I’m a divorcee with minor children.
How do I continue to provide for them if I pass on prematurely?
This question is real and after having served handfuls of divorcees, I have learnt and gained appreciation on how tough it is to be a single parent who is juggling between roles as a breadwinner and a parent to his or her children. Indeed, it is no easy feat and you deserve my utmost respect.
Perhaps, as you read this, you may be concerned about the following:
a. Who shall take care of their livelihood until they attain adulthood?
b. Who will pay for their college or university fees?
c. Will my wealth be squandered away by my beneficiaries?
Hence, in this quick guide, I’ll share 3 pitfalls that divorcees tend to make when trying to leave behind possessions to their minor children. They are as follow:
Pitfall 1: Is Your Child Named a Beneficiary of Your Life Insurance Policies & EPF Monies?
It is common for divorcees to nominate their minor children to be beneficiaries of their life insurance policies and EPF monies. Their intention is okay. But, they do not realise that their children will not be able to collect the sum assured and EPF monies from their life insurers and the EPF because they are underage.
So, what then will happen to the sum assured?
Well, if you’d nominated your children as the beneficiaries of your policies, they would need a legal guardian to collect the sum assured on behalf of them from your life insurers. This leads us to another important question:
Who shall be the legal guardian to your minor children?
That person could be your ex-spouse or family members of your ex-spouse. Will you be okay with your ex-spouse collecting and managing your sum assured on behalf of your minor children? If, let’s say, you are not okay with it, I reckon you read this article to find out a simple solution to mitigate this issue.
How about the EPF monies? Is it possible for your ex-spouse to collect the EPF monies on behalf of your minor children?
The answer is nope. The EPF monies would be transferred to Amanah Raya Bhd for safekeeping until your minor children reach 18 years old. As such, you don’t have to worry about your ex-spouse having access to your EPF monies. But, this leads to another issue.
Assuming a divorcee has RM 500,000 in EPF monies and when he passes on, his child is 10 years old. Questions:
a. Who will provide for him financially as the monies will be stuck for 8 years?
b. Will the child know how to collect the EPF monies when he turns 18?
c. How will the child manage the EPF monies if he has collected it?
As such, this leads us to:
Pitfall 2: Who’s the Executor of Your Will?
Perhaps, you have already written a Will. That’s great.
Here is a question: ‘Who did you appoint as the executor of your Will?’
Is it one of your siblings, your parents or your trusted relatives? Or, you haven’t actually named an executor of your Will?
As you read this, you may wonder, ‘Why is this a common pitfall? Isn’t writing a will enough to secure the financial future of my minor children? What is the big deal of having an executor?’
Well, here is something that you need to understand about Will writing.
The purpose of it is to distribute your possessions to your minor children and in order to do so quickly and efficiently, you need a competent executor as he will be the person-in-charge to expedite the entire process and it is no easy task for it involves shouldering a lot of responsibilities over a span of 1-2 years.
For instance, upon a person’s passing, his appointed executor shall be tasked to apply for the Grant of Probate (GP), collect assets, settle all outstanding taxes & liabilities, and distribute the remaining assets in accordance to the person’s will to the rightful beneficiaries. It is a lot of legwork as the executor will liaise with lawyers, bankers, tax man, creditors… etc in the course of fulfilling his roles and responsibilities. So, here is my question:
a. If you don’t appoint an executor, who will be expediting the entire process?
b. If you had appointed your sibling to be the executor, does he or she have the time, money and energy to carry out the duties required as the executor?
c. The same goes with appointing one of your parents to be an executor of your Will. Will they have the experiences needed to do so?
d. What if your appointed executor passes on before completing his task as the executor of your Will?
Here, if you haven’t appointed an executor or have conveniently appointed one of your family members to execute your Will, here’s an article which will explain in detail what an executor of a will does and who is most suitable to fulfill the role for you.
Pitfall 3: How Will Your Children Manage Your Possessions?
Let’s say, a divorcee has a son and he intends to leave all his possessions behind (life insurance, cash, EPF monies, and property) to his only son.
Collectively, they are worth RM 1.5 million, inclusive of a property that is worth RM 500,000.
Assuming that the divorcee passes on right on his son’s 18th birthday and thus, enabling his son to inherit RM 1.5 million (RM 1 million in cash and RM 500,000 in property) from the divorcee, how would the son manage the possessions left behind for him?
Will he use it to further his studies?
Will he use it to start a business? What kind of business?
Will he know how to invest the monies received and thus, making him richer?
Or, will he start to spend lavishly and develop a habit of excessive spending?
Will he be conned by people with malicious intent?
and the list goes on …
One thing is for sure.
There is no guarantee on whether or not the son, after inheriting his wealth, is capable of managing it prudently and maturely. Perhaps, you may even doubt if the wealth bequeathed to the son is a blessing to him or a curse to him. That is the danger of not specifying exactly when the son should inherit his wealth and how he should be managing it.
In short, the above are the 3 most common pitfalls that divorcees make when it comes to leaving behind their estates to their minor children. These blindspots would cause many hiccups and delays in the process of distributing your estate to your minor children and even if they received their stake in your estate, they may not know how to manage and use them efficiently.
As such, your intentions of wanting to provide for your minor children could be jeopardized. Don’t let the above be a pitfall to you. Thus, if you wish to explore for more ideas, please do feel free to book a 30-minute private session with our estate planning consultant by filling the details below: