Here’s Rick, a 45-year old medical specialist working in a private hospital. Su Mi, his wife, is a homemaker. Together, they have two sons aged 10 and 6. Today, as the breadwinner of his family, the question is: “What are important factors Rick should consider to plan his estates efficiently?”.
Step 1: The Estate Planning Quadrant (EPQ)
First, the EPQ is a tool that Rick can use to assess the comprehensiveness of the estate plan. Such comprehensiveness is one that considers 4 factors:
- Beneficiaries
- Assets
- Emergency Fund
- Periodical Payments
1. Beneficiaries
This includes Su Mi and his two sons.
2. Assets
Presently, Rick has the following financial assets:
- RM 1 million in life insurance coverage.
- RM 1 million in bank and investment accounts.
- A residential property worth RM 800k
- A car worth RM 100k
3. Emergency Fund
This is a fund that is to be distributed to Su Mi in the event of Rick’s death for:
- Payment of legal fees (Grant of Probate application).
- Family’s living expenses.
- Servicing of existing debt (if Rick has outstanding mortgage & car loan).
4. Periodical Payments
Subsequently, Rick wishes to:
- Pay RM 10k a month to support his family’s living expenses.
- Retain RM 500k for his sons’ tertiary education.
- Distribute all remaining funds to Su Mi and his sons in equal proportion once his youngest son turns 25 years old.
Step 2: The Tools
Second, once his needs are identified, Rick could use the tools below to protect and preserve the financial interest of his family.
1. Will
Rick could distribute to Su Mi, his wife, the following assets:
- Residential property worth RM 800k.
- Car worth RM 100k.
This ensures that his family is secured a place of residence. In addition, Rick can appoint Su Mi to be the executor of his will and the guardian of his sons. Also, it is possible for Rick to appoint a secondary executor and guardian to ensure that the clauses of the will can be executed efficiently if Su Mi refuses to act or loses her ability to act as both the will’s executor and guardian.
2. Testamentary Trust
Rick can set up a family trust under his will to manage the following assets:
- RM 1 million in life insurance coverage
- RM X in bank & investment accounts (X = balance at that time of death)
Upon death, these sums (RM 1+ million) shall first be transferred into his family trust. The trustee shall then safeguard this sum and:
- Distribute RM 10k a month to Sumi for her family’s expenses.
- Retain RM 500k for his sons’ tertiary education.
- Distribute all remaining funds to Su Mi and his sons in equal proportion once his youngest son turns 25 years old.
3. Living Trust
Rick can form a living trust and put RM 100k into it. He can nominate Su Mi, the two kids, and himself as beneficiaries of the trust. So, in the event of death, the trustee could distribute RM 100k to Su Mi within 14 days and Su Mi could use it for the following purposes:
- Payment of legal fees (Grant of Probate application).
- Family’s living expenses.
- Servicing of existing debt (if Rick has outstanding mortgage & car loan).
Also, if Rick remains healthy and alive, he could instruct his trustee to invest the money for projected returns (let’s say 7% per annum). In this case, he would be able to expect RM 7k a year in projected returns from his living trust.
Conclusion:
As you can see, estate planning is not complicated. By using the EPQ, one could identify main factors to be considered in estate planning. As each individual has different needs and objectives, it is ideal for one to work with an experienced & highly qualified estate planner to formulate his or her estate plan.
For a start, you can begin by filling up your details below to book yourself a 30- minute consultation session. Our promise to you is: “You shall walk away with at least one key idea to secure your family’s financial future.”
