Estate planning: Legacies done right
So what happens if you die without any estate plan in place?
By Joshua Ong
An Estate Plan is a legal procedure where someone plans for the distribution and/or disposal of his/her estate upon the event of death or catastrophic injury.
To put things in perspective, an Estate Plan essentially ensures that all of your personal assets go to your intended loved ones in the event that something (God forbid) should happen to you.
So what happens if you die without any estate plan in place?
If you depart the world of the living without an Estate Plan, then your legal assets will be frozen. This is to prevent the wrong people from accessing and potentially stealing your precious hard earned belongings. Essentially, if you family wants to transfer ownership of your properties and access your bank accounts and other funds, they will have to go through a messy web of legal entanglements, which can take years to sort through.
Why give your family more grief when you’re gone when you can instead leave them with something they can remember you for (other than you of course). Whether you’re a millionaire with an 8 figure bank account or an average Joe with pint sized assets, it is for that very reason that having an estate plan in your arsenal should be of the utmost importance.
How do I go about estate planning?
Unfortunately, simply saying “if anything were to happen to daddy, then I will leave you everything I own” to your children does not suffice. In order to be 100% sure that your assets go to the right place, you will absolutely positively need to have an iron clad series of legal contracts disposing your estate. After all, if something goes terribly wrong, you’re not exactly going to burst out of the grave and rectify the mistake, are you now?
When it comes to Estate Planning, there are several different tools involved, you could write a Will, set up a Trust and/or take up Life Insurance. But before you jump into any of these, you should, first and foremost, value and gather all your assets.
The assets that you should place the highest priority on are big ticket items such as property, automobiles and any bank accounts or investments. Once you’ve settled all these items then you can move on to less important belongings like your teaspoon or VHS collection. Make sure that you know detailed information about each item because simply listing down “2 Story house with crooked fence at Jalan SS 4444″ is not enough.
For example, if you own a 2 story semi-detached house in Subang. Then you need to list down specific details about the property such as the current value, amount property was purchased for, cost and details of all renovations done and the current debt against the property (if you are still paying your mortgage). Once you have all the little bitty details of your entire estate listed down, you can now think about which tool you want to use in your Estate Planning.
Wills
A Will (or more formally a last will and testament) is a legal document that states your final wishes after you die. Instructions in a Will are not limited to just disposition of your belongings.
They can stretch to include the names of legal guardians for your children and instructions on how your debts and taxes will be settled. Suffice to say, having a properly drafted Will is an extremely important part of estate planning. So what are the basic steps involved in creating a Will?
Step 1) Compile your assets
As mentioned earlier in this article, the first step of writing any Last Will and Testament involves gathering, compiling and valuing all your assets.
For Example, if you own a house, you’ll want to grab all the little details such as the title deed, mortgage agreement and amount paid, property tax payment receipts and returns, renovation receipts, latest valuation on the property.
After you’re done with all your big ticket items, you can move on to less valuable items such as your books, furniture etc.
There is honestly no limit as to what you can include in your Will, as long as you only include assets that belong to you. So don’t go off writing down items that you don’t own. Once you’re done with the complilation process, you can move on to Step 2 and choose you Executor.
Find an executor
An Executor is essentially a trusted individual who will bear the responsibility of following up on any directions you leave in your Will. For example, if your Will instructs that your house be given to your eldest son, then the Executor has the responsibility to ensure that this transfer takes place in accordance with your Will. An Executor has to be above the age of 21 and can be a close family member, friend, licensed legal attorney or even the bank.
It doesn’t matter who you choose as your Executor as long as he/she is someone that you can trust to properly handle your assets. So take your time and properly discuss your intentions with your Executor of choice before listing his/her name down. It is possible to appoint up to four levels of Executors as a back up scenario in case your primary Executor has become incapacitated.
Once you’ve selected your executor, you can go ahead and head down to Step 3 where you’ll begin writing your Will.
Make it legal
Once you’ve compiled all your assets and appointed an Executor, you can go ahead and start writing your Will. Thanks to the Malaysian Wills Act of 1959, It is entirely possible to write a Will all by yourself without the aide of a lawyer. Though, before you do that you’ll want to study and understand the format of writing a Will in order to avoid any unnecessary confusion.
Suffice to say, Wills have to follow a very specific format, if you deviate from this formula then your Will might be revoked and rendered worthless. It is for that very reason that most Malaysians invest anywhere from up to RM1,500 on professional Will writing services. So what do such services entitle you to? And how does a generic Will look like?
Declaration
In the opening paragraph you have to make a declaration that this is your official last Will and Testament. In addition, you should also include a statement revoking, canceling or annulling any previous Wills that you may have written (if any). Finally, for legal purposes, you should declare that you are of legal age (18 and above), of sound mind (not crazy) and not writing this Will under duress (like if you have a gun pointed on your head, for example).
Paragraph 2: Family Details
This section basically lists down all your important family details. List down your wife’s name (if you are married), the names and dates of birth of your children (if you have any) and the names of your close immediate family (siblings, parents etc.).
Appoint your executor
This paragraph basically declares who you have selected as your Executor and formally grants this person the power and authority to distribute your estate upon death. But wait, What’s an Executor? For more details on who is an Executor and what he/she does, check out Step 2) Find Your Executor.
Appoint a guardian
If you have any children under the age of 18, then you’ll want them to be well taken care of in the event that anything should happen to you. This paragraph basically declares who you have selected as potential Guardians for your children. You can name anyone from your siblings to your parents to your close family friends. Though this goes without say, only choose someone that you can trust with your children. If you have no children, then you can go ahead and skip this paragraph.
Declare all your beneficiaries
In this paragraph, you declare who your beneficiaries are and what they inherit upon your death. For example, if you plan on giving your house to your son Mark then you would write something something like “I bequeath my property on 11 King Street to my son, Mark”. You can also declare alternative beneficiaries. For example, if Mark happens to die before your Will is read, you can declare that your other son, Matthew, will instead inherit the house.
When writing a Will, it is important to be clear and precise in your statements and always give the full legal names of any beneficiaries, family members, executors and guardians. Remember that the last thing you want is for your Will to get challenged in court because you didn’t specify your beneficiaries properly. Never leave conditions on your Will such as “Jerry will inherit my house if he scores a 3.4 GPA during his final year of college”.
Once your Will is complete, you should read it through a couple times and makes sure that you are 100% satisfied. If you have any doubts whatsoever, then you should consult a lawyer. You will need to initial each page and leave your signature at the bottom of the very last page while in the presence of two independent witnesses who will also sign and verify your Will.
The witnesses chosen have to be above the age of 21 and cannot be beneficiaries of the Will. Once all that is done, your Will is officially legal so keep it in a safe place. In the event of your death, your family will have to go through the Malaysian court of probate who will verify the Will and grant probate to your assigned executor.
And there you have it, your very own Will and Last Testament.
Living trust
A Trust is a legal document that grants partial ownership of your assets to a trustee/s to hold on behalf of the Trust’s beneficiaries.There are many different types of Trusts available on the market, but the most commonly used type in estate planning is the Living Trust.
A Living Trust is not the same as a Will because this type of Trust takes effect before the death of the settler (creator) rather than after.
It is normally set up because the beneficiaries of the settler might not be mature enough to manage their inherited assets. In that sense, the trustee can hold onto and protect the assets until the beneficiary is mature enough to handle them on his/her own. In addition to that, unlike a Will, the beneficiaries of a Living Trust do not have to go through a Court of Probate to claim their inheritance. Beneficiaries of a Living Trust avoid the Court of Probate due to ownership of the assets passing directly to the Trustee upon death of the Settler. So what are the basic steps involved in creating a Living Trust?
Step 1: Determine what you want to put into your trust
As mentioned before, a Living Trust is not like a Will. A Will can involve instructions not related to the assets of a person (such as assigning legal guardians) but a Living Trust only involves instructions pertaining to the distribution of a person’s legal assets.
Once you transfer property into your Living Trust, then unlike a Will, partial ownership of the asset will be transferred over to the trustee, so think carefully about what you want to put into your Trust and acquire the appropriate paperwork. It should be noted that if you fail to transfer your property into the Trust (i.e. funding the Trust) or if your property does not hold enough value to maintain the Trust, then the Trust will fail and become defunct. To prevent such a mishap from happening, you should hire a professional to value all your assets.
It should also be noted that unlike a Will, you don’t necessarily have to include every single asset that you own. For example if you own three homes, you would have to include all three homes in your Will but you could perhaps choose to only include one home in your Trust.
As mentioned above in Step 1 of Writing a Will, remember to gather all details for any intended asset that you want to include in your Trust. Once you have everything written done, you can move on to Step 2 and choose your Trustee.
Step 2: Find your trustee/s
Just like an Executor, a Trustee should be someone over the age of 21 who is not a beneficiary and that you can depend on. Similar to writing a will, you can have more than one Trustee. After your demise, the Trustee is essentially the person who is solely in charge of distributing and taking care of all of your assets.Though unlike an Executor, the ownership of the assets transfers fully to the Trustee upon death of the Settler.
Once you have your team of Trustee/s, you can head down to the third and final Step.
Step 3: Write your peace and make it legal
Just like a Will, a Living Trust follows a very specific format (though this format could change depending on the nature of the Trust). Excluding the occasional abnormal Trust, the average generic Living trust should follow this format.
