Estate Planning Strategies at 3 Different Stages in Life

As a creator of personal finance contents, it is clear that topics on earning more money and investing remain “hot” among readers and viewers. This will remain true as we tend to measure financial success based on how much income we’re earning from both our vocation and investments and also, our net worth.

For instance, we feel more “accomplished” when:

We raised our income from RM 5k to RM 10k to RM 20k a month.
We upgraded our car and real estate.
We could afford to buy and consume without looking at the price tag.

And the list goes on.

Estate planning, despite its importance in our finances, remains sidelined. Sure, there is progress made. But today, many Malaysians remain underinsured, have no will written and possess little knowledge on trust. Such is caused by a lack of awareness and a misconception that estate planning is only for the rich.

In this article, I’ll share 3 case studies that reflect 3 different life stages common among Malaysians. Of which, I’ll reveal simple estate planning strategies for the 3 stages each after consideration of their general needs, the available products, and most importantly, the budget.

They are as follows:

Stage 1: The Young and Free

Age – Below 30.
Status – Single.
Monthly Income – RM 3-5k
Assets – Below RM 100k (bank products, a car and EPF)
Liabilities – Below RM 100k (credit card debt, PTPTN, and car loan)

This often reflects on one who is starting out and fresh in the financial world. In this case, the most basic financial protection tool that all should have is medical insurance. As for EPF, one could nominate family members: parents and siblings to be its beneficiaries. However, do note that for insurance, it is ideal for one to nominate parents as its beneficiaries (not siblings). This is because, in Malaysia, the law recognises parents (not siblings) as legal beneficiaries to the policy. This is despite one intending to nominate siblings as the policy’s beneficiaries. Lastly here, he or she can write a will to bequeath assets (bank & brokerage accounts, car, and others (if any)) to any of his beneficiaries.

In summary:

Obtain medical coverage (personal).
Nominate insurance policies (if any) to parents.
Nominate EPF account to parents or siblings.
Write a basic will.

Estimate Cost:

Medical coverage (<RM 300 a month)
EPF and insurance nomination (free).
The drafting of basic will (one-off: <RM 1k)
Option: The custody of the basic will (<RM 150 a year; <RM 2k lifetime)

Stage 2: The Sandwich Generation

Age – 30-45
Status – Married with Elderly Parents and Young Children
Monthly Income – RM 10-15k
Assets – 6-7 figures (bank products, real estate, cars, EPF)
Liabilities – 6-7 figures (mortgages, car loans, credit card … etc)

This refers to ones with financial commitments and dependents. So, in addition to the above, it is ideal to have better medical coverage and add onto the “total sum assured” of life insurance coverages: death, disability & critical illnesses. To start with, one should aim to obtain RM 1 million in life coverage so that there’s money to mitigate life and debt commitments in times of need. If one has more in debt and lifestyle expenses, the more he needs in life coverage.

Once these are covered, one can consider bequeathing financial assets to his or her dependents: parents, spouse and children. This could be dealt with a will. If he or she wishes to retain certain assets: real estate and cash for a certain time, let’s say 10 or 20 years, before they can be distributed to beneficiaries, then, he or she would need to include a testamentary trust in the will document.

In summary:

Boost life coverage to RM 1m or more.
Comprehensive Will that includes a testamentary trust

Estimate Cost:

Life and Medical Coverage (around RM 1k a month)
Drafting of a will + testamentary trust (one-off: <RM 2k)

Stage 3: Senior Citizens

Age – 55+
Status – Married with Grown Children
Assets – 6-7 figures (bank products, real estate, cars, EPF)

At this stage, one may have 6, 7 or 8-figures worth of assets and grown children who are becoming financially mature. Here, life insurance would be quite costly due to age and health reasons. So, the idea is to preserve assets that have been built for decades for as long as one lives and beyond.

Senior citizens are encouraged to review and update their wills so that they can bequeath real estate and other financial assets to their beneficiaries effectively. They can include a testamentary trust if they want to withhold their assets for a longer period of time for the benefits of their children or grandchildren.

For affluent senior citizens (7-or-8 figures in net worth), they could consider the usage of living trust to keep their assets for themselves, their children and their grandchildren. For instance, if one has RM 5+ million in assets, he may consider parking RM 1 million in his living trust. Should he lose his ability to manage the affairs of his finances due to illness or disability, the trustee could distribute this sum to his family members so that he could be taken care of financially.

Alternatively, he may set up a living trust to provide tertiary education funds for all of his grandchildren. As such, the trustee shall be entrusted to hold onto this money until his grandchildren enroll themselves into a college / a university.

In summary:

Will + Testamentary Trust + Living trust (Optional)

Estimate Cost:

Drafting of a will + testamentary trust (one-off: <RM 2k)
Drafting of a Living trust (thousands: subject to its complexity)
Living Trust: (Annual trust management fees: subject to size of fund).

Conclusion:

Estate planning is an integral part of financial planning. It is for all of us. While it is true that the rich has more options when it comes to estate planning tools, in the case of many in the working class, there are affordable tools that we all can use to enhance our financial fortress. It is just a matter of having the awareness and working with professionals to protect your financial interests.

Once again, the tools that can be considered to fortify your finances are: