Today, it is common for most affluent people who are in their 50s, 60s and even 70s to had amassed RM 1-10 million in total wealth. They can be a combination of assets such as EPF, FDs, stocks, real estate, unit trusts and other investments.
Most would have children who are now in their early 20s, 30s or even 40s. They would want to pass on some of their wealth to their children as forms and ways to bless them. Here is the question. If you are a parent who is affluent and wish to pass on your millions to your children, can your children manage the millions if they receive them from you today?
If your children are in their 20s or 30s today, making around RM 5,000 a month, it is highly likely that they lack the skill sets, experiences and maturity to handle such a big amount of money. As a result, it is possible for these wealth, which is years or decades in the making, to be wasted away due to mismanagement.
Here, I’m not just talking about your children being victimized by scammers and thieves. As you read, we are totally beyond that.
Rather, as educated and intelligent your children are today, still, there are many instances that may cause them to lose their estates bequeathed to them. These situations could be errors, accidents and even unforeseen circumstances, which include natural disasters, pandemic and an economic downturn or recession. In short, life is just simply unpredictable.
To name a few, here are some examples:
First, your child may start a business with his or her inherited wealth. This could be a start-up, a partnership, a franchise, or anything that seems exciting to him, depending on his vision. Yes, it is possible that his business could take off and in time, be profitable. Also, as experienced business people, we acknowledge that there are many situations that could cause a business to fail and lose money. As I write, I believe it is one thing for him to fail in business. But, it would be worse for him to lose his inherited wealth due to a business failure.
Second, your child may use his inherited wealth as his capital to invest or trade, be it in stocks, real estate, unit trusts, ETFs, cryptos, or a combination of them. I believe that while investing can further grow his inherited wealth, it is still quite possible for him to incur losses from his investments as the markets are volatile and unpredictable. Heck. Even Warren Buffett himself had made mistakes. Thus here, what makes you think that your child is infallible in the markets?
Third, your child may fall in love. Yes, I can see that some of you get the idea. As I write, it is quite possible for people to be involved in abusive relationships. So, the question is, ‘Is it possible for your child to squander or waste your wealth in the event where he or she plays a part in such a relationship?’.
4. Taken Advantage
Fourth, your child may be prone to be taken advantage of for his ‘kindness’. The issue is that when your child receives your wealth in the future, is it possible for him or her to be ‘guilt-trapped’ by his siblings, spouse, relatives and friends that are ill-intent, forcing your child to hand over this inherited wealth for their own benefit?
So, what am I saying here?
Are you saying that I should not leave behind my wealth to my children?
Nope, of course not. Here, what I’m saying is that you could, not only bequeath your wealth to your children, but also help them preserve your wealth so that it acts as an effective financial safety net to them. You could simply prevent most, if not all, of the potential wealth losses arising from the circumstances as stated above.
How is that possible?
Well, all it takes is a little initiative to set up a trust.
Here is how it works.:
For instance, if you wish to leave behind RM 1 million in cash to your child, who lacks financial maturity today, it is possible for you to establish a trust structure, transfer the RM 1 million to your trustee and instruct the trustee to pay out the money in stages or installments. This could be RM 100,000 a year for 10 years. I believe such an arrangement would allow your child to learn how to handle this money over time as the distribution amount is much smaller.
In addition, your child would be forced to learn how to earn his own capital and be proactive in his finances as he can’t get access to his inheritance in one lump sum. In fact, this could turn out to be a blessing for your child as he or she has a chance to grow in financial maturity.
This trust structure which can preserve your wealth for the long run is relatively inexpensive to set up.
An estate planner is one who walks hand-in-hand with you to craft out a simple and cost-efficient, but yet highly customized solution to address most, if not all, of your concerns and needs when it comes to estate planning matters.
Presently, we have a promotion, where the fees to write or update a will and its lifetime custody worth RM 1,550, would be waived in full upon successful setup of a living trust with WG Legacy.
This promotion would end by 31 August 2022 and you may subscribe to this by first booking yourself a 30-minute consultation session below: