Presently, I’m a parent to two beautiful children, a son and a daughter. They are attending primary school and like most parents, I have high hopes for them and I would like to offer the best to them, paving a brighter path so that they would be able to dream bigger and fulfill their aspirations.
As an estate planner, I learnt that most parents of school children are becoming more aware of the importance of financial protection. They want to be assured, knowing that their children would finish school, graduate from universities, and pursue meaningful careers, especially in the event of them losing their ability to earn income due to death, disability, and disease.
This is why we have life insurance policies and a will written.
But, are they comprehensively practical?
Well, the answer is no. Yes, life insurance policies and a will document are great starters. But, there is still a missing piece to fully preserve your family’s finances and assure your children’s future. That missing piece is known as a Family Trust. Why is that so?
Well, consider this.
Let’s say, you are now in your 40s and you have a child who is now 10 years old. In addition to living costs, you intend to offer as much as RM 200,000 in tertiary education fees and another RM 200,000 in gifts upon his graduation. So for you to fulfill such objectives, especially in the event of a premature death, your plan is to leave behind RM 1 million to your spouse either via:
1. Life insurance policies.
2. A will document.
3. Or both.
In an ideal scenario to you, your spouse would receive the RM 1 million and use it accordingly. But the question is, ‘How sure are you that your spouse would be utilizing the money based on your personal intent?’.
Realistically, your spouse may have different ideas on how this money would be managed from you. He or she may do business with it, invest it, go on shopping sprees, lend it, donate it, pay debts, or even get into more debts with it. Thus, it is practical to expect that your spouse has one thousand and one ways on what and how the RM 1 million could be utilized.
In addition, I have excluded other possibilities such as scams and abuses, which could result in monetary losses. They would cause your original objectives to be unfulfilled, despite your preparation of this money.
So, in essence, you could leave behind RM 1 million to your loved ones via both life insurance policies and a will document, but you would not have a guarantee in terms of the usage of this RM 1 million.
That is why we set up a Family Trust.
Our children need us to form a Family Trust. This is because with it, our children could be assured that our wealth left behind for them would be used in ways to benefit them, not to spoil them. A Family Trust is able to guarantee that the RM 1 million prepared would be utilized in accordance with your intentions.
For instance, you can form a trust to handle RM 1 million on your child’s behalf. In your case, you can nominate your child to be the trust’s beneficiary and have your spouse to be your child’s legal guardian. You could either place as much as RM 1 million into your trust or alternatively, assign your trustee to retrieve your RM 1 million in insurance proceeds on behalf of your beneficiary.
With a trust deed, you could instruct your trustee to distribute the RM 1 million as follows:
1. Make a monthly distribution of RM 5,000 (RM 60,000 a year) for the next ten years to support your beneficiary’s living expenses.
2. Pay for your child’s tertiary education fees, upon enrollment into a university. Here, in your case, the predetermined amount is RM 200,000.
3. Distribute RM 200,000 or the balance of funds in the trust to your child upon his or her university graduation.
So basically, by establishing your Family Trust, you can decide on the objectives, purposes, and intentions for your wealth left behind to your beneficiaries. With it, you can be safely assured that your wealth will fulfill your purposes and thus, truly benefiting and taking care of the financial wellbeing of your loved ones. In essence, having a Family Trust could:
1. Reduce ambiguity as to how your wealth is to be managed.
2. Reduce potential losses from abuse of wealth bequeathed to beneficiaries.
3. Preserve your wealth and keep it within your intended beneficiaries.
4. Fulfill your wealth purposes on behalf of yourself in a triggered event.
But, is it difficult and expensive to establish a Family Trust? Maybe, you may ask if a Family Trust is only practical for the rich and not for the working class. So, in the context of Malaysian families, what is the best way to go about it?
Well, for a start, a Family Trust is inexpensive and relatively easy to set up.
The key ingredient is to first understand your objectives for setting up this trust. In this aspect, a professional estate planner is one who walks hand-in-hand and guides you in crafting out simple and cost-efficient, but yet, highly customized solutions to address most, if not all, of your concerns and needs when it comes to estate planning matters.
To get started, you may subscribe to this by first booking yourself a 30-minute consultation session below.
Thanks for your consideration.
Founder and Principal of WG Legacy