Ask the experts: Securing your financial legacy

However, legacy planning often falls victim to myths and misconceptions. One prevalent myth is that it is exclusively for the ultra-wealthy, a notion firmly debunked by Idham: “Many believe that only those with vast estates need such planning, but in truth, everyone can benefit from a legacy plan, ensuring that their wishes are honoured, and their assets reach their intended beneficiaries, regardless of the estate’s size.”

Annie Hor, licenced financial planner at Harveston Financial Group, warns against the assumption that one is too young to engage in legacy planning, emphasising our vulnerability to unexpected life events. She says, “During the pandemic, we saw a surge of people wanting to create their wills and trusts. Imagine being in quarantine; no one could get close to you, let alone pass you a will to sign. So, never leave it to the last minute. If you have dependants, you need to create wealth or funding to provide your family with peace of mind in your absence.”

Something that Devadason feels is important and often overlooked is the will itself and how some think that they can write it themselves. Devadason advises against this, saying, “Even though a will is an example of that rare legal document we as regular people are allowed to write ourselves, do NOT do so because technical errors can destroy a will’s validity. So, use professionals to get it right; don’t fall into the trap of being penny wise but pound foolish.”

“We never know when any of us will ‘shuffle off this mortal coil’ to steal a line from Shakespeare’s Hamlet. So, preparedness is wise. At the very least, think through whom you care for the most and thus wish to provide for in your absence. Then build a distribution blueprint with your thoughts and ideas,” as Devadason reminds us, none of us is immortal, therefore, get your house in order, so to speak.

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How often have we heard of families, especially affluent ones, being torn apart from children fighting over what’s left behind after the passing of a parent? One of the significant concerns in legacy planning is avoiding family conflicts and disputes over inheritance.

Financial planners advise several strategies, mainly open communication, to minimise the potential for conflicts. Hor advises parties involved to be very open and honest about their plans and relationships. “For example, a client may not want to distribute their wealth outright to their children for fear of mismanagement, or for fear of a divorce where the assets or shares may be fragmented or divided. Every wish may have some underlying message which needs to be addressed carefully in order to avoid a potential conflict or content,” she says.

“It’s beneficial for individuals to discuss their inheritance plans with their family members while they are still alive,” adds Idham. “This allows family members to understand the individual’s wishes and the reasons behind certain decisions.”  The next critical step is a well-structured will created with the assistance of a reputable attorney or estate planner.

“Professionals can provide insights into tax implications, potential legal pitfalls, and strategies to ensure a fair and efficient distribution of assets. They can also advise on mechanisms such as trusts, which can offer more nuanced control over asset distribution and conditions,” says Idham. “Encouraging family members to voice their concerns or wishes is essential. While the individual making the will has the final say, understanding the expectations and feelings of potential heirs can help tailor decisions to minimise discontent.”

While we do not have an inheritance tax here in Malaysia, there are still some factors to consider when securing your legacy. “Some parents may think of transferring their assets to their children while still living. This is not recommended as you may lose control of the property, and such transfers may also incur stamp duty,” advises Hor.

Idham adds that one can optimise the financial impact of their estate by contemplating setting up a trust: “Trusts can protect assets, ensuring they’re used according to the deceased’s intentions and provide for beneficiaries, such as minors or those with special needs. Another strategy is gifting assets during one’s lifetime, ensuring a direct transfer to the intended recipients. However, it’s essential to consider the potential implications of the Real Property Gains Tax.”

“Life insurance is another strategic tool. In Malaysia, the proceeds from life insurance are usually not subject to the deceased’s debts if a trust nomination is made in the plan. This ensures that the funds reach the nominated beneficiaries directly, bypassing the settlement of the deceased’s liabilities,” he adds.

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As much as you can plan something out, changing life circumstances like marriage, divorce, or the birth of children can significantly impact your legacy plan. “Each time major life changes occur, such as a death in the family or a divorce, the will, and if necessary, the private trust, should be reassessed and possibly redrafted. For the non-wealthy and for whom private trusts make no economic sense, a testamentary trust can be created after the testator’s demise through a dedicated clause in their will. Charities, foundations, and religious organisations can be beneficiaries of the testator’s generosity through a will or trust,” says Devadason.

“On the flip side, divorce can significantly disrupt legacy planning where assets that were once jointly held might be divided, and provisions in a will or trust meant for a spouse might become irrelevant. Additionally, issues related to alimony, child custody, and child support can also impact the composition and distribution of an estate. After a divorce, it’s crucial to review and, if necessary, overhaul the legacy plan to reflect the individual’s new status and wishes,” says Idham.

Hor assures that revisiting your plans over and over again is fine. “Don’t worry about getting it perfect. I’ve amended mine multiple times and enhanced it along the way. Increase your healthcare benefits so that if sickness occurs, you have sufficient money for treatment and don’t need to rely on others. Save for rainy days and invest for your future so that your money can beat inflation.”

So, how does it start? What considerations should one make when deciding to put their dying wishes on paper? For Hor, it is important to ask the following questions: “What assets do you have to leave behind? Who are the intended beneficiaries and how do you want to benefit them? When should it be activated? Why [have you chosen this approach]?” This is especially important for high-net-worth individuals. For some, a simple will may suffice, but others may require a will with a testamentary trust or a declaration of trust.

“A father may not want to equally distribute his assets to all his children because he may have concerns about a particular child who is incapacitated. While the other children have families of their own, careers, and may have migrated overseas, he is concerned that no one will fend for this person left behind. So, he needs to set up a trust to ensure the trustee will distribute the funds monthly to the child [for the rest of their life]. If you have minor children, a declaration of trust will be suitable to create immediate funding for the family and children, instead of waiting for the court order,” she adds. 

For Idham, deciding between creating a will or a trust for one’s estate is a crucial choice that hinges on several considerations. “First and foremost, understanding the primary differences between the two is essential. A will is a legal document that outlines how a person wants their assets to be distributed upon their death. It’s straightforward and is often suited for individuals with simpler financial situations. “In contrast, a trust is a legal arrangement where one person holds and manages assets for the benefit of another. Trusts can help bypass the often lengthy and public probate process, providing quicker asset distribution to beneficiaries. Trusts can be structured in ways that minimise or even bypass certain estate taxes, making them advantageous for larger estates or those close to the estate tax threshold.”

This difference is significant as the timeline for asset distribution is a pivotal factor. Wills often require probate, which can be a lengthy legal process depending on the jurisdiction. During this time, beneficiaries may not have access to their inheritance. “Trusts typically allow for a swifter distribution of assets, ensuring that beneficiaries can access their inheritance without significant delays. Then, there’s the matter of control. If someone wants to set specific conditions on their assets—like releasing funds to a beneficiary only when they reach a certain age or achieve a particular milestone—a trust provides the flexibility to do so,” says Idham.

At the end of the day, legacy planning is a journey that transcends generations. It is the safeguard that ensures your hard-earned assets serve a purpose long after you’ve left this world. By dispelling myths, communicating openly, and seeking professional guidance, you can create a legacy that truly reflects your values and aspirations, leaving a lasting impact on the lives of your loved ones.

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