Enjoy the video …

Evanna sends out Video on Private Trust (English Version), explaining purpose of setting up a Trust.
Forget about those LONG explanation, LONG reading materials, LONG lectures about Private Trust.
If you don’t have time to read about “TRUST” materials, instead, you want to have a 3 mins no-nonsense, straight to the point understanding of PRIVATE TRUST.
This is the video NOT to be MISSED.

1. Not financial Capable dependants (Too young or Too old)

2. Immediate Disposition, Dont need to wait for 6 months – 1 year for asset distribution process.
3. Protection against Spendthrift Beneficiaries
4. Privacy
5. Charity Purpose

About the Guest Author:

Evanna Phoon is the “Most Sought After Rockwills Will & Trust Specialist”. Her website is www.malaysiawills.com, where anyone can register for FREE SEMINARS on Will Writing & Trust and watch FREE Video Education Series to help increase awareness of Will, Trust and Estate Planning services in English, Mandarin and Cantonese.

She had done over 200+ video blogs on the topic of Will, Trust, Funeral & Bereavement care and Estate Planning. She was invited as a speaker at International World Bloggers Summit 2011@PWTC, Rockwills CEO achiever´s congress, Negeri Sembilan Chinese Chamber of Commerce & Malaysia SME Business Networking Seminar.

Evanna writes regularly for Malaysia SME newspaper and two Chinese medium magazines “mystudy.my” and QiJi.

Prior to joining the financial planning industry, she worked for a few years as an electronics engineer with Intel, Freescale, Motorola and Western Digital. While still studying in the university, she appeared in billboards and did catwalk modeling. She was Miss Astro Chinese International Finalist 1998/99 and had won Miss Sunway Beauty Pageant title in Year 1999. She is currently married with two children and love to spend her time mountain biking and outdoor sports with her family.

What is Private Trust ? is a post from: KCLau.com

Despite all the complicated explanations and financial products out there in the market, my sharing is normally short and sweet so that everyone (even if you are not a financial savvy person) will easily understand. OK, let’s begin.

In general, most of us work and source for income, income minus of expenses (basic living expenses, movie, clothes, transportation, internet connection, phone, phone bills, utilies etc) and minus off income tax, we will have some savings. Next, we’ll put this into banks, fixed deposit, bonds, invest in unit trust, invest in shares either locally or overseas stock exchange, lands, purchase insurance or some of us who owns business will most likely re-invest their savings into their own business for expansion and development.

This whole picture is called financial planning. The whole purpose for this is to grow our income, let’s say from RM 100 to RM 1,000 or more. Most people will focus on this area of wealth and income accumulation, income protection. While you grow and accumulate your wealth, there’s another important piece of action that you also need to consider, that is wealth distribution.

How are you going to distribute the assets that you have accumulated when you are no longer around ? So that you family and loved ones will not go through tedious process to benefit from what you have worked so hard to accumulate for them ?

Well, to summarize you have three choices.

You can choose to not take any action or don’t bother planning for distribution. Upon death, the first is of course funeral. Whether you have a will or don’t have a will, all your assets will immediately be frozen. Let’s look at if you don’t have a will. An administrator will be chosen among your beneficiaries, if you have beneficiaries that is below the age of 18, then 2 administrators will be needed. Most of the time, delays and conflict arises here because some family members don’t want their siblings to be administrator. After choosing administrator, 2 sureties is needed. the sureties acts like a guarantor just in case administrator runs away with your assets, then the beneficiaries can claim from the 2 sureties. If your asset is worth RM 10 million, then the sureties will need to have the equivalent assets, which is RM 10 million for each sureties. By this time, you will see that further delays because I believe it’s not easy to find these two guarantors. Since there’s no will, then the administrator will apply for Letter of Administration. They’ll need to prepare for all asset list in proper manner and if there’s no will or asset inventory list, then most likely delay will happen because beneficiaries will “treasure hunt” for the deceased assets.

After the Letter of Administration is granted, the administrator can not distribute to the beneficiaries yet because there’s one more important step to clear. which is to pay the debts (housing loan, hire purchase loan, other personal loans) and also need to do an income tax clearance with the IRB. You can google “Borang TP” to find out. The administrator will need to fill up this “Borang TP” and obtain income tax clearance.

After all the mentioned process is cleared, only then can the administrator distribute to the beneficiaries. So, in some cases when the deceased might have RM 10 million worth of assets, after paying off debts and clearing unpaid income tax, the family member might only get a fraction. In the below example, I just put there RM 6 million.

With a Will, it’s easy because the an executor has been appointed in the Will to apply for Grant of Probate. This will save a lot of time. However, upon the extraction of Grant of Probate, the executor will still need to pay the debts and proceed to do income Tax clearance before distributing to the beneficiaries. So, this process might take 6 months or 1 year or more depending on the time taken in each process. We call this “Probate Process”

One more choice that you can consider to ensure your family can have access to your assets are to consider setting up a Trust. In this Aug issue of Money Compass, I will briefly explain what is a Trust, I will elaborate more in Oct issue. So, by setting up a trust and placing certain assets into the trust, you can actually sidestep the probate process and your beneficiaries can benefit from the trust assets.

You can now see clearly that no matter which choice you make, there’ll be an impact to two things, one is your family and loved ones, another one is the assets and wealth you accumulate all this while. Many people understand the importance of writing a Will but has procrastinate, this indirectly means they have chose choose number 1 (don’t bother or don’t care) and this action of their will likely be disadvantage to their family in the event of his death. As a service provider myself, I like to share this three choices to the public because it is very easy for them to understand.

In the Will, there are some important people (terms) that you should be familiar with.

Testator: The person making the WILL. If it’s your WILL, then YOU are the Testator.

Beneficiaries: A person who benefits from the deceased’s WILL

Witness: Two witness is needed when Testator signs and finalize his or her will.

Executor: A Person named in the WILL to obtain the grant of probate and administer the deceased’s estate

Guardian: A person to take care the testator’s minor children in the event of death of testator.

Important Notes before writing Your Will

• Your Beneficiary Can Be Your Executor
• Your Beneficiary Can NOT be Witness
• Your Beneficiary’s spouse Can NOT be Witness

You will see from the above people that the one that you should really pay attention to is appointment of your executor, he/she is really the key person to make sure your assets gets distributed to your beneficiaries. Below are the duties of your executor, looking at the responsibilities and duties, it is advisable that you ask the consent of the person (maybe you plan to put your brother or friend) before making him/her your executor. It is also a good practice to always have a professional trustee company as your backup executor or substitute executor in the event the individual executor in your will is unwilling or unable to act as executor. Below are the duties of your executor.

• Make funeral arrangements
• Locate your WILL
• Gather Documents & Information
• Appoint & Liaise with Lawyer
• Attend Court hearing
• Submit tax return & obtain income tax clearance
• Liaise with bankers/financier/creditors
• Advertise notice to creditors
• Insure & Protect assets
• Liaise with Government Departments
• Locate, collect, assemble, call in all assets
• Value & liquidate assets
• Maintain separate trust account
• Invest assets
• Compile list of creditors
• Determine priority of creditors
• Pay Debts/Liabilities
• Detailed Accounting for Beneficiaries
• Pay Estate Tax
• Distribute Assets/Testamentary Trust

For husband and wife, it is very common that husband will nominate the wife as executor and vice versa. it is very risky because what if both husband and wife pass away in a common tragedy ? Therefore, a backup executor of a professional trustee company will cover if this unfortunate event happen.

After writing your will, make sure that you keep it in a place that your executor can locate. Besides that, you can always have your Will reviewed and change your will anytime you want to. Some of the reasons why people re-write their will are

• Change of your Marital Status (either married, divorced or widowed)
• Change of your witness, executor’s and guardian’s status (migrate, death, relationship breakdown, bankrupt)
• Change of mind regarding your beneficiaries. Addition to the family such as grandchildren
• Substantial increase of wealth (You started a business, purchased properties)

The last and final important information that I find it very seldom communicated in most articles and this is one thing I would also like to share the terms of the fees because this is the most common questions people will bring up and ask me. You should ask your service providers and be clear on each items on the fees incurred

Will Writing Fee: Fees charged by the service provider to write your Will.

Will Custody Fee: Fees charged by the service provider to safe keep your Will.

Estate Administration Fee: Fees charged by the executor to execute the instructions and distribution of your Will. The fees charges starts from the extraction of Probate until distribution to beneficiaries stated in the Will.

Is there other Fees involved ? Yes, Solicitor fees and expenses for applying for Grant of Probate

That’s the end of my sharing and I hope my article can be of an easy checklist and guide for you and you better understand how to use a Will to protect your loved ones and asset. Stay Tuned for my upcoming sharing …

How to Use a Will to Protect Your Loved Ones and Asset is a post from: KCLau.com

In this issue’s topic, we will be talking about Private Trust. We will learn about what is the difference between Will and Trust; if you have a Will, do you still need to set up a Trust? We will also share about the steps on setting up a Trust and the fees involved if you’re interested. For the past topic, I shared on Will and now I would like to share more on Trust.

What is the difference between Will and Trust?

Will is mainly for distribution while a Trust is mainly for preservation on assets and wealth. Imagine that you’ve spent your lifetime to grow a tree of wealth and the tree is starting to grow fruits and you are starting to enjoy some fruits from the tree. For example you may accumulate some assets and properties, so currently you are receiving some interest or rental income.

Let’s say you use a will as a tool to distribute will away your fruit tree, Will is a distribution tool, so when you will away your assets, it’s like giving the ownership to someone else, you cannot stop this person from taking some fruits from the tree every year and then decided that it’s too slow and chop the tree and take off the fruits. Because you already given the ownership to your beneficiaries. But Trust is for preservation. Once you setup a Trust, your intention is that you want to preserve the capital (your tree) and at the same time your beneficiaries can still enjoy the fruits. Trust is more for long term as compared to Will.

Why people choose to setup Trust?

Some of them worry because they have minor children. In most of the cases I’ve done for Will, the husband will give 100% to his wife and the wife will also will away 100% for her husband. This is very common situation. The second scenario to think of is what if both husband and wife pass away in a same accident and living minor children behind? It’s a main worry because the children haven’t reach 18 years old and they are not financially capable to handle the assets. There is where the Trust can help in this scenario.

Next scenario is the husband and wife marry and they have children. The wife may have accumulated some assets and when the wife passes away, she may pass all her assets to her husband in the Will. But the wife may worry because the husband may re-marry. The assets she accumulated now already pass to her husband and he may share it with another women. This is not the wife’s intention. She may want the assets that she passed to her husband to be given to the children rather than shared with the third party. This is another worry for ladies.

Next worry is for men. Most of them are the bread-winners and some of their wife is home-makers and housewives who are not financially savvy. If a husband will away let’s say 100% for his wife, she may not capable to handle such huge sum of assets. She may get corned or cheated if she not really knows how to handle it.

Next worry is you give a huge amount for the children in your Will. When they are aged 18, they receive this amount and they may buy something luxury like a sport car to enjoy themselves. There is no control over how the child will use the money especially he/she is very spendthrift and doesn’t appreciate the value of money. These are some of the worries that people will think about.

“Is there a better way to handle my assets rather than will away 100% to my beneficiaries?”

Maybe you want to will away a certain portion and a certain portion, you want to preserve. There is where a Trust comes in. Let me share with you some of the terms and people that is involved in a Trust. For the people who setup the Trust, we call them “settlor” who is the owner of the Trust. “Beneficiaries” is the persons whom you want them to benefit from the assets, such as your loved one, your spouse, your children or even you parents and siblings. “Trust Asset” is the assets inside the Trust. “Trustee Company”, in this case for example is Rockwills Trustee, who is the party who handle and manage the Trust. “Trust Period” is the Trust duration, how long you want the Trust to last for. The very important term you need to put in the Trust is “Protector” because this Protector acts as a watchdog and advise the trustee on the needs of the beneficiaries. When the owner is no longer around, the protector is something like watchdog to watch over the benefits of the beneficiaries. This six terms are very important and you need to remember especially you are doing a Trust.

Types of Trust

There are three kinds of Trust. Let me start with the Living Trust and continue with the Testamentary Trust. Living Trust is the person still alive, the asset is under the person’s name and he/she setup a Living Trust. During his/her lifetime, he/she need to transfer the assets that he/she currently owns to the Trustee name. But for Testamentary Trust, when the person is still alive, the asset is under the person’s name. When the person is dead and gone, the asset is still under the deceased name until the probate is granted and the debts and income tax are cleared, then the Testamentary Trust will only be started. The third type of Trust is a hybrid between Living Trust and Testamentary Trust, so we called it as the Declaration of Trust. How does it work? When the person is still alive, the asset is under the person’s name and the person does a Declaration of Trust but the asset will still under the person’s name. To see the differences, the Living Trust is the asset will be transfer to the Trustee name but a person do a Declaration of Trust, the asset will still under the person’s name. Only when he/she passes away, the asset will be transferred to the Trustee for the benefits of the beneficiary.

Why do people setup Living Trust?

The benefit of Living Trust is the Asset Protection against negligence claims, creditors and bankruptcy. This type of Trust is getting popular among the professionals like medical practitioners, surgeons, doctors because they are exposed to very high risk, they can be very successful for the past 1,000 cases but they only need 1 case (due to negligence) and can be sued for millions. Before this happen, it’s better to setup a Living Trust for their asset protection against negligence claims. This type of trust is also known as reversionary discretionary term trust for Creditor protection and is getting more sought after by professionals.

CEO dies after liposuction; family SUES Clinic for $1M

Source from: http://www.tnp.sg/content/ceo-dies-after-liposuction-family-sues-clinic-1m

The downside is when you setup a Living Trust, the Trust administration fee applies at the same time you don’t own the assets anymore. Do bear in mind that there are few specialists do setup this Trust although the administration fee applies but they feel very safe because they know right now their assets are protected in case there is a  negligence claim against them.

Next is Testamentary Trust. Why do people setup Testamentary Trust?

It is the cheapest form of Trust because it’s in the Will. The downside is because it needs to go through a long probate process before the Trust is setup and there is no creditor protection. When you combine the asset protection and the quick cash flow where the owner is still in control of the asset, it is the Declaration of Trust. It is a very popular service and product where our clients subscribe to us.

Steps to Setup Your Private Trust

The first step is to define your intention of setting up your Trust and appoint a Protector during your Trust period. During your lifetime, you can be your Trust Protector and when you pass away, you appoint someone else to be the Trust Protector. Next, you need to determine the trigger event, when will the Trust kicks in? Normally there will be three types of trigger events. First is upon death, second is TPD, coma or mental disability and third is critical illness. Then you need to determine the Trust assets and who can revoke or change the Trust. You also need to determine the term of the Trust period and who are the beneficiaries and entitlement at the end of the Trust period. These are the steps of setting up a Private Trust. As a Trust service provider, we need these details to assist you in setting up a Trust.

To determine the intention of setting up a Trust, some people want to setup a Trust is because they want to distribute assets quickly upon death. If you go through a Will, you need to go through a Probate process; you need to wait for a long time. Especially you’ve minor children, all your assets are stuck there, the children basic maintenance, education or even living expenses will be the problems. Next is to preserve asset against beneficiary. If you’re worry that your beneficiaries are not financially savvy, such as old parents, spendthrift or minor children and you want to protect the assets against them. The third intention is you might want to protect your assets against liability and creditors. Recall back to the very first example, in Will, your beneficiaries may just chop your tree and take all the capital and fruits where the Trust can help you preserve your tree so that your beneficiaries can still benefits from the fruits while preserving the capital. You need to know what the intention of setting up a Trust is.

Next is to determine the Trust Asset. What kind of assets that you can put inside your Trust? It can be shares in the private limited company, landed property, banks accounts, unit trust, investment accounts and life insurance. For joint property owners/joint account holders, they need to be joint settlers to the Trust. For Will, the husband and wife need to do separate Will but for Trust, you can have joint settlers to the Trust.

Next is to determine the term of the Trust period. You can said that the Trust ends after X number of years, like the Trust ends after your youngest surviving child reaches 25 years old; or you can said that the Trust ends after the death of a particular person. For example, your parents is staying with you and you are worry that you spouse will kick your parents away from the house when you’re no longer around. So you setup a Trust and said that the Trust ends after the death of your parents.

Life Insurance -a popular and the most economical way to fund your Trust

I would recommend clients to put Life Insurance where the client is able to purchase Life Insurance. Even if the client has money, it is just one-to-one which is you will only get one dollar if you put in one dollar. If you use that dollar to buy insurance, it can bring you five/six dollars in return at the end of the day when you no longer around. In term of having a bigger fund size, insurance is definitely a safer bet. The client can also put mixture, more than one policy in the Trust followed by the cash that they want to pump into the Trust. They can have either way or both of the assets in the Trust.

In our experience, the most common problem when client want to setup a Trust will be the worries of the financial securities for the spouse and children especially the client is the main income earner. For the husband or father, the worry is the wellbeing of the wife and children and even parents. For the wife, her concerns will be more on the parents and the kids rather than the husband. That’s the reality of the things. Some businessmen would sometimes look from different angles like their assets want to be protected from the creditors so we will do some ring fencing for the clients. There may also have some cases on the client is worry about the wellbeing of the children but at the same time he worry the children will misspend the money that is given to them. So the Trust and Will will be able to take care of all these concerns about when do we let go money, when do we retain money and so on. Different family will have different scenarios, issues and worries.

How to Use a Private Trust to Protect Your Loved Ones and Asset is a post from: KCLau.com

How to ensure that although you’re comatose or TPD, you’re still well taken care of by the insurance proceeds that you bought initially ? How to ensure that the children are protected in case both Husband & Wife passes away in a common accident ?

In this issue, I’m sharing more about Insurance Trust.

We have two types of ways to give out the death benefits of an Insurance policy. One is you can do Insurance Nomination. The insurance nomination normally is a lump-sum payment paid out to the beneficiaries but after that you cannot control how your beneficiaries are going to use it. The beneficiaries may just use the insurance money and do something else. They might buy luxury items. The second way is via an Insurance Trust, you’re preserving the sum assured with a trust vehicle, and you can have controlled payment through the beneficiaries.

Here are some scenarios, risk or problems with Insurance Nomination.

1. A lump-sum nomination to your children and at that point the children is 18 years old, just reached the maturity age to receive the money. Imagine when the 18 years old child receives the RM1 million nomination paid-up, what you think the first thing he will do? Maybe the first thing he will do is buy himself a sports car and go all out to enjoy his life.

2. Normally the husbands nominate their wife for the lump-sum payment. Is not that your wife is not a good wife. However, we never know because the society has changed and your wife having inherited the millions from the insurance money, they will be targeted by bad people or bad friends that are only interested in your money. It might happen and it will expose to that risk.

3. Lump-sum nomination to your husband. Your intention is to pass the lump-sum to your husband so that your husband can take care of your two minor children. We won’t be 100% sure that he will be targeted by girls or he will spend money on her new girlfriend. So right now your insurance money which supposed for your children, ended up spending it on your husband’s new girlfriend. Now, that’s a REAL problem.

4. Let’s say the present husband has a very bad habit of drinking or gambling, not a good husband. Your insurance nomination, you leave out your husband said I don’t want to nominate my husband, I nominate my younger children. But actually when the insurance is paid out eventually, the children are still minor, it will still go back to the spouse because he is the legal guardian, and this is the husband who loves gambling or drinking.

5. If you have an illegitimate child or family, it also doesn’t guarantee the benefits paid to the intended beneficiaries because they are not protected under Sec 166 Insurance Act. This is the problem with insurance nomination.

I’m not saying that insurance nomination is not good but just that these are the risks if you just do insurance nomination itself. Nomination covers certain scenarios but it doesn’t cover more “what-ifs” scenarios mentioned above.

Both Husband and Wife Pass Away in Common Accident and Insurance Nomination Failed

This is the normal case. Wife will nominates 100% to the husband and husband will nominates 100% to the wife in insurance policy. But what if both husband and wife pass away in a common accident? Now the insurance nomination failed and it doesn’t provide the substitution of beneficiaries. How to protect the minor children? In this case, if you’ve no Will, you need to go through the Letter of Administration procedure and there is Will, you need to go through the probate process. These processes normally take some time. Without a Will is 2 to 5 years, with the Will is within 2 years. What I mean is the children are still minor, they still need to carry on with their life, maintenance and education. The assets need to go through these procedures before distributing to the children. It will take long time.

For total peace of mind, it is best to combine both worlds. Insurance is a very good protection product but if you do insurance nomination, it will solve 50% of the scenarios where nothing happen, when you passes to your wife, your wife is financially capable to handle the financial estate and make sure the family will be brought up. But there are also other risks like what if something happen to your spouse when your children are still minor and your insurance money is parked under your spouse. In order to have a total peace of mind, 101% protection, you should consider setting up an insurance trust.

Insurance nomination, because it is a lump-sum payment, it will expose to certain potential risks and problems that I mentioned just now. Insurance trust, because it is a controlled payment, you can mention what circumstances you want to pay out the money. If the children want to buy a sport car then the trust won’t give them the money. If the children want to pay for the college education fee then the trust will only give out the money. It actually lessens the risks and problems of the money not being served in the intended purpose of the parents.

The people and term of the insurance trust is the settlor which is the owner, the beneficiaries which is the internal beneficiaries of your choice, of course the trust asset here is the insurance policy, the trustee, the trust period, how long you want the trust to go on and the protector. The protector is very important, we always advise our clients to nominate protector to act as a watchdog and advise the trustee on the needs of the beneficiaries.

With the insurance trust, actually the money can be given to you and your beneficiaries quickly because insurance money besides paying out for death claims, what if you’re TPD or comatose. If you’re comatose, the insurance money is sort of stuck. How to ensure that although you’re comatose or TPD, you’re still well taken care of by the insurance that you bought initially. With the insurance trust, you decide when to give, how much to give and who to give to. You have control over all these 3 factors. There is no court order required for distribution. Meaning if you set up an insurance trust, once the insurance money is paid out to the trust, the beneficiaries can start benefiting from it. You don’t need to go through the probate process.

What to write in you Trust Deed?

This is how you are controlling the usage of the insurance money. With this trust deed, you can say with this insurance trust deed, I only pay out for my child education to pay directly to the university or college. For my child maintenance, you can mention maybe X amount per month per child inflation adjusted. Let’s say RM2,000 a month per child for their maintenance and living expenses. If they have any medical needs, you can also get from this trust. Next, in the trust deed you can also mention settle outstanding debts or continue to pay monthly amounts. For example you’ve a housing loan and set in the trust said every month pay a minimum loan amount in the event if you don’t have MRTA. You can use part of money to begin probate process also because probate process also required some money. These are what you can state in your Trust Deed.

I think there is still a huge misconception of Trust. A trust is not for rich people only, it is also needed for the people who have medium income. Let’s say you have very little assets, the family situation is do you have young children that will need immediate income when you and your spouse are not around? If the answer is yes, then you need to setup a Trust. The next question comes in. What can you afford to set up a Trust? If you don’t have lots of cash, would you be able to buy a policy? Or have an existing policy that have reasonably substantial amount to put into the Trust? If the answer is yes, you will have a Trust being done using the policy. The trust that you do, you don’t have to do a long term trust. Do a short term one. For example, I probably need this Trust coverage for my children until my youngest is 21. In case I pass away before my child is 21, I know there will be money there available for my children. In the event I live longer than my child is 21, the Trust will automatically lapse by itself, the Trustee will assign back the client the policy and the client can nominate their kids, who are adults and not too financially dependant on their parents.

Insurance Trust – Understand This before purchasing any Insurance Policy is a post from: KCLau.com

Entering a Business without thinking about the proper Exit Planning will cause a lot of problem.

• Business interested inherited by heirs might not be the best choice, it is because the heirs might not be interested or conflict might arise due to different vision or direction among the heirs and surviving business partners

• Difficulty in selling the business interest because there were no outside markets for Sdn Bhd and without pre-arranges funding from the surviving business partners. More often, this will cause “haggling” process for the sale where the seller (heirs of the deceased business owner) will be demanding for a higher value & the buyer (surviving business owner) wants a lower value.

This ultimately will lead to conflict among the heirs and surviving business partners that will affect business credibility and employee confidence thus lead to discontinuation or dissolution of a profitable business.

Therefore, a Business Value Protection (BVP) agreement or I like to call it “Premarital Agreement between business owners” is the key to minimize these problems. The purpose behind this planning is to protect the value of the business so as to ensure fair and agreed price for the outgoing business owner or his family. A complete set of agreements will consist of 4 items: Buy-Sell or Cross Option Agreement, Power of Attorney, Trust Deed & Funding (Life Insurance or Cash)

In this issue, I’ll share more in detail on the general structure of this “Premarital Agreement” and what would be the funding options for a business owner to buy-out the other business owner. The diagram below explains on the overall general structure.

Diagram A: General Structure of a Business Value Protection Trust

Let me give you an example, where Ismail, Chong and Ramesh are shareholders in ICR Design Services Sdn. Bhd. which provides designs and construction services for offices. The business is thriving and last year, the company had a net profit of RM5 million. Ismail is a 40% shareholder, whereas both Chong and Ramesh own 30% each. All of them are married and have children. All of them agree that their family members should not be involved in the business. This is because their wives are working elsewhere with their own careers and their children are all under the age of 18. Ismail is 40 years old, Chong is 35 years old and Ramesh is 38 years old. All of them at this moment, are healthy and do not have any pre-existing medical condition that would prevent them from being insured by a life insurance company.

When they first started out 5 years ago, exit planning was the least in their priority because at that time, their business was still relatively small and all their energy is focused towards building their business. All their hard work paid off, their business are growing and thriving. They are keen to explore on the exit planning because they come to realize that any unforeseen events might happen as they have clients or vendors who suddenly passed away due to heart failure or accidents at a very young age. And they realize that they need to make time to seriously arrange for a exit strategy because it makes it very easy for them to sell their shares to the others without having to discuss on the pricing and the purchasers would not be financially drained to pay for the purchase.

To start, Ismail, Chong and Ramesh would need to agree on the value of the business. The purpose of the valuation is to establish a method for determining a purchase price for the ownership interest and avoids costly disputes over its values. There are two commonly used ways to value the business

1. Engage an accountant to conduct a valuation or agree on the formula to be used to value the business in the future

2. Have an agreed price which is subjected to be reviewed periodically (for example: every 3 years)

Once the valuation method is sorted out between them, the next critical issue would need to be determined – funding to purchase in the future. Unless Ismail, Chong and Ramesh have a huge cash reserve of their own, it would be difficult for them to buyout the shares when one of them exits. In my opinion the easiest way to fund such a purchase is by way of life insurance policy. (except for Keyman insurance).

Next is how will Ismail, Chong and Ramesh be able to pay for the insurance premiums? Part or all of the premiums may be paid through the dividends received as shareholder and/or director’s fees. It is very important to highlight to Money Compass reader that the company itself cannot be paying the premiums (whether it is categorized as deductible or non-deductible expenses) as it would contravene section 67 of the Companies Act 1965. For Sdn Bhd, the company is not allowed to buy back its own shares or directly or indirectly providing financial assistance to the shareholders to purchase the shares of another shareholder.

There are 3 scenarios that I’ll be sharing

Scenario  #1: All owners are insurable

Scenario  #2: Some owners who are not insurable

Scenario  #3: Some owners who are in active in the business

Scenario  #1: All owners are insurable (See Diagram 1)

Regardless of the type of life insurance (except for Keyman insurance), each of the eligible shareholders shall be insured. If all of the shareholders are insurable, there are two methods in approaching this

Method #1: 1st party method is to be used. This means Ismail will insure himself (and he is the policy owner-life assured) whereas both Chong and Ramesh pays for the premium of Ismail’s policy. The same method is used for Chong and Ramesh’s policies.

Method #2: 3rd party method where Ismail will insure and pays for the premium on the life of Chong and Ramesh. This is commonly known as cross purchase. However, this method may give rise to issues of insurable interest (to prevent a policy owner to gamble on lives of others commonly known as moral hazard) and multiple policies requirement.

Generally the 1st party method of insurance is the choice recommended

If Ismail, Chong and Ramesh are insurable, the funding structure is as illustrated in the diagram below. Once the policies are enforced, each of them shall assign the policies to the Trustee.

Diagram 1: Funding Options if all business owners are insurable

Scenario  #2: Some owners who are not insurable (Diagram 2)

If Ismail or anyone of them is not insurable due to health reasons, the ownership of the policies will be different. The diagram explains how to structure the insurance ownership when one of the shareholders is not insurable, which uses a 3rd party method. Alternatively, Chong and Ramesh could start a sinking fund right now or pay all of it by cash when the time comes to buy-out Ismail’s shares.

Diagram 2: Funding Options if some business owners are not insurable

Scenario  #3: Some owners who are in active in the business (See Diagram 3)

When one of the shareholders is not active in the business and that shareholder has no intention to purchase the shares of the others, then the funding structure would be different as shown in the diagram below. Let’s assume Ramesh is merely a shareholder who invests but he is not active in the business. He is also not a Director of the company.

Diagram 3: Funding Options if some business owner are inactive

Each policy owned by Ismail, Chong and Ramesh is to be assigned to the Trustee. This would enable the Trustee to claim and to receive the insurance proceeds when an unfortunate event such as death or disability or critical illness befalls one of the shareholders. The advantage of incorporating the Trust into Business Value Protection Trust is to ensure that the proceeds are received by an independent party as well as to distribute the proceeds to the outgoing shareholder or his family avoiding the need to apply for Probate, in the event of death. The Trust would be most advantageous when a shareholder dies because it contains instructions to the Trustee how to distribute the proceeds as there is no need to distribute all the proceeds to the beneficiaries at one time but a structured distribution can be designed. This prevents the beneficiaries misspending the funds.

Once the funding is sorted out, we shall then put in place together with the other components of  which is the buy-sell or cross option agreement, power of attorney and trust deeds.

Importance of Buy-Sell Agreement for Partnership Business (Part #1) is a post from: KCLau.com

During a webinar I hosted featuring Evanna Phoon and Chris Foong (Senior Manager of Rockwills Advisory Services), I asked the question: “According to Foong’s past experience dealing with over 40+ multi-billion/millionaires, what is the most common concern of a high-level individual?”

You can watch the video below on Chris Foong’s sharing:

Chris Foong: Actually one of the main and most common concerns , I think you have heard of it, is the Spendthrift Beneficiaries.

KCLau: Oh, that means that one of the heirs will be spending a lot of money.

Chris: Exactly. Let’s say they have a little four or five children, or two, three children for example. The tendency is that one of them will be like that. I mean throughout experience, this is quite real, in the real world I would say. That tendency actually gives some sort of problem if no proper planning is being done.

Of course, let’s say if a client has a multi-billion dollar kind of business empire, you may not want to transfer the shares to such a beneficiary. So, there is proper planning that needs to be done.

We most commonly use a type of a structural trust fund, whereby at the death of the testator of course you will not want to neglect this child. We still want to benefit this child. But, do not want this child to own a lump sum arrangement straightaway.

Maybe, it will be done in staggered payments or we can even design incentives. For example, say if you would like to look at this much allowance or whatever from the trust fund, every month, or year, or whatever it is. You will need to work or prove to us that you have capability of generating income or a way to match that. Otherwise, you will just be given a very minimum kind of allowance just to sustain your living expenses.

Definitely not giving him a big amount at one go.

KCLau: So, this is setting up rules saying that if you are making ten thousand a month, then you’ll get a certain allowance, let’s say another ten thousand from the trust, or something like that.

Chris: Yes, something along that line.

KCLau: Iff the beneficiary is not working, the trust maybe will just pay him…

Chris: A minimum amount.

KCLau: An amount, say, two thousand or three thousand a month.

Chris: Exactly. Correct. And this little worry actually leads on to another worry. Assuming that your child is actually already married or with children, most of the time, the grandparents are worried. I’m like this. I’m also worried that my grandchildren are not taken care of. So, that’s why.

KCLau: I see. How do you arrange that? How do you arrange for the grandchildren to get more money or benefit than the parents?

Chris: Sometimes they will invest on this type of trust called Generation Skipping Trust.

KCLau: Skipping? Generation Skipping?

