I would like to start this article by asking you the question “who is family to you?” Some may answer, Family is my close knit family members like parents, siblings, spouse and children. And to some, family may just mean spouse and children, or parents, spouse and children. Whoever you categories as your family, the responsibility to keep them well and keep them together is equally heavy.
In our estate planning work, we named family as the immediate lawful beneficiaries of your estate. From the day we started work, we started with a goal to earn enough to fund our basic needs, on top of having job satisfaction. And of course, to majority local folks, we also bring home allowances to our beloved parents. Gradually, this “fund” we need snowballs to become a bigger amount to put food on the table for our family after getting married, which include our spouse and children. I believe that as long as we are still breathing, the need to maintain this “fund” will not stop. If you share the same viewpoint as me, then you’ll understand the important of a good planning. Plan so that the “fund” continue to exist to support the livelihood of the family.
Estate planning is one of the “to do” in our list. I always suggest to my clients to let me share the important of estate planning to their young children who just started work. Only with the end in mind, they will be able to plan their “now and future” better.
Many customers I came across, have many life insurance policies. It is a very good risk management tool, you buy a huge amount with little premium. But is buying life insurance, sufficient for maintaining the livelihood of the family? Yes and No. Yes, if your life insurance is tied with instruction on how the person receiving this amount know what to do and how to spend the money on the intended beneficiaries, for the objective you first bought it. No, if you give it to a person you first think you can trust having good money management skill, but in fact not the ideal person. Solution, create an insurance trust.
What is Insurance trust? It is a trust deed that uses life insurance as a tool to fund its many instruction. First you sign up a life insurance policy, preferably no medical riders or accident rider, solely life or crisis cover (we will discuss later on how much sum assured is sufficient). Assign this policy to the corporate trustee by creating insurance trust. Lay down your instruction for 2 life scenario, namely (1) death/disappearance and (2) comatose/mentally disabled. Under this scenario (1), give instruction on how you want the corporate trustee to manage your money. I would suggest to first allocate some money for debt cancellation, to pay off your debts, e.g. credit card debts, mortgage without MRTA/MLTA, income tax, study loan etc. Secondly, decide who will benefit from this trust, suggest old aged parent(s), spouse and children. For purpose of maintenance, education and medical needs. Then, method of distribution, interval or lump sum. For example, if during your lifetime, you’re giving an allowance of RM500 to each of your parent, probably you want to continue to do so. and this RM500 can be an amount which is inflation adjusted. And for your spouse, allocated a monthly allowance, for household expenses, like grocery, electricity bill etc. And for your children, allocated a monthly allowance for schooling purpose, liked tuition, transport fee etc. It is totally up to you how much you want to allocate in each section. Also not forgetting, to allocate a lump sum education fund for tertiary study, e.g. RM200,000 per child.
How long will the trust lasts? For children section, you may set the allowance to be given till age 25. For old aged parent(s) and spouse, can be till demise if your insurance proceed is sufficient.
What to do with the balance (if any) by end of trust? You can give instruction to give away whatever balance by end of the trust period, to charity organisation or lump sum to all surviving children in equal share. Totally up to you.
How much sum assured is sufficient? With the above example, you can roughly calculate how much you need. And of course, you buy what you can afford at the moment, and in future, you just add on the sum assured. It is allowable in trust that you can put in as many insurance policies as you wish.
For further info, please feel free to contact me at email@example.com or follow my facebook/MiEstatePlanner