HOW CAN YOU ENSURE THAT YOUR CHILDREN WILL INHERIT YOUR WEALTH? Albert Einstein once said “Our death is not an end if we can live on in our children….. For they are us, our bodies are only wilted leaves on the tree of life”. One of the most important objectives of estate planning is to ensure that your assets will be inherited by the persons of your choice when you are no longer around. As in the case of most Malaysians, it is probably your intention that the wealth accumulated in your lifetime will ultimately be passed on to your children and descendants, who are in essence, an extension of yourself. It may also be your wish that in the event of your untimely departure, your parents and spouse will be adequately provided for. However, as discussed in my earlier articles, one must be aware that there is always a possibility that the property which your parents and spouse inherit from your estate, may, after their lifetime, end up in the “wrong hands” – i.e. persons other than your children. Gone are the days where the widow jumps into the husband’s funeral pyre. Your spouse may remarry, and the property which he or she inherits from your estate may pass on to the new spouse and their children. Likewise, your siblings and their children may have the good fortune of inheriting some of the wealth which was originally yours, when your parents depart. It must be emphasized that once your property is inherited by your parents and spouse, you have no control over who will thereafter, receive ‘your’ property. Thus, how do you provide for your parents and spouse whilst ensuring that any balance of the funds or assets which they did not utilize will upon their deaths, be passed on to your children? Therein lies the challenge. The answer is to have a clause in your Will which provides for a testamentary trust to be created after your lifetime. Under a trust, a person called a trustee will hold the legal ownership of the property for the benefit of a person called the beneficiary. Although the legal title to the trust property is held by the trustee, it is the beneficiary who enjoys most of the rights of an owner. For example, where the trust properties are real properties and shares, it is the beneficiary who will benefit from and enjoy the rental income and dividends. Trustee Control & Management Legal Owner Holding the property for Profits & Benefit Beneficiary Beneficial Owner The purpose of creating such a trust is to allow your parents and spouse to benefit during their lifetime without giving them full control. As the trustee rather than your parents or spouse is the legal owner, they will not be able to sell or transfer the property and upon their demise, it will not form part of their estate. The beauty of a trust is that the beneficiaries who will benefit from the trust income during the trust period and those who will receive the trust property otherwise called the trust capital can be different persons. Such a trust is said to be created with successive interests. For example, the trust deed (which is the document setting out the terms of the trust) may provide that the beneficial interest lies with your spouse and thereafter upon her demise, with your children. In other words, your spouse will be entitled to the income of the trust during her lifetime and thereafter the trust property will pass to your children. When spouse dies Spouse gets Children become income Beneficiaries and during trust receive trust property period when trust ends Your spouse as the beneficiary who is entitled to the trust income is known as the life tenant whereas your children who are entitled to the trust property are called the remainder beneficiaries. Trustees Holding the property for Life Tenant (e.g. Spouse) Income Beneficiaries Remainder man Capital (e.g. Children) Knowledge is power. With a trust, you will be able to achieve the objective of providing maintenance for your parents and spouse without transferring the property to them. Give careful thought to the planning of your Will. Ultimately, the choices we make are our responsibility. Ong Eu Jin [LLM, MBA, LLB(Hons), CLP], a qualified lawyer and Chief Operating Officer of OSK Trustees Berhad (formerly known as OSK-Signet Trustees Berhad), is the author of “Your Guide to Estate Planning and Administration”.
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