WEALTH PLANNING INVOLVING MINORS

Wealth distribution planning is especially challenging when it involves minors.  They do not have the necessary physical or mental capabilities to handle wealth without help.  As such, extra consideration is needed to ensure they are properly taken care of when you are not around.

Without proper estate planning, your children may end up under the care of relatives, whom for some reason or the other, you may not prefer.

The relatives and their children may resent them, for forcing them to skimp on extras and for having to share their bedrooms, toys, etc.  People you don't trust may also end up managing your children's inheritance.  In short, your children could be caught in a life-long nightmare.

 Case study

Mr and Mrs Tan are in their late thirties.  They live in Subang Jaya together with their two sons and a daughter aged 8,5 and 3. The couple jointly own a plastic manufacturing company in the Shah Alam industrial area.

The Tans travel frequently to China and during this time, their children are taken care of by Cecilia, their domestic help.

On one of the trips to China, their plane crashes and the couple lose their lives.

Their business flounders.  Outstanding business liabilities under the couple's personal guarantee wipe out the liquidity left in their estate.

There is no proper provisioning of funds for the children.  And none of the couple's brothers or sisters can afford to take care of all the three children.  Each family can only afford to be the guardian of one child.

In fact, it takes numerous family discussions to decide on who should be responsible for whom.

The children are eventually separated.  The eldest lives with a family in Malacca, the second in Alor Star

and the youngest in Kota Kinabalu.

As much as Mr and Mrs Tan loved and cared for their children, their future had changed dramatically over night.

 Solutions

Choosing a guardian

If your spouse survives you, it is obvious that the children will still have a parent to take good care of them.

However, single parents or widows still need to appoint a guardian for their children.

Having said that, it is still important for a couple to appoint a guardian for their children just in case the dreaded happens and both parents lose their lives.

A guardian plays a crucial role in your absence.  He or she makes all the major (and minor) decisions you would have had to make in raising the children.

You can select your guardian by including his or her name in your Will.

If you do not appoint a guardian in your will, anyone who is interested can apply for the position.  The court then must decide, without the benefit of your opinion, on who will do the best job of raising your children.

Appoint a trustee

It is important to appoint a trustee to oversee your children's inheritance in your absence.  You can use your will to name a trustee who will handle money or property your children inherit until the children reach the age you specify. If your children are already over this age at your death, the trust never comes into play; the property goes straight to the beneficiary.

 The trustee must act in the best interests of your children and follo your written instructions. Generally, the trustee can use the trust money for your children' health, education and living expenses. When the children reach the age you specified in the will, the trustee ends the trust and transfers the balance in the trust to your children.

Factor special needs into your financial needs analysis.

If you have minors with a disabilities that require financial support, make sure your estate has sufficient liquidity to pay the bills. Find out how much is really required. There can be nothing worse for them than living in an environment where they are resented everyday, because they have added to the financial and physical burden of their guardian's family.  It is important to make sure that you have provided sufficiently for their living expenses, education (primary, secondary and tertiary), tuition, hobbies, medical expenses.  If your child has special needs that make it more challenging for the guardian, there should be enough money to cater for those needs.

Distribute inheritance at the right time

In Malaysia, the heir is legally capable of holding property upon attaining the age of 18.  According to most of my clients, it may be premature for their children to handle their assets at such a young age.  Unless there are some special reasons, it is advisable to leave the fund in trust.  You can have the choice of releasing the fund at a later age - for example at 25 or releasing the fund in stages - for example, 1/3 at 22 and the remaining at 24.

Reviewing the estate plan and keeping it flexible

Wealth distribution involving minors is always subject to a lot of changes because the children are growing every day.  As they grow into different stages of adolescence, the arrangement in the will that seemed perfect three years ago may not be right anymore.  Keep your estate plan flexible and review it every year.

Vv'hat you do or do not do, may make or break your children's future.  According to Stephen R. Covey, reactive people make love a feeling but proactive people make love a verb.

Put your love into action and start planning for your children.

 From TheSTAR BizWeek dated Saturday 13 March 2004

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