Insurance only protects against the loss of income, whereas if I were to set up a will and trust, then I am also protecting my assets and savings. > Saw
There is a growing awareness of the importance of estate planning in Malaysia, even though few are utilising wills and trusts as planning tools, according to the Rockwills International Group’s latest survey.
The group’s “Will You or Will You Not” survey of 521 respondents found that 63% had not written a will or set up a trust for estate planning purposes. Of the 37% who had undertaken such planning, 25% had written a will, 11% had both a will and a trust, and 1% had set up a trust. Most of the respondents were urban dwellers.
“From this survey, we found that awareness has improved, mostly in urban areas. But it is lower in rural areas,” says Rockwills managing director Saw Leong Aun.
“We still find that people hold on to the concept of ‘I am still young. Let me accumulate more money first’.”
The number of Malaysians who have wills and trusts has grown tremendously from before, according to Saw. In a similar survey conducted in the 1990s, some 90% of the respondents did not have a will or trust.
“Awareness was almost zero at the time. The feedback was mostly ‘Oh, I don’t know any agents, or I am not rich, or I am still young’. But over the years, we have done a lot of educational activities and worked with the media,” says Saw.
According to the survey, 26% of the respondents believed that it was too early in their lives to write a will, 14% acknowledged that estate planning was important but had yet to begin the process while 14% did not know how to begin the process.
Some 21% of the respondents said they would start planning when they had the money, 21% said they would only do so if they became terminally ill, 13% said they would begin the process when they were older and 11% said they would do so when they had the time. The lack of urgency may be due to their denial that life can be fragile and/or a lack of understanding of what wills and trusts can do for them, Saw suggests.
According to him, many Malaysians are willing to spend money on making their wills now instead of just downloading free basic templates off the internet. An increasing number of them are parents aged between 35 and 45.
“They are more educated and open-minded, and they see the need because they have young families. Some of them are starting to buy properties, sometimes under joint ownership. That is why they need to plan,” says Saw.
Some view estate planning as a tool for the wealthy. According to the survey, 13% of the respondents do not consider themselves rich, so they do not need to undertake such planning. Meanwhile, 12% consider it more important to focus on saving money for immediate needs.
Family feuds over assets or the squandering of inheritances can be avoided if there are wills and trusts in place. Saw says the cost depends on how complex the plans are. The average cost of writing a will is currently about RM800 and it is a one-off fee unless the testator wants to change it later on.
“It is very affordable and people have more or less accepted the cost because they realise that estate planning is more important than the cost,” he says.
On the other hand, creating a trust could cost around RM1,500, with the trustee fees only kicking in after the trustee has taken over the fund. The price depends on the complexity of the trust structure.
Lower awareness of trusts
Fewer Malaysians have trusts compared with wills. However, the number will increase as more insurance agents educate their clients on estate planning and using trusts, says Saw. Insurance policies are seen to complement wills and trusts as they ensure that the payouts are properly spent by the beneficiaries.
“Insurance only protects against the loss of income, whereas if I were to set up a will and trust, then I am also protecting my assets and savings. My favourite type of structure is insurance trust because it is the most affordable,” says Saw.
“Everyone has insurance and it is solid cash. But when young children receive a large amount of money, like a few hundred thousand or a few million ringgit, what do they do with it? These insurance agents can also help them make a will and trust and come up with a plan for the insurance money.”
Saw himself uses an insurance trust to protect his children from unwanted influences by making sure the payouts are made in instalments. Another benefit of using trusts is to protect the policyholder in case of disability or illness.
“What if I get a stroke or become permanently disabled? The will cannot take effect yet because I am not dead. Then there is the insurance money that has been claimed for a disease I have. Who is going to help me manage it? Who is going to pay my medical fees?” says Saw.
“My children may take the money, go gallivanting and leave me in an old folks’ home. So, with a trust, I can mention that if these things befall me, the trustee will pay my medical and maintenance fees as well as my children’s living and education expenses until they finish their studies.”
More to be done to increase awareness
The percentage of respondents who have wills and trusts is considered quite high in Malaysia when compared with some countries, says Saw. He points out that in a similar survey in Singapore, more than 80% of the respondents said they did not have a will or trust.
“Although we may think that the Singaporeans’ level of awareness is very high, when it comes to estate planning, it is at the same level as Malaysians. I suppose it is because it is still a taboo subject,” says Saw.
“I was reading a report of a survey done by the University of Adelaide. It found that of the 1,000 respondents (in Australia), surprisingly, about 60% did not have a will or trust. So, we consider our level at 63% a pretty decent percentage. At Rockwills, we will continue to do more awareness and educational activities.”
Rockwills is planning to offer webinars to the public on estate planning in the future so it can reach those who live in non-urban areas more efficiently. So far, the company has only held webinars for its will writers and estate planners.
The company was established in 1995 and has a record of more than 200,000 wills written and more than 8,000 trusts set up. It currently holds RM8 billion worth of assets under trust.
Safeguard family businesses using trusts
Trusts are gaining in popularity as a succession planning tool for family businesses. Rockwills deputy CEO Azhar Iskandar Hew (picture) says trusts also help prevent fragmentation of the family business.
“If I have five children (with each of them getting 20% share of the business), what if two of them decide to sell out? You will no longer control 40% of the business,” he says.
Azhar Iskandar Hew
“What if one of the children passes away and he has five children? Then each of them will have 4%. But what if they sell out? That is how a family business can break up if they do not plan for it.”
Feuds in family businesses due to inheritances are very common. But if the family has a trust structure holding the shares, then it will have to follow the instructions left by the patriarch or matriarch.
“You can fight all you want, but you don’t have the shares because the trust owns the shares. If the family member appointed to be managing director is not performing, he can be removed quite easily like any other employee. Ultimately, the family enjoys the benefit because as the company grows, the dividends will be distributed to them, as opposed to one family member trying to manipulate and ruin everything,” says Azhar.
“They will realise that if they want the family business to go on for generations, they will need to have a trust or foundation in place to ensure there is no fragmentation of ownership of the business. You want to make sure it is all consolidated in one place, but you do allow qualified family members to run the business. You can even hire experts from the outside to run the business.”
This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on April 30, 2018 - May 06, 2018.