Question

Hi, I’m Auntie Kim. I have three daughters namely: Li Xia, Li Yun, and Li Li, where they are 22, 16, and 14 years old respectively. Li Xia has recently landed a job as an executive in a local company. Li Yun and Li Li are still in secondary school. 

Presently, I have accumulated RM 250,000 in savings and I am servicing two life insurance policies where their combined sum assured is RM 500,000. Here is my question: ‘Should I name Li Xia, my eldest daughter as the only beneficiary to all of my life insurance policies and money in my will as Li Xia is above 18 years old and I’m expecting her to take care of herself and her two younger sisters: Li Yun and Li Li?’  


Answer: 

Yes, Auntie Kim may do so and if she passes on, Li Xia shall receive RM 500,000, the sum of Auntie Kim’s two life insurance policies and a cash amount netted of all Auntie Kim’s outstanding debt and tax payments. Li Xia could freely use all of the money given to her to take care of herself, Li Yun, and Li Li, which fulfills her mother’s objectives for buying life insurance policies and writing a will. 

The key word here is ‘freely’. 

‘Freely’ means that Li Xia could also choose not to use the money left behind to take care of Li Yun and Li Li because Li Xia has the freedom to use the money as she pleases without obtaining consent from anybody. As such, the arrangement above could result in potential conflicts among Auntie Kim’s daughters. 

They are as follow: 


#1: Self-Interest

Let’s say, the value of Auntie Kim’s estates is worth RM 750,000. 

Auntie Kim intends to distribute her estates evenly to her three daughters. Each daughter shall ideally be entitled to RM 250,000 of her estates. However, as the arrangement by Auntie Kim was to nominate Li Xia as the only beneficiary to all her estates, thus, the questions are: 


1. Will Li Xia transfer RM 250,000 each to Li Yun and Li Li when they hit 18? 

2. Will Li Xia transfer the money in one lump-sum or in installments? 

3. How will Li Yun and Li Li if Li Xia transfers their money in installments? 

4. Is it even possible for Li Xia to not transfer the money to Li Yun and Li Li? 

5. Will Li Xia be accused of mishandling the money by Li Yun and Li Li? 


Instead of certainty, Auntie Kim’s arrangement will create more uncertainty and potentially, animosity among her daughters. For the sake of our discussion, let’s say, the RM 750,000 is either held by Li Xia alone or has already been separated and transferred to Li Xia, Li Yun, and Li Li based on Auntie Kim’s wishes, the sum bequeathed could be: 


#2: Lost due to Mismanagement 

Imagine. 


Scenario A: Li Xia, in her early twenties, is holding onto RM 750,000 in cash. 

Scenario B: Li Xia and her sisters each have RM 250,000 in cash. 


Irrespective to both scenarios, the amount is relatively huge to young people. It could pose the sisters a major test of stewardship to the RM 750,000. 

How will the money be used? 

Will the RM 750,000 be used wisely or will it be squandered away? 

Based on past experiences, these are just a few examples on how beneficiaries, upon receiving their share of inheritance, squandered theirs away. They include the following: 


1. Excessive spending on lavish lifestyles. 

2. Lending to needy or worse, abusive friends and family members. 

3. Conned by swindlers. 

4. Failed business or investment ventures. 


Hence, there is no guarantee for Auntie Kim that her daughters’ future could be well taken care of despite bequeathing her estates to them. In addition, there is another tricky scenario that Auntie Kim may not consider beforehand but could potentially cause Li Yun and Li Li to not inherit a single sen from Auntie Kim and that is: 


#3: Li Xia Gets Married 

What if, soon after Auntie Kim passes on, Li Xia becomes married? 

and … she has yet to transfer the RM 250,000 each to Li Yun and Li Li? 

If Li Xia receives RM 750,000 from her mother, could she use it to fund: 


1. Her own wedding and honeymoon? 

2. Buy an expensive home with lavish furnishing? 

3. Start a business venture with her husband and so on and so forth? 


That is relatable to the first two pointers mentioned above. But, here is a thing. 

What if Li Xia passes on without transferring the RM 250,000 each to Li Yun and Li Li and she has not written a will? 

Let’s say, Li Xia still holds onto the RM 250,000 each for Li Yun and Li Li. It would be harder for Li Yun and Li Li to retrieve their money because the RM 500,000 is frozen and would be distributed to Li Xia’s husband and children which is stated under the Distribution Act 1958. 

This means, if Li Xia passes on, the RM 500,000 shall be inherited rightfully by Li Xia’s husband. Li Yun and Li Li shall have nothing from their mother’s estates. 


So, What is Best for Auntie Kim? 

Auntie Kim could do the following: 


1. Form an insurance trust to administer the sum assured from her life policies. 

2. Form a testamentary trust under her will to administer your cash savings. 

3. Set trust deeds and appoint trustees to administer her money. 

4. Appoint Li Xia, Li Yun, and Li Li to be beneficiaries of her trusts. 


If she does the above, Auntie Kim could: 


1. Avoid potential conflicts as her estates had been fairly distributed. 

2. Set her preferred frequency of money distribution to her daughters. 

3. Prevent her estates from being wasted and conned. 

4. Prevent her estates from being handed over to unintended beneficiaries. 


Hence, it is more practical for Auntie Kim to use a combination of life insurance, will, and trust to safeguard the financial interest of her daughters. Today, if your situation is similar to Auntie Kim’s, you could book yourself a 30-minute session with our professional estate planners by first filling up the details below: 


Jocelline Chee
Jocelline Chee

As a Full-time Senior Professional Estate Planner, Jocelline seeks to understand every client’s unique asset holdings and legacy wishes, before recommending a suitable Will and/or Trust structure to meet their needs. She is well-equipped to point out various blindspots in Legacy Planning, that her clients may have. With Jocelline, you can be assured that your legacy planning journey will feel more like having an open-hearted coffee session with a trusted friend, as compared to a formal and awkward session with an equipped advisor.

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