In every steps we made, we need a plan. The same applies to estate planning. Do you have a well defined objective for your estate plan ? What is your final wishes ? What kind of wealth do you intend your next of kin to inherit ? Do you want to leave behind vital family values or your success path to successor ? A plan is definitely needed to make the estate plan able to work properly.
Normally the main objective of an estate plan is to ensure a smooth wealth transfer while keeping the transfer cost lowest possible. How can this be done ? To ensure a smooth wealth transfer, first you have to list down how much assets you own. Don’t forget to list down how much liabilities you owe too because these liabilities won’t just erased away after demise. The step require before distribution is to first clear whatever debts the deceased have.
Then, plan precisely who shall gets what by taking into consideration of further disputes and arguments among beneficiaries. If the assets you intend to pass to the beneficiary is still on negative net worth, take further steps to mitigate the arrears. For example, you intend to leave to your kids 3 properties worth RM3.5 million, but all 3 properties under loan with no MRTA/insurance attached. Total loan amount RM2.8 million. Upon demise, your kids have to settle the amount owe to bank of RM2.8 million before the properties able to transfer to their name. How to settle ? Executor will need to check on the deceased estates (preferably liquid assets) whether the deceased have left behind enough cash to settle it. If estates had enough money to settle it, that’s good but if not, the executor need to liquidate other assets to pay for settlement. This resulting to the beneficiary end up getting less than expected.
Then back to basic question, is this your initial wishes ? It is advisable to make use of some financial tools to help you achieve your goals cost efficiently. One way is to purchase a life protection plan to cover the shortfall. With insurance your beneficiary do not need to worry on the loan outstanding. Besides, the total wealth transferred is getting more in value.
Second objective may be likely to reduce family burden. Are you the one bringing home money every month to sustain your family monthly expenses ? Have you set up a recurring payment to continue paying for it even after your demise ? How long do you want to support for your family and how much they need ? All this condition can be set when crafting out your estate plan.
For example, for parents and spouse I would like to support them financially until their demise and for children until their age 21. My parents is age 60 now and they need RM1,500 per month. Assuming they can lived until age 85, they need a total of RM450,000. My wife age 35 and I would like to continue provide her financially of RM3000 per month until her demise. Assuming she lived until age 85 and total she need is RM1,800,000. I have 3 kids age 3, 6 and 11. I’m not sure how far they will pursue their education but I would like to leave an education fund of RM1,000,000 each for them. This add up to RM3,000,000. I have 3 properties under loan of RM1,000,000 without MRTA. Every month I need to bring home RM10,000 for my family basic necessity and utility bills. Let’s say I covered this expenses until my youngest kids reach age 21. Total up I need RM2,160,000. So, if I pass on yesterday, how much should my family need in total ? RM8,410,000.
|Require fund per month||Years to support||Total need|
|Parents age 60||RM1,500||25||25 x 12 x RM1,500 = RM450,000|
|Spouse age 35||RM3,000||50||50 x 12 x RM3,000 = RM1,800,000|
|Kids x 3||RM1,000,000 each||–||RM3,000,000|
|Monthly expenses||RM10,000||18||18 x 12x RM10,000 = RM2,160,000|
The amount above might be differ as each family needs and financial requirements are different. But the concept are similar. You can follow the table above as a guide for your family financial needs.
Next question is how to fund the above amount ? You can use your own hard earn money to fund it but there’s a more effective way to cover the shortfall, which is buying an insurance. With a small token of premium per month, it enables you to cover the financial needs you require for the lifetime benefits of your family. Don’t you think is worth considering ? Just like running a business, we always take loan to fund for purchases or business expanding instead of using 100% company fund.
Above explanation already covered the objective, analyze your net worth and how to fund the shortfall. Next steps is to implement it. A well design estate plan does not end with just a Will. A Will only able to defines who gets what with a desire executor. To ensure the funding you plan for them for their lifetime able to act and use accordingly, you need to set up a Trust. Trust helps to distribute your wealth periodically and can reduce the chances of fund misused. The appointed Trustee inside the Trust will make sure all the intention will be well managed. The key here is to appoint a Trustee that is sustainable, never die and experienced.
Last step is to review your estate plan regularly or when there’s major changes in your family trees. For more info on this, please stay tuned to our next post to come.
To discuss more personally on your own estate plan, kindly leave down your contact below and we will get in touch with you soonest possible. Do follow my blog for more discussion on estate planning.