisory Firms (IFAs)
Like life insurance companies, most IFAs are tied up with a unit trust administration platform. A few IFAs build their CIS platform organically. The administration platform company or IFAs will only deal with the legal representative of the deceased person’s estate. Again, the legal representative need not liquidate the units, and can transfer the fund units to the lawful beneficiaries.