Evanna: Yeah, they skip the parents.

Chris: Actually in simple terms, it’s just really something for the grandchildren. Again, this something could be cash or it could be an entitlement to shares in the business.

This will be in a proper structure. Whether it will be in the form of a trust or foundation, we will need to look at the customer concerns before we can advise. But definitely these are very real, true worries.

In fact, if you ask me, one of the other common worry I think I should tell you now…

KCLau: Okay, good.

Chris: It also includes the family members that are not in good terms. These are quite common as well.

KCLau: Not in good terms. For example?

Evanna: Internal fighting.

KCLau: Oh.

Chris: Yeah, brothers fighting for roles to be played in the business itself.

Evanna: Sibling rivalry.

Chris: Sibling rivalry is quite common as well. Some of worries like, “I have no problem benefitting my son or my daughter. My worry is that when I pass on, and the spouse will re-marry. I don’t want my inheritance to be given to them, you know, the in-laws, daughter-in-law, son-in-law, and eventually benefitting also their in-laws. That is also one of the worries.

And another will be protection. That’s right – protection. I have a client, of course, I can’t mention names, but he is definitely a high-level client. He actually set up a living trust whereby he transferred almost 30 million worth of insurance into the trust. This living trust is actually an irrevocable living trust.

Why is it called that? It is because after five years of setting up this trust, assuming the entire transaction is done without any fraud and depending on what will happen to the client himself, he does not need to worry about creditors coming to claim from him over the sum of the insurance proceeds. That’s also one of the main benefits of setting up a trust.

KCLau: Oh, great. So, what you are saying is that one of your clients actually transferred or assigned about 30 million worth of insurance into a living trust, and it is irrevocable. Irrevocable means, it cannot be cancelled, right? Once that’s done, it’s already done.

Chris: Right.

KCLau: So, after five years if he’s got a creditor who want to chase over the money, they cannot touch the trust money.

Chris: Yes.

KCLau: That’s very suitable for those kinds of business which is engaging in quite high risk trading or something.

Chris: Exactly.

For Premium Webinar Members, you can watch the full 60 minutes replay of the session here:

What’s the Most Common Concern of High Net Worth Individuals? is a post from: KCLau.com

In order to have a proper Business Exit Agreement or sometimes called business continuation agreement, it is very important that the agreement is properly drafted dealing with the important issues, there are

1. the incorporation of a power of attorney into the Business Exit Agreement plan in favour of the trustee,

2. The existence of a trust deed providing the instructions to the trustee regarding the periodical distribution of the sale proceeds.

3. As part of the Business Exit plan, the business owners would have to strategize the manner of funding the purchase in the future, where life insurance plays a very important & economical role;

4. The trustee of the arrangement is a trustee company rather than an individual. Having a trustee company ensures a professional independent party among the business owners and also most importantly continuity without being affected by death, illness or by a busy schedule where an individual would be exposed to.

In this issue, we’ll explore on some of the business exit plans or business succession plans executed by business owners that are done wrongly & defective in some ways. A substantial part of this article will discuss on the defects.

Problems with some existing business exit planning or business continuation plans

1. Without the appointment of a trustee and power of attorney

In order to save cost to set-up the plan, some business owners decided to leave out the need to appoint a trustee and to execute a trust deed, as well as the power of attorney. This would be fatal to the plan.

For example, Low, Tan and Chong are shareholders in a plastic manufacturing business and they have executed only a buy-sell agreement and the insurance policies bought by them are assigned to their own company who acts as the trustee.

The problem arises when, Low dies. The Company would receive the proceeds from the insurance company and it is to be used to pay to Low’s family in exchange for Low’s share. There will be two problems here.

Firstly, if there is no power of attorney, how would Low’s share be transferred to Tan and Chong? Tan and Chong would have to wait between 6 months to 3 years (because of Probate Process or Letter of Administration) for Low’s executor to sign Form 32A transferring the shares to Tan and Chong. It’ll take a long time to transfer the shares.

Secondly, Tan and Chong will only release the insurance proceeds (as the sale proceeds) that they received much later, to Low’s family only when they receive Low’s shares. If Low pre-signed Form 32A when the agreement was executed, this would be very dangerous because the Company is being “controlled” by Tan and Chong who may not want to transfer the proceeds (money received from insurance company) possibly due to the weak financial health of the Company at that time. Tan and Chong can also always misuse the pre-signed Form 32A to defraud Low of his shares.

Low’s family can always take legal action to recover proceeds or shares pursuant to the buy-sell agreement. It is their right to take such legal action and Low’s family would win the matter without any problem but it is not going to be a quick and cheap option. It is very time consuming. What is worrying is the actual recovery of the proceeds from Tan and Chong which can take many years. If you are Low, would you want yourself or your family to go through such difficulties?

The same problem above could be faced by Tan and Chong as well. Sometimes, it could also be Tan and Chong paid the family of the deceased but this time, the family of the deceased could be the “trouble-maker” and refuse to transfer the share to Tan and Chong. This will cause Tan and Chong time and money to take legal action to recover the shares they have paid for.

By including a trustee company and a power of attorney the above issues can be solved. The trustee company will be the independent party who will receive the sale proceeds from the insurance company and who also the “compliance officer” of the business exit plan to benefit all the business owners. The power of attorney would authorize the trustee company to transfer the shares of the outgoing business owner to the surviving business owners with ease and without any delay.

2. Distribution of the sale proceeds to the estate of the deceased

There are two main reasons to include the trust deed as part of the business exit plan.

Firstly, it is to ensure that the sale proceeds received by the named beneficiaries are not misspent within a short period of time. This is because the sale proceeds tend to be a substantial amount. If the trust deed states that the sale proceeds are to form part of the estate of the deceased, it is meaningless to have a trust then. This is because the trustee would claim the insurance proceeds and receive such proceeds within a few weeks from the insurer and thereafter to deliver the proceeds to the personal representative of the estate. This prevents the beneficiaries from receiving the proceeds immediately as they would have to wait for the personal representative to obtain either Probate or Letters of Administration to be granted by the court.

However, if the trust instructs the trustee to pay the sale proceeds to be used for maintenance, medical and education expenses of the beneficiaries, their financial hardship would be lessen. The distribution if the proceeds can be structured to make periodical payment based on the needs of the beneficiaries, rather than one-off payment to them.

About the Author

Evanna Phoon is a dynamic & technopreneur  owner of www.MalaysiaWills.com, a Senior Franchisee of Rockwills International Group & as-Salihin Trustee Bhd. In March 2012, she partnered with KCLau and REVOLUTIONIZED the entire financial planning industry to become the FIRST & ONLY Malaysian to use WEBINAR Series to provide FREE education to the public at www.malaysiawills.com/FREEWebinar
She is actively recruiting professional firms to join her team. To find out how, visit  http://malaysiawills.com/recruit

Highlighting Problems with current existing Business Exit Agreement. is a post from: KCLau.com

In this issue, we’ll explore two more examples on business exit plans or business succession plans executed by business owners that are done wrongly & defective in some ways.

 Problems with some existing business exit planning or business continuation plans

1. Using keyman insurance to fund the purchase of the shares

Many business exit plans created using the insurance proceeds from keyman insurance policies. In summary, a keyman insurance policy is a policy that is insures the life of key personnel of the company. It is paid for by the company and therefore, this keyman insurance policy is owned by the company, rather than by the key personnel. The idea behind keyman policy is to compensate the contracted amount to the company for the financial losses that would arise from the death or total permanent disability of the key personnel mentioned on the insurance policy. This insurance policy facilitates the continuity of the business.

When a keyman insurnace policy is used for business exit plan, it will be caught under section 67 of the Companies Act 1965. It prevents a private limited company from purchasing its own shares or to provide any form of financial assistance to the shareholder or any third party directly or indirectly to purchase the company shares of another shareholder. As such, when the proceeds are used to purchase the shares of the deceased shareholder, whether it is disguised as gratuity to the family or not, on the understanding that such payment is in exchange of the shares of the deceased shareholder, it will be caught under section 67 of the Act.

The Directors of the company will be held liable when the company is found to infringe section 67. The penalty faced will be a fine of RM100,000 or 5 years imprisonment or both.

1. Payment of insurance premium by the company

As mentioned in the earlier articles, the business owners are to pay for the premium using their personal funds. If the business owners are Directors, he will be able to use part of the Director’s fee received to make such payment. If he is a shareholder, then any dividends received can also be used to make such payment. The company is not allowed to use its funds to pay for the premiums (whether or not it is categorised as deductible expenses or not) and if it does, it will contravene section 67. Again, if caught, the penalty faced by the company directors will be a fine of RM100,000 or 5 years imprisonment or both.

In summary, let’s take a look back on the advantages of creating a proper business exit planning

1. The Business Exit plan and business owners guarantee the sale of the business interest at a fair value. It sale price is stated in the buy-sell agreement. At the same time it avoids the unqualified heirs from being part of the business or selling of the deceased’s shares to outsiders.

2. When the Business Exit plan is put in place, it avoids any unnecessary argument or negotiation over the purchase price between the heirs and the surviving business owners. This is important even though the Memorandum of Association and Articles of Association (for private limited companies) provide pre-emptive rights to shareholders regarding the disposal of the shares by way of a sale. However, the pre-emptive rights do not mention to pre-agreed price that is fair to the parties. The heirs and surviving business owners would still need to agree on a price to sell the shares. The heirs and surviving business owners may disagree for on the proposed price and the deadlock can last a very long time. In the meantime, the surviving business owners would have to work with the heirs.

With a Business Exit Plan, this is avoided as the parties can longer have the right to discuss on the pricing. It has been agreed and stated in the agreement that binds the business owner, his heirs and estate of the business owner.

3. With a power of attorney, it provides for a smooth transfer of outgoing business owner’s interest to the purchaser when the specified events occur. There is no need to wait for the personal representative to act or worse still when the outgoing business owner is disabled or in coma, to wait for his recovery to sign Form 32A.

4. As the business or the company is a not a public listed company, there is no outside market to sell to. The existing business owners would be the natural purchasers. Thus, with a Business Exit plan, it ensures that non-liquid stock/interest is converted to liquid income, providing a fund for outgoing business owner or for his loved ones to use during their time of need.

5. The Trustee ensures that the outgoing business owner’s interest are properly transferred to the surviving business owners and the sale proceeds are distributed proper without involving the surviving business owners and family members of the outgoing business owner. By implementing a trust, the business owner can ensure that the sale proceeds are not misspent by his beneficiaries.

6. The business carries on like normal and the suppliers/creditors can be assured of the existence of the business. The key employees will be willing to remain within the business due to the smooth transfer of ownership to the remaining business owners.

In reality, when we discussed the exit planning with business owners, it is very common that they will try to find a way to “save cost”. However, as a professional, our duty is always to highlight the issue and suggest suitable options for business owners after evaluating their situation.

We’ve been discussing extensively for the past 5 issues in Malaysia SME articles, talking on exit planning when businesses consist of partnership among non-direct family member, which includes friends, siblings or relatives

About the Author

Evanna Phoon is a dynamic & technopreneur  owner of www.MalaysiaWills.com, a Senior Franchisee of Rockwills International Group & as-Salihin Trustee Bhd. In March 2012, she partnered with KCLau and REVOLUTIONIZED the entire financial planning industry to become the FIRST & ONLY Malaysian to use WEBINAR Series to provide FREE education to the public at www.malaysiawills.com/FREEWebinar
She is actively recruiting professional firms to join her team. To find out how, visit  http://malaysiawills.com/recruit

The Problems with Current Business Exit Agreements is a post from: KCLau.com

What is the difference between forming a charitable trust under a living trust compared to forming a foundation under the Trustee Act 1952?

The senior General Manager from Rockwills, Mr. Azhar Iskandar Hew explained in this video.

Living Trust is pretty simple to set up because you do not need to get the approval of the authorities when you want to set up the trust. It’s a private arrangement you have with the trustee.

So, you draw up the papers and all that, then tell the trustee what you want to put inside this trust fund. So, the question is now: When do you want to activate this trust fund, upon death or during your lifetime?

Now, if you go with the Trustee Incorporation Act, in order to start up the trust fund, you will have to apply for licensing with the Prime Minister’s Department. You will need to provide whatever documentation they require which is usually the trust deed, application forms. The PM department also requires you to submit plans regarding what you want to do with the foundation in the future, your plans for the next twelve months if, let’s say, the license has been granted.

Keep in mind though, those plans that the PM’s department requires should be detailed, else they would think that you’re not serious about it. Though they don’t require guarantees in terms of how much you want to put in, they do ask for a proper plan. The Inland Revenue Board also will ask for a proper plan for them to grant the tax exemption license.

Now, what will happen is, you will apply to the PM’s Department to get approval first for all the paperwork. Once that is approved, it will probably take about six to eight months, sometimes even to a year.

Your next step will be after getting the approval from the PM’s Department, you will apply to Inland Revenue Board for a tax exemption license. That takes six to eight months.

Now, during this application, they will ask you: “From the time you got the PM’s Department license to your application today, what have you done in terms of the money that you are putting in to the foundation?” They want to see activities that have been done while you are waiting for approval from the IRB for the tax exemption.

That’s one reason. They want to look at your history, and at the same time, what they will tell you are you need to provide a plan for the next twelve months. If we grant you the license today, for the next twelve months, what are your detailed plans to use the funds?

They are pretty tight on that because they want to make sure that the approvals given are not going to be misused or used for money laundering purposes.

Also, when you have a center or foundation, it means you are really serious and into it. You need to spend time managing that foundation and treating it as if it is a company that you are involved in full time.

You can’t wash your hands off because you are the founder of that foundation. You will need to monitor the foundation’s activities because if anything is found wrong with the annual report, the PM’s Department and Inland Revenue will look for the founder and for the board of trustees in that foundation.

So, a foundation is for people who are serious in wanting to do charitable work. If you want a name only trust, I suggest you do a charitable trust, because that’s less cumbersome in terms of compliance.

Another difference is that a foundation can raise funds from the public but trusts cannot do that. Unless there are people who would willingly put money in to the trust. Somebody donates money in to your charitable trust, that’s fine, but you can’t have fund raising activities like Karaoko Singing contests… You can’t do all that. Your trust still has to be very much self-funded or on donations.

For Premium Webinar Members, you can watch the full replay of the session on How to Setup a Charity Foundation here:

How to Set Up a Charity Foundation in Malaysia is a post from: KCLau.com

As we discussed in the last issue on the difference between will and trust? Will is mainly for distribution and trust the main objective is for preservation of assets.

Imagine that you have spent your lifetime to grow your own tree of wealth, and then the tree is starting to bear fruits and you’re starting to enjoy certain some fruits from the tree. For example, you might accumulate some properties and currently receiving some property income. So, let’s say you use a WILL to will away your assets, this action is giving away your ownership to someone else when you are no longer around and you cannot stop the other person from selling away the property.

Your beneficiaries might said that “ Every year, every month I’m only getting two or three fruits from the tree and it’s too slow, so let’s chop the tree and take all the fruits in one shot.” With a WILL, this is most likely the case because you already distribute your ownership to your beneficiary. However, TRUST is for preservation, once you set up trust, something you have in mind is you want to preserve the capital but at the same time your beneficiary can still enjoy the fruits.

In summary, TRUST is for more long term.

Scenario 1: Double Tragedy

There are many reasons and worries that motivates a person to setup a TRUST. Some of them are worried because they have minor children. In most of the cases that I’ve done in Will, the husband would give 100 % to the wife, the wife would also will away 100 % to the husband. This is very common among husband and wife.

This covers the first scenario that a husband passes away surviving by the wife. What if we have a worst scenario, what if husband and wife both pass away in the same accident and leaving only their minor children behind. So he/she may worry because the children have not reach 18 years old, they are not financially capable to handle the assets. So that’s where this young couple would consider setting up a  TRUST to cover (just in case) this scenario happens.

Scenario 2: Career Woman

The next scenario is let’s say husband and wife married and they have children, the wife might accumulate the assets. When the wife passes away, all her assets are given to her husband in the Will. But the wife would worry that if her husband re-marry, and then the assets that she accumulated and passed to the husband might be shared with the new wife. This is definitely not what the wife wants, right? The wife might want the assets to be given to her children rather than share with someone else, some third party she doesn’t know. So, this is another worry for career ladies who are married.

Scenario 3: Financial Illiterate Homemaker

Next worry is for man, so for man they are the breadwinner and some they have wives whom are housemaker, housewives whom are not financially savvy. So let’s say the husband will away 100 % to the wife, then knowing that the wife is not capable to handle such huge sum of assets. That is also quite a worry. If the wife doesn’t know how to handle, then maybe she will be conned or cheated of her husband’s money.

Scenario 4: New Generation Children

Next worry is the children, you give a huge amount for the children and the children at aged 18 receive this amount. I attended a seminar recently and what is interesting about the seminar is they talk about Gen X, Gen Y and suddenly, the speaker would say our babies now are Gen-S. Gen-S stands for Generation that are born with Smart Devices like Iphone, Andriod, Pad, Tab, etc.

I then overheard some participants say Gen-S also meant for Generation Sotong. Because in chinese, if a person don’t like the boss and quit his job, he is said to be “frying his boss’s sotong.” Gen-S will quit their work anytime they like. Ok So, imagine this Gen Y or Gen S that inherited a huge sum of inheritance by their father. What do you think they’ll do next?

The next thing is the children will buy a sports car and enjoy himself. So there’s no control over how the children will use the money especially if the child is very spendthrift and doesn’t appreciate the value of money.

So this is some of the worries that prompt people to think about not putting all their assets in a WILL but to house some of their asset into a TRUST.

Most common question asked is “Evanna, Is there a better way to handle my asset rather than to will away 100 % to my beneficiary? Maybe to will away a certain portion, certain portion I want to preserve.” So there’s where trust come in.

People involved in a trust

Let me share with you some of the terms and some of the people that involve in trust.

Settlor – So for a person who set up a trust, we called them settlor, he or she is the owner. The beneficiary is of course the people that you want to be benefited from the assets, so it might be your loves one, your children, your wife, your old parents.

Trust asset – assets inside the trust.

Trustee- can be a natural person or a trustee company.

Trust Period – trust period is the trust duration, for how long will the trust last for.

Protector – Next, the very important thing that I always highlight to my client is to put in a protector because this protector acts as a watchdog who will advise the trustee on the needs of the beneficiaries. So when the owner is no longer around, the protector is like a third party auditor to watch over the benefit of the beneficiaries. It can be your relative or anyone from your circle of friends and family whom you trust. So this is very important terms to remember.

Living Trust VS Testamentary Trust

There are 3 kind of trusts, let me start with living trust and second I will go deeper into testamentary trust. So living trust is when the person is still alive, the asset is under the person’s name. And then she set up a living trust during her lifetime. She now wishes to transfer her asset that she currently owns to a trustee’s name.

But for testamentary trust, the settlor would setup when the person is still alive, but the asset is under the person’s name. When the person is not around, the assets will still be under the decease person’s name until the probate is granted and cleared the debts of income tax then only the testamentary trust will start distributing to their beneficiaries.

Why do people set up living trust and why do people set up testamentary trust?

The pros, the benefit of living trust is asset protection against negligence claims, against creditors and against bankruptcy. This type of trust is very popular, getting popular among medical practitioner like surgeons, doctors, medical specialist. They are professional and they are exposed to very high risk. They can perform 1,000 successful cases but they only need one case to bring them down. Negligence claim can run up to millions of dollars. So before this happen, it is better to set up a living trust which is the asset protection against negligence claims.

But the cons, the bad point is when you set up this trust, the trust administration fee applies and at the same time you do not own the asset anymore. This type of trust must be full discretionary trust. So this is the cons but do bear in mind that there are quite substantial number of doctors and specialists who approach us to set up this kind of trust although the trust administration fee applies but they feel very secured and safe because they know their assets are protected against negligence claims. The assets will only be return to them upon retirement.

Why do people setup Testamentary Trust

So next is testamentary trust. Why do people set up testamentary trust? Because it’s the cheapest form of trust in the will. The bad point is that you need to go through a long wait for probate process before the trust is set up and there is no creditor protection. There’s the third type of trust where is the hybrid between the living trust and the testamentary trust. We called it declaration of trust.

Declaration of Trust

How does this hybrid type of trust work? When the person is still alive, the asset is under the person’s name and the person do a declaration of trust during his/her lifetime. While the person is still alive, the asset will still under the person’s name. So if you see the difference, a living trust – when he/she do a living trust, the asset will be transfer to the trustee’s name but when a person do a declaration of trust, the asset is still under the person’s name. Only when he/she passes away or certain triggering event happens (settlor can name the triggering event, for example comatose, total permanent disability, mental disable, critical illness), the asset will be transferred to the trustee for the benefits of the beneficiaries.

So it combines the asset protections side and the quick distribution of trust side and the owner is still in control of the asset during their lifetime. So this is called declaration of trust, a very popular service and product where our clients subscribe to us.

Why do you need to Setup a Trust? Isn’t a WILL enough? is a post from: KCLau.com

A Cross Option Agreement is also known as a “wait-and-see” Agreement or Double Option Agreement. It is considered as “wait-and-see” because it may be difficult to decide in advance what action is to be taken by the business owners upon the occurrence of triggering events. Under such an agreement, the business partners give each other both a Put Option and a Call Option (some, however, may only want one or the other but not both, depending on how flexible they want things to be). Only when a business owner exercises the option given, shall it bind the other business owner(s).

In a Cross Option Agreement, the surviving business owner(s) have an option to buy (“call”) the business interest from the affected business owner’s legal representative, and the legal representative of the affected business owner has an option to sell (“put”) the shares to the surviving business owner(s).

For example, if the surviving shareholders want to buy the deceased shareholder’s shares then the latter’s legal representative must sell them in accordance with the terms of the Cross Option Agreement. Likewise, if the shareholding is offered by the personal representative to the surviving shareholders then they must buy. Just like in the case of a Buy-Sell Agreement, the Cross Option Agreement must state the trigger events for the option to be exercised and also the agreed period for an option to be exercised when a trigger event occurs.

Different events may allow the exercise of different types of options available to the business owners under the Cross Option agreement, for example:

Event #1: What happens upon the death of any of the business owner? “Double Option” is given to the parties – here the personal representative of the deceased business owner shall have the option to require (“put option”) the other surviving business owners to buy the interest of the deceased business owner and at the same time the other surviving business owners shall have the option to require the personal representative to sell (“call option”) the interest of the deceased business owner. Please see Diagram B for this scenario.

Diagram B: Business Owners execute a Double Option and surviving owners execute call option upon death of one

Event #2: What happens upon the occurrence of any critical illness and disability of a business owner? “Single Option” is given to the critically–ill or disabled business owner, he/she shall have the option to require (“put option”) the other surviving business owners to buy his interest. This prevents a disabled business owner who can still contribute to the business effectively from being forced to sell (and forced out of the business) to the other co-owners when they exercise their call option. Diagram C illustrates the usage of Single Option.

A, B and C enters into a cross option agreement and in the event B suffers from a minor heart attack, he is not forced to sell to A & C. After a few months of resting, if he is able to continue to work, he can then choose not to exercise his put option. If in this example, after a few years of working, a second heart attack strikes and this time, it is more severe and B becomes disabled, he can now choose to exercise his put option & sell his shares to A & C. The money he receives may be used for his maintenance and medical purposes.

Diagram C: When to a Single Option Agreement is used

In some cases especially when there is an inactive business owner who does not intend to buy out the others when an event occurs, a Call Option is preferred and is given to the active business owners. This is because it will give the “buyer” an option as to whether they would want to purchase the business interest of the inactive party. But note that in the event something happens to him, there is no compulsion for the active business owners to purchase from him so he or his family can be stuck with the shares.

Both a Buy-Sell Agreement and Cross Option Agreement, when executed by the business owners is a legally binding contract ensuring the protection of the business value and smooth transition of the business when a partner suddenly exits the business due to unforeseen circumstances. The agreement must be drafted by experienced corporate lawyers who are familiar with Business Value Protection.

About the Author
Evanna Phoon is a dynamic & technopreneur  owner of www.MalaysiaWills.com, a Senior Franchisee of Rockwills International Group & as-Salihin Trustee Bhd. In March 2012, she partnered with KCLau and REVOLUTIONIZED the entire financial planning industry to become the FIRST & ONLY Malaysian to use WEBINAR Series to provide FREE education to the public at www.malaysiawills.com/FREEWebinar
She is actively recruiting professional firms to join her team. To find out how, visit  http://malaysiawills.com/recruit

Cross-Option Agreement: Business Exit Solution for All Shareholders is a post from: KCLau.com

For business formed under partnership or with multiple shareholders, many owners never think of the exit plan. What if a director passed away? What if a partner wants to withdraw? What if a shareholders prefer to sell his/her share to a competitor? As an entrepreneur, you don’t want to face this situation. And you won’t need to if you have a Business Value Protection Trust (BVPT) in place.

Mr. Azhar Hew, Senior General Manager from Rockwills Trustee Bhd. shared about the advantages of BVPT in the following video:

Advantage of Business Value Protection Trust

1. It guarantees the sale to be done since it have been agreed upon.
2. Pricing is predetermined and prevent any further talks for agreement as the agreement earlier had provided for it. (ties with the first one to provide certainty)
3. When the sale is going to take place using power of attorney there is a smooth and quick transfer by the Trustee using power of attorney to the buyer
4. It can convert non liquid business interest provide liquidity: those share that can’t be converted to provide money for family
5. Business owners can run the business without interference from the family of the deceased
6. Heirs are free of the hassles of managing a business they don’t know while at the same time guarantee an income.
7. With the right condition specified in the trust it prevents beneficiary from misusing or misspending which the seller works so hard for

To sum it up it ends with a win-win situation for everyone.

For Founder Method members, you can watch the full recording here.

The Advantages of Setting Up a Business Value Protection Trust is a post from: KCLau.com

Before 2010, there were some restrictions in using Labuan foundations as wealth planning jurisdiction. Today, those restrictions have been removed. Malaysian can set up Labuan Foundations and Malaysian assets can form part of the foundation assets. However, this is subjected to regulators’ consent (because there is a clause saying if Malaysians are parking Malaysian assets into the foundation they would need to get regulators’ permission. Reason: Some Malaysian assets carry lot of issues like different states having different policies.) Regulators in Labuan do not have a specific procedure in giving this consent. They just want to know what they are parking and have gone through the valid transferring process and mechanisms.

Watch this video of Mr. Vijayan Ramanjulu (Founder Member and Senior Manager Trust Services of Kensington Labuan) explaining about the salient point

Purpose can be either charitable or non/charitable or combined. Still, at Kensington they do not encourage clients to use foundation for commercial activities. This is simply because the purpose of setting up foundation eliminates risk and using foundation for such activities defeats this purpose. You want to use structures as assets building vehicle and not transaction making vehicle. Should things go wrong, anything in the foundation gets attached. Assess the risk carefully before used for charitable or non charitable purposes.

Duration – can be fixed or subject to achieving its purpose. It can be fixed or upon achieving its purposes.

Taxation – only relevant if used as a trading vehicle.

Unenforceability of foreign judgment – Malaysians who were trading overseas would not have to worry about their assets in the foundations getting attached should things go wrong. Any orders to attach assets won’t be valid to Labuan. That order has to gone through Malaysia judicial system first.

For Founder Method members, you can watch the full recording of the live session here:

Introduction to Setting Up a Labuan Trust is a post from: KCLau.com

Family Businesses are very complicated and they are a few key concerns among them when passing on their wealth to the next generation or generations to come. One key concern is on their asset protection, they want to know how to ensure that how do they protect all their hard-earned money. One concern is adverse claims.

If the founder passes the wealth or business directly to the child’s name, normally businessman hope that their sons or daughters will inherit some entrepreneur genes. Being entrepreneur means that their children are dynamic, getting into business ventures, always looking out for business opportunities and giving out personal guarantees for loans and if in the event if there’s an adverse claim, everything in the child’s name is subjected to creditor’s claim. It can also be a child that’s practicing as a professional, for example a specialist and due to negligence, the child caused a death of his/her patient. Now, the claim will be severe and running into millions. So long as the child owns the asset, it’s subject to claim due to negligence. Or in the event the child is driving and accidentally knock into someone and this accident victim happens to be someone of high potential, the claim can run up to millions.

So long as you have asset is in the child’s name, you gift it to your child during your lifetime or you pass it down through a will, that asset in your child’s name, it’s subject to adverse claims. We won’t know what will happen.

Claim arising from marriage. There’s a saying, “The best of children also can make a bad marriage.” Divorce rate is getting higher and higher. Divorce distribution formula is different in different country, depending whether the country has “inheritance concept”, means the inheritance is not counted in as asset accumulated during marriage. Some country, they look at what has become family asset?

The recent huge settlement divorce case has rocked Hong Kong, Florence Tsang Chiu-wing received more than HKD $ 1.2 billion as part of her divorce settlement after splitting with her real estate tycoon ex-husband, Li Kin-Kan. A quote from CNN says Florence’s case seals Hong Kong’s reputation as Asia’s divorce capital. “This suggests that the way local court rule, if your loved ones are loaded, you can expect to live large and leave large. “

The divorce pay-out represents 20% of his asset and it’s the “sharing principle that guaranteed the wife’s settlement.

This concerns a lot of people especially the founder of the business saying this is my wealth; I worked hard and accumulated all the assets. I then give this asset to my son and the next minute, my daughter in law gets a divorce with my son and she gets a portion of my asset. How can they protect against this claim?

The next concern is country and political risk. Some business owners concern that if all their assets are within one country, it’ll be riskier. Basically, they don’t want to put all their eggs in one basket. They would like to put some of their asset outside their home country, spreading it out in a different environment or country, just in case anything happens, just like what happen to Indonesia a few years ago. Country and political risk is something very out of our control.

Some families are worried about spendthrift children or grandchildren. They hope to set up certain structure to protect their children against themselves. Let’s say the child is a gambler, we all know that the parents can give and give and everything is gone because gambling is a bottomless pit.

About the Author

Evanna Phoon is a dynamic & technopreneur  owner of www.MalaysiaWills.com, a Senior Franchisee of Rockwills International Group & as-Salihin Trustee Bhd. In March 2012, she partnered with KCLau and REVOLUTIONIZED the entire financial planning industry to become the FIRST & ONLY Malaysian to use WEBINAR Series to provide FREE education to the public at www.malaysiawills.com/FREEWebinar
She is actively recruiting professional firms to join her team. To find out how, visit  http://malaysiawills.com/recruit

Key Concerns of Family Owned SMEs in Malaysia is a post from: KCLau.com

What is Wasiat?

Puan Jasmin Jamaluddin (General Manager as-Salihin Trustee Bhd) explained about the Wasiat or Islamic Will in this video:

Wasiat is a declaration of a person made during his lifetime in respect to his assets or benefit thereof, to be carried out for the purpose of charity or for other purposes permissible by Islamic law after his death. So, as long as the person is alive, the Wasiat, although a valid document, is only effective upon the death of the testator.

Some of the key advantages of having a Wasiat is that you can appoint who you want to manage your estate upon your death – this person is called an executor. In your Wasiat, you can appoint a guardian for the property of minor children or a disabled person. You also have the right to give away up to 1/3rd of your estate to your non-Faraid heirs. By having Wasiat one can expedite the legal process to liquidate assets.

The executor appointed in your will is also under an obligation to settle all your debts. Lastly, of course, in your will you can state your last wishes and terms of endearment to your family members and loved ones.

So, who is an executor?

An executor can be an individual or it can be a trustee company. We are a trustee company. It is strongly recommended that a trustee company, like us, is appointed as the main executor of your estate as we are independent.

In Malaysia distribution of an estate with a Wasiat is as follows: first of all, as an executor of an estate, you have to settle all debts and funeral expenses. After funeral expenses is settled, you have to settle all debts of the diseased whether their debts is actual or spiritual. Actual debts are your housing loan, credit card loan, and the like. Spiritual debts are, for example, if you are unable to fast during your lifetime, then we have to pay off what we call fidyah. Another is if you did not perform hajj during your lifetime and there are surplus in your asset, then we will basically pay for unperformed hajj.

After settlement of all your debts, then your assets will be distributed according to whatever is stated in your will, which is basically Shari’ah compliant for your non-faraid heirs. As stated earlier, you can leave up to 1/3rd of your asset to your non-faraid heirs.

After distribution according to your will, then the settlement of any claim of Harta Sepencarian has to be made. Then, after settlement of Harta Sepencarian, only the balance of the asset is to be distributed in accordance to the principles of Faraid.

For Premium Webinar Members, you can watch the full replay of this session here:

What is a Wasiat (Islamic Will)? is a post from: KCLau.com

What happen to the asset of a Muslim when he/she passed away?
Is it simply distributed, smoothly, according to Faraid Law? It is in fact not that simple at all.

Mr. Mohd Zulkifli bin Ismail, Deputy General Manager as-Salihin Trustee Bhd shared about the real problems faced by Muslim when it comes to estate distribution.

The reality on estate is that while we are alive all the properties that we own, all the assets that we have are all absolutely in our control. We are the sole owner. We can do whatever we want with it. We can sell it if we want, we can take the money from the bank, and any time we want we can transfer the property. Why? Because we are the sole owner. We are the absolute owner of the property.

The problem starts when this line comes in, the “dark line of death” Ataupun “selepas meninggal dunia”. When death occurs we will lose control on all the assets which we have bought and control because we are no more in the world.

So, all our assets now will be converted or will go down to the bottom and becomes the estate of the diseased.
The questions that we need to ask are: Who has the power now? Who has the authority to take the money out of the bank? Who has the authority to pay off all the loans, all the debts that you have left behind? What about the business that you have set up? Who is going to transfer the ownership of the shares and so on? These are the questions. This is where estate planning comes in.

A lot of Muslims out there thought that whenever they pass away, whenever they pass on, all their assets will be transferred to all their loved ones. Why? Because all the Muslims out there think that there is such a thing as “Islamic Law of Inheritance,” or in Bahasa and Arabic what call “Faraid”. So, because of the existence of Faraid, all the Muslims out there thought that upon death, all their properties will go to their loved ones. Unfortunately, it is not true.

Ladies and gentlemen, I will show you some of the facts proving why. Somewhere in the year 2007, a newspaper printed something about RM40 billion worth of assets being frozen. Why? Because the diseased were not able to transfer their properties – RM38 Billion in land property, RM1.5 billion under the registrar of unclaimed money, RM70 million in EPF.

So, even if your EPFs have nominees, in 2007, RM70 million of EPF money got frozen. There are RM1 million worth of titles still in the name of the diseased. So, imagine that is the figure in 2007. This is the figure in 2011: from RM40 billion, it has gone up to RM52 billion.

A lot of Muslims out there are still not conscious about this.

In the unclaimed balance in 2007 it was only RM1.5 billion. But, in 2011 it’s already RM4 billion. Imagine, the figure is going higher and higher. Yet, Muslims out there are still not thinking about doing estate planning.

What about EPF? In 2007, it’s only RM70 million. You’re going to be shocked to see the figure in 2011. It has gone up to more than RM300 million. My God! Yet, a lot of people outside there are still not thinking hard about this. These are true stories that we got from paper clippings. Imagine.

For Premium Webinar Members, you can watch the full session here:

The Real Issues on Distributing Assets of a Deceased Muslim is a post from: KCLau.com

OK, so why should you write a will in the first place?

Why do you need a Will?

There are a number of reasons. Firstly, you need to prepare for contingencies. Life is not certain. In the event of an unforeseen occurrence, you will still need to continue to provide for your family and loved ones. Secondly, you have by this age after several years of working, amassed some personal assets such as liquid funds, investments, property etc. In the event of an unforeseen circumstance, your assets will be in limbo. They do not “automatically” pass to your beneficiaries just like that.

A will is needed in order for the transfer and vesting of assets and properties to be legally recognized.

What if you don’t have a Will?

What happens if you don’t write a will? In short, a mess. In the event of your demise without a will, your assets will be frozen. That means no one can deal with your accounts, properties, and other assets. Your estate will be distributed according to the Distribution Act 1958 (and amendments thereto). Your family members will find themselves needing to apply for Letters of Administration, which is, a court order vesting someone with the right to administer the estate of a person who has died without a will (this is also called dying intestate).

This is a cumbersome process and sometimes requires guarantors (also called “sureties”). You would have no control over who is ultimately appointed. There could be difficulties finding such persons to step forward or with the necessary financial means to do so. So not only does the family have to cope with the emotional aspects of bereavement, they now have to worry about all the procedural hurdles as well.

It is much easier to extract Grant of Probate

So as you can see, there are some very clear advantages in making sure that you have a valid will in place. It is cheaper to extract grant of probate (meaning, there is a will) than it is to extract Letters of Administration (where there is no will). It is also faster. No guarantors are required for probate.

You also get to choose and specify clearly who will administer the estate and who should be the rightful guardian of children if any. You can also provide for your beneficiaries in a very specific way and know that your wishes will be carried out. It also serves to avoid bickering and squabbles amongst family members which as we know, can be very damaging. As we have seen all too often, even families can fight bitterly, when money is involved.

Here are some easy tips to help you get started (just note that this applies to non-Muslims only, as Muslim testamentary matters are governed by different laws and procedures).

Easy Guide to Write your Will

1. List your assets
Here’s a tip to get started. First, list out your assets. Include details of bank accounts, properties, businesses, vehicles, jewellery, antiques or other valuables, investments such as shares or other instruments. Note whether these are held in your name or jointly with a spouse or family member. While you are at it, you might as well gather all the supporting documents and place them together in an easy-to-retrieve file or folder.

2. Appoint Executor(s)
Once you have done this, think about who you will name as an Executor in your will. There could be more than 1, you can appoint up to 4. It is best to have more than 1 in fact, so that if that Executor dies or is unwilling to act, there is another. It is important to discuss first, with the person you have chosen. Don’t assume he/she is willing to act. You want to be sure that the person you have chosen is going to do the job properly. You could also appoint a trust corporation instead of a natural person, as the Executor.

3. Who is the beneficiaries
Now, let’s talk about your beneficiaries. This would normally be your immediate family, but it may not necessarily be so depending on circumstances. You are actually free to choose who, or which entity, you wish to leave your assets to. Some people have willed all their assets to charitable or non-profitable organisations, as their children are grown up and have acquired their own wealth. For most folk however, we would want to leave our assets to our family.

4. Signed with two witnesses
Finally, some procedural steps to bear in mind. The will must be signed in the presence of two witnesses, who must also sign it. There are certain rules governing this. The two witnesses cannot be beneficiaries (or spouses of beneficiaries). Next, the will needs to be kept in a safe place. However, not so safe to the point where the beneficiaries cannot find it! There will be no point at all to the exercise if no one can locate the physical will once you have passed on. Make sure you tell your beneficiaries where the will is located.

Should you consider the service of Professional Will Writer

A last point to think about – while there is no provision under statute that invalidates a will, it is best to use the services of a professional will-writing service such as Rockwills, or a legal firm specializing in probate matters. You would not want to save a few ringgit on something this important, at the expense of a valid and workable will. Will-writing is really not something you should try to DIY.

For those who have yet to take the all-important step, make it your personal goal to get started on this process right away. It will give you peace of mind that when it is time, you would not have left any loose ends untied, and comforting the knowledge that your family and loved ones will be taken care of.

Will Writing for Beginners is a post from: KCLau.com

Planning to buy or sell a home? You’re just going to make one of the most important and biggest financial transactions of your life and you definitely do not want to go through the entire process alone. When you have a good real estate agent at hand, it can make all the difference in your property investment. A good real estate agent knows everything about the current market backwards and forwards.

They have a well-developed network of contacts to keep you well communicated throughout the transaction and they can also work as fantastic negotiators. If your agent is an inexperienced or ineffective one, the outcome can be really disappointing. The key point in choosing a real estate agent is to find someone who will work with your best interests at heart and will do everything required to help you get the very best deal. Let’s check out how you can find the best real estate agent you can possibly get.

Ways & Means to Search and Screen for a Good Agent

1. Get Referrals This is how most of the real estate agents primarily find work. When they complete job successfully, the satisfied customers share their experiences with other homebuyers and sellers and they get new work. To get honest and good referrals, it’s wise to ask for referrals from your friends and family. Asking around for referrals is particularly important when you’re planning to invest in a new area.

2. Do Your Research The recommendations of your friends or family are important, but you still need to do some independent research to find the best real estate agent. First of all, make sure the agent has valid licensing requirements. Apart from the licensing, you should also look for someone who has closed on many properties and is a local expert in your area of investment.

3. Meet Agents Out and About You can’t just choose a real estate agent before you’ve met him or her in person. You can’t also schedule a sit-down visit at an office. Instead, you should meet them in their own world. For instance, call the agents and ask to view the properties. Even if you’re not interested to purchase that property, check out the agent in action.

You’ll get the time to chit chat with the agents to assess their capability and understanding about that particular housing area. Home sellers can get a very good idea of how well the agent is at selling a home from their interaction with potential buyers. This allows you to meet a prospective agent in a more comfortable and low-pressure environment.

4. Look out for the Web Savvy In these days of modern technology, most real estate agents are likely to have a website of their own and many use these sites to acquire business. This does not necessarily mean that they are great at property marketing. However, with the increasing trend of home-buyers and tenants shopping around online before heading out to an open house, the power of online marketing cannot be ignored. So make sure that your agent or his or her team offers online marketing services too.

5. Don’t Get Passed to an Assistant Hiring a busy agent is a very good idea. This type of agents works harder for marketing your property. They can dig up more properties for you and are great at doing their jobs. The problem with these agents is that they might be too busy to carry out the business with you in person. A real estate agent can handle around seven or eight clients at the same time. So if the agent you’re interested in is working with a dozen clients at once, it’s more likely that you’ll be passed to an assistant.

6. Invite Multiple Agents to Value Your Property When you’re short-listing your agents, make sure to have at least three agents to value your property. During property valuation, don’t be too impressed with the agents who value your property the highest, because this could just be a trick to win your business. You’ll want an agent who will be honest and fair, who will not overvalue or undervalue your property and can get potential buyers/tenants at that price.

7. Ask a Lot of Questions Questioning an agent brings out his or her weakness and strengths. If it’s your first time as a homebuyer, ask the agent how many first-time buyers he has worked with. Ask about the process of marketing and if you were a buyer, how many properties you might expect to see. Discuss about your budget and ask questions about the locality. All details should be discussed thoroughly to make sure that your agent is prepared to help you go through the whole process step by step.

Here are some of the questions you should ask:

• How much will the agent charge for his services? The fee may vary from 1% – 2.5% of the selling price.
• How much experience does the agent have? A well-established agent must have sufficient experience in selling properties surrounding the locality of your property.
• How will the property be advertised? Is it going to be showed up in the local paper? Will it be on a property website? Can the agent show examples of previously advertised properties?
• Will the agents be present at the time of viewings? Also make sure to check if the agents will be available throughout the day and at weekends, because many prospective buyers/tenants can only look out for properties after work or during weekends.

8. Go Undercover Without letting the agent know that you’re planning to hire him or her, visit the shortlisted agents pretending to be a potential buyer/tenant. Observe their attitudes and ask yourself: Would you be satisfied if your property was being described just like the one in front of you? Would you be interested to buy/rent a property from the agent?

9. Ask for Recommendations from the Agent While going through the interviewing process, ask for recommendations from the agent. They can recommend contractors, insurance companies, mortgage brokers, bankers, lawyers and other personnel related to real estate buying and selling. The best real agent will be well-connected, but will never push you towards a specific choice.

Key Signs to Spot A Good Agent

How to spot a good agent when you see one? These are some of the characteristics you must watch out for while choosing your real estate agent. When an agent fails to answer most of your questions regarding property investment, for instance – the age of property, the rental demand, expected rents, cost of maintenance, etc., he is not an expert agent and should be avoided.

But if the agent is honest and would do his best to find out the information for you, it is also a good sign that you can work with him and grow together. When an agent does not reply your calls, it’s probably because he is too picky when it comes to clients. When an agent does not respond your enquiries fast enough, it’s probably because he is not interested to work for you.

When an agent prefers to text you instead of calling, unless the text provides important details like contact numbers or addresses, it means he is stingy and very calculative. He may not spend enough money to advertise for his clients. A good property agent can be spotted with two simple rules of thumb:

• Someone who is willing to go extra miles by providing more services and information than you expected.
• Someone who values time and responds instantly.
• Normal customs apparently dictates that the seller of a property will employ a property agent. However, if you’re a buyer, you can also employ an agent to help you find an investment in return for a professional payment. He is then obligated to represent you and help you purchase your desired property at the best terms and lowest rates.
• The most important things to allow a good agent to work seamlessly for you is to establish an effective communication and mutual respect. With the knowledge and expertise of an established real estate agent and a perfectly cooperative approach from your side, it’s possible to make out a win-win investment situation with any property.
• The services and investment guidance you can receive from a good property agent is well worth what you pay him. Do remember, if you like his services, do pay him well and pay in time.

About the authors

This article is contributed by me and Dr. Ong Kian Leong, and we are both the co-founders of the first ever online property investment course for Malaysians, called Property Method . Dr. Ong Kian Leong (commonly addressed as Dr. OngKL), is the creator of GoFinanceTM, a tool that allows investors to accurately evaluate if an investment is worth investing as well as worth financing for maximum return. Claimed by himself as a student in the life-long learning journey, he is also the master trainer of Property Method and the blogger behind Real Estate Investment Blog.

How To Find Your Best Real Estate Agent? is a post from: KCLau.com

We recently interviewed, P.Premendran Managing Director at Brickz. If you have not known before, Brickz’s mission is to make transacted sub-sale property prices in Malaysia transparent to help home owners, investors and real estate agents save hours of property research time by guiding them to take the right actions, based on the right insights.

Brickz realized some people need this information to assist them on their property purchase decision, therefore by turning transacted property data into information and knowledge in the most efficient way will be able to help them in the process.

Q: What does that mean transacted sub-sale property prices in layman term?
A: This means prices of secondary properties or properties previously owned by someone that has been resold and the new owner has paid the stamp duty for the purchase. The price is the price the new owner paid for the property and the date is the SPA date.

Q:  I can see that Brickz is not only providing Home and Commercial properties but also extends its services to Industrial, Land and Agricultural property insights. What initiated Brick to cover such vast and technical aspects of properties in Brickz website?
A: We realised that not many sites provide this information. Even though the transactions are not many, it will be invaluable to anyone to who is interested in that category. For example, we even wanted a farmer to do his due diligence before buying or selling a farm.

Q: Obviously, Brickz is set to differ itself from other property websites by having more technicalities in delivering their information and the site targets to help not only buyers and investors but also agents. How would you describe the feedback from your visitors so far? Who are your main visitors, are they comprise of more buyers or agents?
A: The feedback has been very positive thus far with a lot complimenting the ease of use and also the transparency of the date. For the single reports, its usually buyers. For the subscription we can see a balance between investors, agents, property developers and valuers.

Q: Is it fair to say that Brickz relying for most of its information to Valuation and Property Services Department (JPPH)? How frequent that the data is being updated through JPPH?
A: Yes, the data source is only from JPPH and it is updated on a monthly basis

5. Your pattern recognition system is currently running over 350 algorithms and rules that automatically detects and fixes inconsistencies and the number of algorithms are growing by the day to improve the accuracy. How many technical members are on board with Brickz and how Brickz ensures that the data is current and accurate?
A: We have two programmers full time on the algorithms and mechanics and one full time on the front end features. By ending this automated system, the assurance is that once an inconsistency is found, not only will it be fixed, the system will ensure it will not be repeated again.

We have a data analyst who will comb through the monthly data received to see any new inconsistencies. The benefit of having such a system is that, the more data we have and the more algorithms we create, the smarter the system will be.

Q: Apart from the sites, do Brickz organizes any other property seminars in events, i.e talks/ courses? And how the people can participate in the events?
A: At the moment, there are no on-ground activities being held.

Q: Through the website, the search does not have any suggestion for appreciating properties or booming location. How does Brickz helps to narrow down the search?
A: The site purpose is to allow users to decide on their own by providing them the data and same time the charts on the trends. We do acknowledge that more transactions on a location does not mean its good therefore we decided not to provide any suggestions.

We do not position ourselves and property recommenders but instead as a property research tool for users.

Q:  To this date, How do you interpret the transactions which have been done through Brickz? Would you reckon any signs of trend or demand that is currently developing in property market now?
A: At the moment, we do not provide insights on the transactions but we are in discussion with some property insiders to provide contributions on insights.

Q: Since launch, how is the response towards Brickz and how will Brickz improvise its services in the future?
A: Since 12th may, the numbers have been growing. Currently the average daily unique visitors is about 400 and we have single report and yearly subscriptions on a daily basis.

Q:  The search is now is made default to cover Kuala Lumpur and Selangor for the time being. Is expanding the search to other states is necessary? What will be the the property outlook in other states? How do you expand the data search after KL & Selangor?
A: We do have plans to expand to other states in the future as we have received requests from Penang, Negeri Sembilan and Johor. These would be the first 3 states for us to move into.

Q: For the newbies in property market, how do you recommend them to use information that they gather in Brickz for their first investment/property?
A: For newbies, my assumption would be there are planning to buy their first house. If they are buying a secondary property, my recommendation is for them to search for that particular property in brickz to find out what was the latest transacted prices.

To be more precise on the floors/unit numbers and trend, I recommend them to buy the single report to see all the available transactions for that project. If they are buying a new property, they can still use brickz to find out what are the transacted prices for similar type in that area they are keen in.

Q: TheEdgeProperty also provide data of property transaction, for free. How is Brickz different and what’s your advantage?
A: How we see ourselves different is as below:

1. We also provide the latest 10 transactions for free. If fact 50% of brickz transactions can be viewed for free. The difference is we give the user no matter if you are an agent or a home owner, an option to purchase the report to even view all the unit addresses, number of rooms and floors for the project.
2. We can break down by sub-type. For example, intermediate, corner, end lot.
3. We can do market research based on town, townships, projects, average price, period using our filtering features.
4. We believe our data accuracy is stronger with our pattern recognition system.
5. We provide for all Land uses and building types – not just the premium ones
6. Our latest official data is more updated
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How Can You Benefit From Comparing Transacted Sub-Sale Properties Prices? is a post from: KCLau.com

Family Businesses are very complicated and they are a few key concerns among them when passing on their wealth to the next generation or generations to come. One key concern is on their asset protection, they want to know how to ensure that how do they protect all their hard-earned money. One concern is adverse claims.

If the founder passes the wealth or business directly to the child’s name, normally businessman hope that their sons or daughters will inherit some entrepreneur genes. Being entrepreneur means that their children are dynamic, getting into business ventures, always looking out for business opportunities and giving out personal guarantees for loans and if in the event if there’s an adverse claim, everything in the child’s name is subjected to creditor’s claim. It can also be a child that’s practicing as a professional, for example a specialist and due to negligence, the child caused a death of his/her patient. Now, the claim will be severe and running into millions. So long as the child owns the asset, it’s subject to claim due to negligence. Or in the event the child is driving and accidentally knock into someone and this accident victim happens to be someone of high potential, the claim can run up to millions.

So long as you have asset is in the child’s name, you gift it to your child during your lifetime or you pass it down through a will, that asset in your child’s name, it’s subject to adverse claims. We won’t know what will happen.

Claim arising from marriage. There’s a saying, “The best of children also can make a bad marriage.” Divorce rate is getting higher and higher. Divorce distribution formula is different in different country, depending whether the country has “inheritance concept”, means the inheritance is not counted in as asset accumulated during marriage. Some country, they look at what has become family asset?

The recent huge settlement divorce case has rocked Hong Kong, Florence Tsang Chiu-wing received more than HKD $ 1.2 billion as part of her divorce settlement after splitting with her real estate tycoon ex-husband, Li Kin-Kan. A quote from CNN says Florence’s case seals Hong Kong’s reputation as Asia’s divorce capital. “This suggests that the way local court rule, if your loved ones are loaded, you can expect to live large and leave large. “

The divorce pay-out represents 20% of his asset and it’s the “sharing principle that guaranteed the wife’s settlement.

This concerns a lot of people especially the founder of the business saying this is my wealth; I worked hard and accumulated all the assets. I then give this asset to my son and the next minute, my daughter in law gets a divorce with my son and she gets a portion of my asset. How can they protect against this claim?

The next concern is country and political risk. Some business owners concern that if all their assets are within one country, it’ll be riskier. Basically, they don’t want to put all their eggs in one basket. They would like to put some of their asset outside their home country, spreading it out in a different environment or country, just in case anything happens, just like what happen to Indonesia a few years ago. Country and political risk is something very out of our control.

Some families are worried about spendthrift children or grandchildren. They hope to set up certain structure to protect their children against themselves. Let’s say the child is a gambler, we all know that the parents can give and give and everything is gone because gambling is a bottomless pit.

About the Author

Evanna Phoon is a dynamic & technopreneur  owner of www.MalaysiaWills.com, a Senior Franchisee of Rockwills International Group & as-Salihin Trustee Bhd. In March 2012, she partnered with KCLau and REVOLUTIONIZED the entire financial planning industry to become the FIRST & ONLY Malaysian to use WEBINAR Series to provide FREE education to the public at www.malaysiawills.com/FREEWebinar
She is actively recruiting professional firms to join her team. To find out how, visit  http://malaysiawills.com/recruit

Key Concerns of Family Owned SMEs in Malaysia is a post from: KCLau.com