Who then can you turn to in your twilight years to entrust with the preservation of your assets? Estate planning specialist, Chairman of Rockwills Group of Companies Johari Low believes that careful planning is vital so that the guardians of your wealth can execute your wishes in a way that will ensure your legacy lasts and the wealth protected.
Beginnings in England
The earliest form of estate planning was the writing of a will. However, estate planning has evolved tremendously over the years and today encompasses more than just will writing.
A will or a testament is a legal declaration by which a person, called the testator, names one or more persons to manage his estate and provides for the transfer of his property upon his passing.
Indeed, wills have been in existence for many centuries. Legislation relating to wills originated from the English law and a will was used as an instrument to distribute assets effectively among families inheriting the wealth.Wills have been made in various forms, even one written on the side of a cow was deemed valid.
Johari, the Chairman of the largest estate planning group in Malaysia, Rockwills International, said in an interview: “A person should be allowed to decide whom he wants to give ( his assets ) to upon his death and this can be encapsulated in a will. ”
In the past, when a person decided to write a will, a legally qualified person was engaged to carry out the task. The lawyer would take down instructions from the testator and inscribe the instructions onto a piece of paper, which was to be passed down to the next of kin.
Shortly after the will was introduced, the notion of trust began to evolve and trust instruments started to be developed as estate planning instruments alongside wills. However, the concept of instruction-taking did not change much.
“From the olden days to modern times, the law recognizes that as an owner (of an estate), the person has the right to decide how his assets are to be distributed – in what form, in what manner, and in what proportion,” Johari said, adding: “And for many centuries, this has been the procedure – if you want something done in terms of distributing your assets, you do a will and a trust based on your instructions.”
More Than Just Instructions
Indeed, current wills and trusts have to take many issues into consideration due to changes in investment tools, society and lifestyle. The widening of the generation gap also causes changes in expectations.
Life has become more complex and these important changes have revolutionized estate planning.
One such change involves investment. “Investments have become global. Since liberalization of exchange control, most high net worth individual have invested overseas in financial instruments and shares of all types. The tendency to diversify is also prevalent due to country risk as most people do not like putting all their eggs into one basket.”
Changes to Lifestyle and Tax Regimes
“Increase in divorce rates and cross-cultural marriages have all contributed to changes in our way of life,” noted Johari. “Tax regimes internationally have now become more sophisticated. Even though there is no estate duty here in Malaysia, tax still forms a major consideration in high net worth individuals due to their global businesses and investments.”
Many tycoons also feel the need to have anonymity as they do not want their true level of wealth to be known due to safety reasons or untold reasons known only to them.
“There is also the generation gap to consider. For example, in the past, a son would follow what his father said. If the father wished for the son to take over the family business, the son would not argue. But, nowadays, children might not be interested in taking over the family business due to their own interests elsewhere.”
Hence, it is now no longer advisable for high net worth individuals to only write down their instructions in a will. What has become more important for high net worth individuals is to obtain advice on how to manage their estate to minimize the incidence of tax, optimize investment returns and preserve or enhance value.
Planning for Harmony and Values
Because of complex issues and different needs, approaching any lawyer or will writer to draft a will to preserve a testator’s legacy may no longer be enough to meet the demands of a wealthy individual.
Increasingly, these wealthy individuals are approaching estate planning experts who can provide financial, legal, banking, accounting and tax evaluation services. Apart from these, such may are also be equipped to advise on the estate administration process to cut down cost.
For example, inheritance of overseas properties may prove to be financially onerous for a beneficiary. Johari elaborated: “Many people buy properties overseas. But a lot of people are not aware that additional wealth or capital gains tax may be payable on transfer of the title to the property or where the property is in a company, the transfer of the shares in that company after one’s passing requires a legal process and that legal process can cost a lot of money. So much so that there have been quite a few cases where the executor has had no choice but to liquidate at a discount to pay for the taxes and costs. However, good estate planners can advise on alternatives to lessen the burden.”
But for an individual whose business is substantial, it also becomes imperative for him to ensure that family harmony remains intact after his demise so that the family business can continue to thrive for generations to come.
“A family charter makes it clear what the testator would like to see going forward. For example, the patriarch may have certain values that he wants his children to uphold in the family business and he can choose to translate that code of ethics into rules and regulations for them to follow within the charter drawn to protect the family business.”
Family charters can even determine for instance whether spouses should get involved, or if children can get involved in the family business, the qualifications for going in, the basis for assessment of performance and rewards, the rules for related party transactions and so on.
Indeed, these charters serve as guidelines to ensure the wishes of the testator are fulfilled. They help convey the estate owner’s desires to his family so that there will be more understanding between family members.
In addition, the testator can also arrange for a family inclusion programme where he brings the family to an annual retreat to plan or review the charter, the review of business and discussion on issues concerning the family and its business. These are steps that help bring the family members closer together and imbue them with a better understanding of the inner workings of the business and how family members can work with each other to prosper the business.
These are new areas of estate planning that may be considered to take estate planning beyond numbers. The result is greatly reduced areas for misunderstanding, suspicion and dispute and better harmony which is conducive in adding value to the family business.