Hi, I’m Lim. I manufacture toilet rolls in a factory located in Klang. I have been in this business with June, my wife, for 20+ years.
I have two sons namely, Aaron and Alex. Aaron has been with my business since he graduated from a local university some 10 years ago. Today, Aaron is serving as the Head of Marketing in my company. His job is to bring in sales, build great relationships with our distributors and retailers across Peninsula Malaysia. Alex, on the other hand, is a medical doctor who practises in a hospital in Australia.
Now, here is my dilemma:
I wish to leave behind more shares to Aaron as I appreciate his years of services in building my business. But, I’m concerned that if I do so, Alex may feel that I’m being biased against him. It is my wish that the relationship between Aaron and Alex remains cordial even after I have passed on in the future.
So, how should I write my will?
How do I go about it to protect their interests and manage their expectations?
Estate planning is an act of love by the owner towards his beneficiaries.
But, it is common for beneficiaries to measure love with their possessions to be received from the owner. Simply put, the more a beneficiary receives, the more a beneficiary feels love from the owner as he is viewed to be more significant.
Often, this adds to the complexity of estate planning as we are dealing with not just physical assets but also human beings who have different needs and wants.
Fortunately, for Mr. Lim, his dilemma can be solved easily.
In this article, I’ll share a simple strategy that allows Mr. Lim to leave behind the company’s shares equally to his two sons while rewarding Aaron for his years of services in the company so that Aaron will feel really appreciated by Mr. Lim. As such, here is how it works:
Step 1: Set Up a Cash Trust for Aaron
First, Mr. Lim could start by deciding on the amount of reward he wishes to give to Aaron. Here, let’s say, Mr. Lim fixes the amount to be RM 1 million.
Next, Mr. Lim could form a cash trust, which is a living trust set up to administer cash. His trust shall contain RM 1 million in cash and a set of instructions, which is known as a trust deed, that consists of his instructions to administer the cash within the trust. Mr. Lim can nominate Aaron to be the sole primary beneficiary of the RM 1 million in his cash trust.
Thus, in the scenario when:
1. Mr. Lim is Healthy and Alive
He earns a projected interest of at least 5% a year from his cash trust. Thus, this amounts to a minimum of RM 50,000 in interest income per annum. Typically, a placement of cash into a cash trust is for 3 years and hence, enabling Mr. Lim to review his cash trust every 3 years once. So, for the first 3 years, Mr. Lim earns:
Year 1 – RM 50,000 (5% of RM 1 million)
Year 2 – RM 50,000 (5% of RM 1 million)
Year 3 – RM 50,000 (5% of RM 1 million)
These interest shall be credited into Mr. Lim’s bank account.
2. Mr. Lim Passes Away
Mr. Lim’s trustee could distribute the cash proceeds of RM 1 million to Aaron as quickly as 7 days after Mr. Lim’s passing which is much faster than payouts from life insurance and a will document. This cash distribution shall be carried out by the trustee in private and hence, Alex will not have any knowledge about it.
Step 2: Write a Will
From Step 1, let’s say, Mr. Lim had put RM 1 million into his cash trust as he had decided to specifically reward Aaron with it. The RM 1 million placed in his cash trust will not form part of Mr. Lim’s estates after he has passed on in the future.
As such, Mr. Lim could bequeath all of his remaining estate, including his shares in the toilet roll manufacturing business evenly to Aaron and Alex in his last will and testament document.
This enables the two brothers to earn recurring dividends from the business. As a result, they would stand to benefit from Mr. Lim’s decades of labour in setting up and establishing the business.
Alex will feel a sense of fairness as he has been included as an equal beneficiary alongside Aaron, his brother in Mr. Lim’s will. Alex will not feel that he has been shortchanged by his father and thus, is less likely to file a caveat in court for the purpose of challenging the validity of his father’s will.
Yes, you read it correctly.
It is possible for a will’s validity to be contested in court by first filing a caveat in court on it. This will lengthen the distribution of estates to its beneficiaries.
And, if this happens to Mr. Lim, it is not going to be helpful to Aaron and Alex as it will create tension and strife among the two brothers.
Conclusion: How to Make Two Sons Happy?
For Mr. Lim, it is as simple as:
1. Decide beforehand the amount of reward he wishes to give Aaron.
2. Set up a cash trust designated to offer his reward to Aaron after his passing.
3. Write a will to distribute his estates evenly to both Aaron and Alex.
Aaron will feel that he has been appreciated by his father for his time and work in his father’s company. Meanwhile, Alex would not feel undercutted as Mr. Lim has ‘distributed’ his estates evenly to him and his brother in Mr. Lim’s will.
In conclusion, I believe estate planning has gone beyond physical assets and the administration of them upon one’s passing. I believe the essence of it is about a deliberate initiative to maintain the relationship among family members so that it remains healthy and harmonious.
Here, I love to invite you to start by filling in your details below in order to book a 30-minute session so that we can brainstorm for ideas on this to see if we can help you to do the above with estate planning: