Crazy and Rich Need Not Go Hand-in-Hand - 3 Tips for Legacy Planning
The recent box-office hit Crazy Rich Asians provided an entertaining insight into the lavish lifestyles of Singapore's ultra-rich. At the same time, it also prompted important questions about how your own children might act if they suddenly came upon significant wealth.
Although the amount of wealth might not be anywhere near the stratospheric levels depicted in the movie, any amount of wealth beyond what your child is customarily used to can be euphoric and destabilising.
Regardless of the size of your estate, putting a proper plan in place and communicating that plan to your children or beneficiaries will go a long way towards alleviating future unhappiness, legal action or possible profligacy. Here are 3 simple tips for you to think about when planning for your legacy.
Do It For Your Children. In order not to leave your children in the lurch if something untoward were to suddenly happen to you, it is vital to have a guardianship plan in place for them, especially if they are minors.
Then, you have to decide how much wealth they can handle as part of their inheritance. Do you give it all to them in one lump sum, or distribute it regularly based on expenses, or create a trust which pays out upon certain milestones being reached (so they know there's no free lunch!)?
The answer to this depends on their character, the relationship you have with your children and their level of financial literacy, which in most cases would either be low or non-existent.
Plan for Expenses After Death. Sometimes, passing on at a relatively younger age might mean saddling your beneficiaries with unintended debt or bills (house mortgages, car loans, etc.) If you were the sole income earner and still servicing your mortgage, the sudden loss of income could mean that your family might be evicted from their home. Keeping a large amount of liquid savings in the bank is not always the most efficient way to plan for such an event.
A good alternative could be having life insurance policies (flat term or mortgage-reducing) that are matched to your liabilities, which will help to pay off the large bills. Additional policies or other assets will then help to cover your family's ongoing living expenses in order to produce the least disruption to their daily lives and activities.
Be Clear About Your Wishes. Simply drafting up a will that divides your assets equally amongst your family members may seem fair and equitable to you, but may be disadvantageous to your family. Apart from the earlier example of not suddenly gifting young children a chunk of money, the lifestyle needs and circumstances of each of your family members are dissimilar and some thought needs to be put into planning your legacy.
Perhaps not all your children are interested in running your business after you are gone, and splitting your equity shareholding in equal parts could be disadvantageous to your current business partners, as they would now have to deal with unfamiliar and possibly uninterested business owners.
What about those children who feel compelled to serve a higher purpose and who decide to devote their time to social causes or full-time ministry? They may need more financial assistance than those who are more street-savvy and doing well in the corporate world.
In addition to planning this well, an important part would be to engage your beneficiaries when you are still alive. Explaining your decisions - so as to secure their buy-in and agreement - will save a lot of unhappiness and family squabbles when you suddenly walk out on life.
Understandably, discussing the morbid topic of death is not high on anyone's list, although it is a necessary step to avoid future misunderstanding and unhappiness. Estate planning also takes time, a great deal of thought and can sometimes be costly. Having a trusted adviser who can provide guidance, objectivity and a sounding board may help you through this process.
As we all have a natural tendency to procrastinate on such matters, be aware that none of us knows when our lives may suddenly end. It is infinitely better to decide on these matters while you are still lucid and have a sound mind, than to have to confront them when you are sick, in pain and drugged on a hospital bed.
The time that you spend on this is a small price to pay to ensure that you leave a lasting legacy that will truly benefit your family, and not add to their grief and unhappiness, when the time comes for you to go.
