This is a guest post from Hendri Kamarudin, Rockwills Estate Planner and Certified Financial Planner (CFP).
What does money mean to you?
Money can mean many different things to an individual. It can mean material comforts, security in old age, the best start for the children we cherish or the ability to fulfill dreams and ambitions…in short, money allows us the freedom to live life the way we want.
As a result, many of us spend a large part of our lives engaging in myriad activities with the objective of accumulating our assets. The pragmatist in us recognizes that the sufficiency of our assets is important in this modern life as it enables us to provide for our loved ones, or in some cases, to support the causes close to our hearts. And so, we live out our lives, each day labouring to build the lives we desire, for ourselves and the people we love.
However, what happens when one passes on from this life?
The topic of our own mortality is one that many are loathe to consider. But as famous thinker and activist Benjamin Franklin once said, “in this world, there are two things certain in life: death and taxes.”. The truth is, we all need to think about how we can ensure that our loved ones continue to be provided for, whether or not we are by their side.
Here's our mistakes. Don't do the same.
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
And this, is where Legacy Planning comes in.
As mentioned earlier, there is a whole plethora of reasons why we cannot take the matter of the management of our wealth lightly. It is then pertinent for us to understand the differences between
All this, leading ultimately to the safe handling and distribution of the resulting wealth in the manner you deem best. As you can see, much goes into the building of our wall of wealth and assets—a wall that can help to shield our life’s work and loved ones from the darts and arrows of life. Legacy planning helps to ensure that our wealth is passed on to our loved ones in the most effective and efficient manner; and that in our absence, our hard earned assets will continue to provide for those that are close and dear to our hearts.
What about insurance? Wouldn’t insurance achieve the same objectives?
Well, yes and no. Some financial planners may suggest additional insurance as a “quick fix” solution to accomplish the same purposes; and insurance, to some extent, does provide a measure of financial assistance. However, legacy planning is far more comprehensive than a mere insurance policy.
To illustrate this, let us look at the example of Businessman A. Together with his business partner, he helms a successful business whose shares are divided between both of them, plus a smaller stake belonging to two other major shareholders.
In such cases, distributing business entities become more complicated since existing shareholders would naturally want to protect their own interests. It is thus unlikely that his business partner and shareholders would agree to having his teenage son or stay-at-home wife own a controlling stake in the company shares.
The solution? A clear Shareholders Agreement stating exit strategies to address the concerns of all involved. In some cases, a Shareholders Agreement arranges a buyout of shares from the deceased family in order to prevent shareholding dilution or loss of business control. In this way, a potential (and costly) legal tussle can be avoided, with the needs of all parties involved successfully catered for.
As such, a good legacy plan helps to safeguard the asset distribution process from unnecessary complications. Another realistic instance, would be the complications that occur regarding the timely distribution of assets and the manner in which they are distributed.
To have a clearer understanding of this issue, we need to first understand that the legal system is in place to protect our interests. The probate process ensures our hard earned assets are given to the rightful beneficiaries according to our valid wills. Unfortunately, it takes significant time and money to run this probate process. Very often, it may take months to complete the probate process due to the intricacy of the proceedings.
For some, the absence of a valid will make the process even more complicated. In these instances, the intestacy law will replace the probate process. The Court will have to identify who the beneficiaries are and how much is allocated to each group ofbeneficiaries according to the intestacy law. This process will take an even longer time. It is not uncommon to take years for the assets distribution to take place.
If our loved ones are financially able to take care of themselves, we may not be too concerned with the length of time needed for them to inherit the estates. But in reality, widows and orphans would rather our assets be distributed sooner than later.
Yet another valid concern is the liquidity of investments. For those who opt to have their assets distributed in the form of regular payments, some forms of investments may pose problems as the volatile nature of such investments may cause their value to swing wildly. This, in turn, can lead to difficulties when it comes to the distribution of these particular assets. Furthermore, hard assets such as properties and overseas assets—properties, stocks and banks savings to name a few—may require estate duty to be paid up before inheritance can reach the hands of the beneficiaries.
The scenarios outlined above are just some of the many hiccups that often occur in the handling and distribution of our assets. As is evident, ensuring that our loved ones are always taken care of, no matter what may happen, is no simple task.
There are different tools and instruments that one can use to ensure success—Writing Wills, Setting up a Trust, Last Power of Attorney, Nominations of CPF and Insurance Policies, Shareholders Agreement and so on. An intentional and purposeful goal is always more powerful than an adhoc wish or effort. Approach a qualified Legacy and Estate Planner today so that he/she can help you to draw up a carefully crafted plan to protect your loved ones and everything that you’ve worked so hard for. Then, and only then, would your financial roadmap be truly complete.