“How to Leave An Inheritance”, Published in The Star, On 16 October 2021.
How prepared are you for the unexpected death?
Over the past two years, the Covid-19 pandemic has left everyone feeling a little more uncertain and worried for the safety of themselves and their loved ones. With the total amount of deaths by the virus surpassing the 20,000 mark since the beginning of the pandemic, the level of worry, discussions and talk of preventive measures have only escalated.
While the worry about getting protection has escalated health-wise, there is another area of concern which I would like to touch on today, which is the financial safety during an unexpected circumstance or tragedy.
Ask any financial advisor, and they’ll tell you that a big part of financial planning is to plan for this unexpected, such as a loss of income, an accident, or worse still a fatal tragedy. However, many still fail to give attention to this area. This is of course natural, as no one likes to ruminate about something undesirable to happen to them, especially when it comes to death. Death is a tricky and taboo subject that we’d all like to avoid, and if you’re a person with young dependents or children, planning for this can involve some anxiety.
The possibility of the unexpected, fatal or not, is a much bigger now due to the COVID-19 virus. Over the past two years, the COVID-19 pandemic in Malaysia has caused up to 4,422 children to have lost a parent, parents, or guardian. This is a reality that is so close to home that it is difficult to ignore and even harder to be simply pushed aside.
In today’s article, I want to talk about reviewing your financial plans in the event of the death of yourself and your spouse. While this is a grave topic to discuss, it is important to do so especially if you are taking care of dependents, i.e. children or aged parents.
There is no predicting who the pandemic is going to affect next. However, plans can be put in place to ensure that your family is able to sustain themselves even after you’re gone.
How to prepare for the unexpected?
Are you prepared in the event of sudden death? Do you know what assets you’ll be leaving behind for your family should something unexpected happen to you? These are some of the questions you should ask yourself when planning your wealth.
Financial planning is not just about achieving financial freedom and planning for your long- awaited retirement years. It is also about planning for contingencies such as experiencing a loss of income, or matters pertaining to your own demise. By planning for these circumstances, you are inevitably preserving your assets, and ensuring your family doesn’t lose what you’ve worked so hard to achieve financially.
If you were unexpectedly gone tomorrow, would your family have access to all your accounts and finances in order to sustain them? Have you written a will to ensure that your wealth is distributed smoothly among the people you intend to inherit it?
What if there is a double tragedy, where you and your spouse are both not around anymore – will your children and dependents know what to do in order to sustain themselves? Do they know how to access your will and gain access to temporary finances while your will is going through the distribution process?
I recall an incident I came to know about a few years back, about a Mr and Mrs Wong, who had children aged between 10 and 19, with the oldest in the midst of her studies in the UK. They were an upper middle class family who had their finances sorted, yet never talked about it with their children.
Unfortunately, both Mr. and Mrs. Wong met with a fatal car accident one day, leaving their children in a lurch. The grief of the losses put aside, reality demands that financial matters be addressed promptly. There’s only one problem – no one knew where the will was kept or who the substitute executor was. Suffice to say, the family had to survive on donations and money raised by family members and Good Samaritans for two years, while the executor pieced together all the information needed to clear the administration processes.
Arguably, the probability of both husband and wife passing away at once is low. However, the repercussions and magnitude of a double tragedy is tenfold, and we owe it to our loved ones and children to ease their burden during a time of grief. The stress and uncertainty of sustaining livelihood shouldn’t be something a child needs to worry about.
To avoid these circumstances from occurring to your children and dependents, I recommend doing the following:
- Appoint a guardian
If your spouse survives you, you can expect your spouse will automatically become your children’s guardian. However, provisions still need to be made for when both of you of meet your death simultaneously. If you are a single parent or a widow, the need for appointing a guardian for your children is even more urgent and obvious.A guardian plays a crucial role in your children’s lives during your absence. He or she makes all the big, small and life-changing decisions you would have otherwise been in a position to make. Appointing a guardian to your children can be made by naming the intended person in your Will. If you do not appoint a guardian in your Will, then when the situation arises, anyone who is interested can apply to be your children’s guardian. The court then must decide, without the benefit of your opinion, the most suitable person to raise your children. - Appoint a trustee for your children’s inheritance
It is important to appoint a trustee to oversee your children’s inheritance in your absence. You can use your Will to name a trustee who will handle money or property your children inherit until the children reach the age you specify. If your children are already over this age at your death, the trust never comes into being; the property will go straight to the beneficiary.The trustee must act in the best interests of your children and follow your written instructions. Generally, the trustee can use the trust money for your children’s health, education and living expenses. When the children reach the age you specified in the Will, the trustee ends the trust and transfers the balance in the trust to your children. - Factor in special needs into your financial needs analysis
If you have minor children or children with a disabilities that require extra support, make sure your estate has sufficient liquidity to pay for these bills. Find out how much is really required to support their needs. There is nothing worse for your children than living in an environment where they are resented everyday, because they have added to the financial and physical burden on their Guardian’s family. It is important to make sure that you have provided sufficiently for their living expenses, education (primary, secondary and tertiary), tuition, hobbies, medical expenses. If your child has special needs that is more challenging for a guarian to deal with, ideally there should be more money allocated to cater for those needs.
- Establish a private trust structure
In the case of double tragedies, minor children have no access to income to support themselves. By establishing a private trust, you ensure that your children have access to finances to maintain their standard of living while the parents assets are being unfrozen. - Keep your will in a good place, and if possible, inform someone your trust about its existence
This part may be tricky, as you’ll need to select a place that is easy enough for your dependents to find, but not accessible to anyone. When your children go through a loss of both parents, they will not be in the right state of mind. Informing them about the will would ease this process if the time comes. - Draw up an inventory of assets
Usually this is something a spouse would be well-versed in. However, in a double tragedy, an index of all your accumulated assets, along with the location and access details would save everyone trouble of piecing this together on their own.
Estate planning sounds as if it is for the wealthy, when in fact it applies to everyone.
At its core, it is about leaving a legacy for the living. Without having your wishes clearly outlined, nor proper planning in the event of a double tragedy, the legacy that you are leaving behind could be one of conflict, confusion, and cost.
Done right, estate planning is a process that will ensure your assets are treated as you have intended and even save your loved ones from the burden of difficult decisions in the future.
Yap Ming Hui is a licensed financial planner. The views expressed here are the author’s. Any reliance you place on the information shared is therefore strictly at your own risk.
The article is featured in The Star Online, at the following link: How to Leave An Inheritance