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Estate Planning

Introduction

Estate planning is the systematic planning for the distribution of part or all of the estate of a person, according to his/her wishes, in anticipation of future absence (such as death or incapacity). An estate would include property, personal effects (such as watches, stamp collection, etc.) and rights to income (such as royalty).

It is systematic because distribution of an estate or part of an estate involves looking at many aspects. When one wants to leave something to another, the objective has to be considered together with tax, cash flow, timing and various risks such as competence to manage and business succession.

The objectives of estate planning may be, as far as possible:

  1. To distribute in a fair and independent manner;
  2. To preserve the value of the estate; and
  3. To ensure that the loved ones are financially protected.

For example, many people agonise over what is the best way to distribute various assets to their spouse and children. Should it be equally, or should some be more than others? Should the assets be separately given or should they be shared? If shared, would this cause friction and dispute over asset usage or disposal?

In some countries, immovable properties or other assets constituting part of an estate may attract estate duty (or inheritance tax) and may require planning in terms of ownership structure or transfer of domicile to avoid or reduce such taxes.

Cash flow has to be considered when the family is deprived of a breadwinner. The liquidity of each asset type is therefore an important consideration. For example, it would be problematic if an illiquid asset was the only asset left to an heir who needs cash badly.

Timing and competence in managing finances are also important considerations when leaving assets to children. The question is whether the children who inherit are competent enough to manage on their own or should the inheritance be held in trust and passed over only upon their attaining a certain age and/or fulfilling other conditions.

A successful business bequeathed to children could, without proper planning, lead to disputes among the siblings, loss of control, break up and major loss in value (see section on Business Succession Planning).

Wills and trusts are the estate planning tools commonly used for distribution. In the case of Muslim estates, there are several other instruments that complement Faraid distribution rules.

So as can be seen, estate planning is not as straightforward as one may think. Consult specialists such as the Rockwills' accredited estate planners who are trained to provide help in this area and are fully supported by technical and legal resources at Rockwills.

After working so hard to plan and manage one's personal finances, it would be tragic to allow the hard earned wealth to be frozen, squandered, frittered away or lost through lack of planning. Estate planning is not costly or time-consuming if done with the expert.

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