Trust name
You should always give your trust a name. Name’s can range from “Jack King’s Living Trust” to “Super Awesome Explosion Living Trust”. As long as the name is not offensive in nature, you can essentially use any name that you want”
Declaration of trust
In this paragraph, you basically declare yourself as the settler (creator) of the trust and give written authority to the trustee to care for your property. It is also advisable to add a sentence stating that you have the right to add property to the trust as you see fit.
Amendment and revocation
This paragraph states that as the settler of the trust, you have the ability to amend or revoke any terms listed within the trust. This paragraph will essentially give you the ability to change and/or terminate the trust as and when you want.
Trustees
In this paragraph, you declare the full names of your Trustees and detail what their individual responsibilities are. You can also use this paragraph as a platform to appoint successor Trustees. A successor Trustee will assume the role of Trustee if your primary Trustee dies. This paragraph should also specify the full extend of a Trustee’s powers in the event of your demise. For example, if you assign your house over to a Trustee, you may want to include the condition that a Trustee may not sell the house when he/she assumes full ownership upon your death.
Death and/or physical incapacity of settler
This paragraph basically details what will have if and when you die or become physically incapacitated. For example, you might want to include a condition that the Trust may not be changed or revoked if and when the aforementioned events happened.
Beneficiaries and conditions
This paragraph lists out all your proposed beneficiaries and the conditions that they have to meet in order to inherit your assets. For example, you may want to include something along the lines of “Any property to which Ben Freeman becomes entitled to shall be given to Jason Red until Ben Freeman reaches the age of 21″. In this case, you are declaring that the trustee “Jason Red” has the right to hold the property until the beneficiary “Ben Freeman” turn 21.
Certification
Sign off on your Living Trust and declare that you understand the terms and conditions
Now that you have chosen your assets and you have a brief understanding of how a Living Trust should look like, you can move on to Step 2.
Unfortunately, unlike a Will, a living Trust follows a complex series of legal framework, so while it is entirely possible to write your own Living Trust. It is best to leave it to the professionals. Professional consultation can cost anywhere from RM1,500 to RM2,000. While that may seem like a large amount to spend, investing in professional help can probably save you from making crucial and critical mistakes.
For example, if you fail to probably specific certain terms such as powers and abilities of the Trustee, you can leave yourself and your beneficiaries open to getting conned by your very own Trustee! It is for that very reason that a Living Trust should be absolutely positively iron clad. So if you have any doubts, get professional help.
Life Insurance
Life Insurance is a legal contract between an insurer and an insured to pay the latter a predetermined sum of money upon his/her death. Life Insurance can be taken up by anyone at any given age with the premium (monthly payment) of the insurance varying depending on the age, health and lifestyle of the insured.
For example, a 65 year old man who takes up life insurance will pay a much higher monthly premium than a 22 year old man due to the increased risk of death. In addition, it should be noted that Life Insurance payouts do not cover events where death is deliberate, such as suicide for example.
Unlike a Living Trust, where the beneficiaries can claim their inheritance immediately, a Life Insurance Payout can take up to 2 years due to the legal contestable period that an insurance company has to determine whether your death was natural. For example, if the insured person dies under mysterious circumstances (such as homicide), then the insurance company has the right to withhold payment until all investigations are complete.
Despite the messy procedures involved with Life Insurance, keeping yourself and your loved ones protected and ensured is a great way to leave a lasting legacy. So how does one go about signing up for Life Insurance?
Step 1: Pick your plan
There are several different types of Life Insurance available on the market. All have different types of premiums, payouts and terms & conditions behind them. To name a few, there’s Term Insurance, which insures for a specified period of time in an insured person’s life or Whole Life Coverage, which insures the person until death. Think about your lifestyle, discuss with your family and pick out the one that is right for you. For example, if you are young (late 20s to mid 30s), then you might want to invest in Whole Life Coverage to take advantage of the lower premiums.
Picking the perfect plan can and will take quite a bit of time, so choose wisely and select the plan that supports your financial capabilities. Once you have that all done, you’ll want to select a beneficiary who can claim the payout upon your death. For that, you should move down to Step 2.
Step 2: Find your beneficiary
The Beneficiary is the person who can claim the payout upon death of the insured. Choose your Beneficiary well as this is the person who will be legally entitled to make an insurance claim upon your death (because you obviously won’t be able to do it). It is also advisable to keep a back up Beneficiary in the possible but unlikely even that your Beneficiary happens to die with you at the same time.
Once your beneficiary has been chosen, you can take the final steps to securing your Life Insurance coverage. Move down to Step 3.
Step 3: Make it legal and pay your premiums
Lastly when you’re all satisfied, sign your agreement and most importantly, remember to pay your premiums. If you forget to pay your premiums, the insurance company has the right to withhold payout in the event of death or cancel your policy altogether.
Joshua Ong is an Investigative Journalist of SaveMoney.my, an online consumer advice portal which aims to help Malaysians save money through smart (and most of the time painless) savings in their daily banking, technology, and lifestyle spending habits.
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