Regardless of your level of wealth, estate planning is a vital part of your overall financial plan, with effective estate planning providing you with greater control, privacy and opportunity to leave more of your legacy to your loved ones.
To put things in perspective, an Estate Plan is a collection of preparation tasks that serve to manage one’s asset base in the event of their incapacitation or death, thus ensuring that all the individual’s personal assets go to his/her intended loved ones.
However, good estate planning is much more than just making a plan in advance and naming whom you want to receive the things you own after you die – there are many important factors to be considered in this aspect. Here’s what the experts have got to say.
Pay Attention to the Details
The key points to consider when doing estate planning and successfully leaving a legacy depends on whether the person is preparing a Will of trust, or both. Generally, an estate plan should include:
- The list of beneficiaries;
- Who to appoint as the trusted executor of the Will;
- If the children are young, then appointment of guardians is recommended;
- What are the assets to be distributed;
- In what proportion, as well as the terms of distribution;
- Substitute beneficiaries will need to be considered, depending on the family’s lifestyle such as yearly family holidays, along with the number of beneficiaries to be named.
In addition to the above, it is important to have a complete and accurate record of assets and liabilities including tax file status; items held in trust by others and for others; and a list of overseas assets.
Special attention must also be given to joint properties, assets or funds where nominees have been made earlier. It is also important to ensure that there is enough liquidity to pay debts.
For business owners, it is important to plan for proper business succession, both in terms of management and ownership. Not to forget, preservation of controlling interest as well as preservation of capital, including protection against creditors and ex-spouse claims.
With the above, the individual can then leave clear instructions to prepare a comprehensive Estate Plan to ensure he has a successful legacy. Depending on the person’s objective, Estate Planning can also cover various aspects including planning for business succession, education and retirement.
As an example, Mr Tan and his wife are the shareholders in two private limited companies involved in manufacturing and services. His two children are working for him.
Both Mr Tan and his wife intend for the companies to continue to be owned by the family for many generations to come. The solution would be for Mr Tan and his wife to create a trust by settling in it their shares in the two companies.
An independent trust company should be appointed as the trustee to hold the shares of the two companies for the benefit of the children and their lineal descendants.
During the lifetime of Mr Tan and his wife, they have sole ownership control over the companies and upon their passing or disability, the two children will be given control, and thereafter suitable and qualified descendants will be appointed as successors.
The trust should spell out the detailed succession and distribution plan so that control remains within the family.
With a proper business succession plan, the ownership of the two companies will be fragmented which would lead to in-fighting among the descendants which in turn may cause the companies’ business to be disrupted.
In the same trust, Mr Tan and his wife can instruct the dividends received by the trust to be used to pay for the tertiary education of the descendants that is related to the business of the companies. This would ensure that there would be continuity of suitable and qualified successors in the business.
Don’t Procrastinate Estate Planning
Kenney Khew, CFP
Philip Wealth Planners
Estate planning is important throughout our cycle of life, regardless whether you’re in your 20s, 30s, 40s or 50s. Many tend to have the misconception that only the rich should think about distributing their wealth, while others may even feel uncomfortable to broach the subject when you’re still alive!
That aside, wealth planning is crucial as it allows you to leave your hard-earned wealth to the beneficiaries of your choice in the shortest time possible with very few hassles and setback through the application of a grant of probate (testate).
In the case of Intestate (not having made a Will before one dies), the deceased’s family will need to apply for a Letter of Administration by choosing an Administrator to determine the value of the estate, and get two sureties (guarantors) to unlock the frozen assets.
Should we want to leave a legacy for our children, there are certain aspects to consider:
- Your appointment of trusted Executors – A valid Will should spell out the appointment of executors to carry out your wishes so that wealth is properly distributed to your loved ones as soon as possible, and the best person is a trust corporation or professional trustee, and it is important to look for a qualified person who is professional, independent and knowledgeable;
- Your choice of guardian for your children below the age of 21 – With the choice of guardians in your hand, you can be sure that your children will be well taken care of;
- Your choice of beneficiaries and their entitlements – how much of your wealth is to be distributed to your beneficiaries upon your demise has to be clearly stated in your Will (normally in the form of percentage);
- Testamentary Trust – a testamentary kicks in upon your death and allows your young children and ageing parents to receive a sum of money for living expenses and school fees. In these circumstances, you will need to entrust the trustees to carry out your wishes accordingly.
- Will custodian – in this case, a will custodian is very important as it is pointless to write a Will only for your loved ones to not be able to locate your Will. The safekeeping of the Will and its easy retrieval are vital in order to ensure your wealth is distributed to your beneficiaries with no hassle.
- Witnesses – once the Will has been drawn up, it is not effective until it has been signed in the presence of two witnesses. These witnesses have to be present at the same time when the Will is signed to confirm that you are of sound mind, that the Will is made voluntarily and without pressure from another person, and that the Will was not signed when you are intoxicated or drunk.
A Will is a Must!
Kevin K.M. Neoh, CFP CERT TM, MBA
VKA Wealth Planners Sdn Bhd
When it comes to effective estate planning, you mainly need to consider the position of the estate (i.e. if there will be anything left to be given away to the beneficiary).
If the person has more debts than assets, then this person would die insolvent, which means that it does not matter if the person has written a legit or complete Will or not, since most of the estate would be used to repay his outstanding debts.
Next comes tax matters. It is important to ensure that we keep proper filing and do our tax filings well, and have no outstanding and unpaid dues.
The basic form that we need to consider when it comes to estate planning is perhaps writing a Will. A will is simply a legal document and we will need an executor to carry out the wishes of the testator.
Appointing executors, therefore, is a very important matter because if the appointed executor is not capable or have a good sense of responsibility, the entire process may go haywire and worse, the interests of the beneficiaries may not be protected.