Lessons in legacy planning

IN ALL the years I’ve spent discussing estate and legacy planning matters with wealthy families, I have had the privilege to listen to countless stories. Some stories are inspiring, others can be heartbreaking.

Through all that, I’ve learnt important lessons about wealth and life.

Giving children too much at a young age may not be a good thing

Among the plans that clients want us to put in place for them, a common request is structures to prevent children from squandering their inheritance. This is not just limited to young beneficiaries, but also includes those who may be in their 50s.

The lack of trust arises largely because many of these children did not have to work for the good life that they have been enjoying from a young age. Their parents let them have the best things – high-end cars, branded bags, luxury watches, and even a generous monthly allowance for doing nothing.

Some of them have obtained good education from premier colleges but are not motivated to work since their rich parents provide everything for them. But it is not that parents are unaware of the issues. No sensible parents start off their parenting journey with the intention to spoil their children to such an extreme. It usually starts in a small way, unintentionally, incrementally. By the time they realise what they might have done, it is too late.

When we give our children too much of the good things in life especially when they are still young, we deny them the opportunity to learn the importance of delayed gratification. We fail to enable them to foster resilience and independence which can cause them to feel self-entitled. It is no wonder King Solomon wrote in the Book of Proverbs: “An inheritance obtained too early in life is not a blessing in the end.”

Don’t build your wealth at the expense of building a relationship with your loved ones

I have observed that while some of the ultra-rich can be very successful in their careers and businesses, and accumulate lots of wealth, they do not necessarily have a close relationship with their spouses and children. Some are divorced; others are not on speaking terms with their children.

Invariably, they’ve spent most of their time building their businesses, professions and wealth, leaving them little or now time to build relationships with their families. As they reach the last phase of their lives, they have the means to live a luxurious life but are often lonely.

As an entrepreneur, I can understand this. When I first started my firm in 2001, the business began to consume me and took time away from my wife and two young children. Well-meaning friends warned me not to chase wealth at the expense of my family. “But I am not even trying to be richer. I am just trying to survive!” I retorted.

Finally, it came to a point where I did not have a relationship with my family. Thankfully, I realised it early enough to turn things around. Otherwise, I might have lost my family. Today, I still work very hard but over the years, I have learnt to be very intentional in setting aside time for my loved ones.

Spend some wealth on yourself; don’t just leave everything for the children

Recently, a tearjerker Thai movie, How to Make Millions Before Grandma Dies, took the nation by storm. The story is about a young man who quits his job to take care of his dying grandmother while scheming to inherit her property. But also vying for the same property are his two uncles. One is a gambler who was always beset with debt and steals his mother’s money. The other is a rich man who wants to be richer.

The young man’s mother is less interested in the fight and just wants to spend more time with her mother before she dies. The grandmother shocks everyone when she gives the property to the prodigal son to pay off his huge debt. But after the funeral, the young man receives a call from the bank about a huge sum of money that his grandmother has been saving for him since he was a child.

While most people debated whether the grandmother’s decision was a correct one, I was thinking of something else.

As a parent, I can understand the grandmother’s decision. If we didn’t have children like the grandmother’s son who was in dire straits, we would think a bit more for ourselves and our spouses. By all means, we should give our children an inheritance if we wish to, as a final love gift for them, but we should also set aside wealth for ourselves so that we can do meaningful things with our spouse.

There is no need to give children so much that we may mess up their lives. Many wealthy individuals are so concerned about their children that they don’t spend as much time thinking about how they can use their wealth to live the life that they themselves desire and deserve.

Do not just give away your wealth; share your message

Behind every legacy and estate plan, there is a message of love. Unfortunately, this is lost in the legal documents and structures that are put in place. I have always encouraged my clients to share their gifting plan with their beneficiaries – that is, share not just the “what and how” of the plan but also share the “why”.

As Asians, some of us may not be so willing to communicate our emotions so openly especially before our death. In this case, one can consider using a Letter of Wishes (LOW). The LOW is a non-legally binding document by the settlor to guide the protectors and trustees on how they wish their assets to be managed. But instead of writing it like an instruction manual, write it like a love letter to your loved ones.

Legacy and estate planning are often referred to interchangeably. Although there is an overlap in the two areas, there are subtle differences.

Estate planning is about the management of a person’s assets and liabilities upon his/her unfortunate demise. It covers areas such as ensuring the loved ones have enough money to maintain their lifestyle upon the death of the testator; minimising estate leakages such probate cost, estate duty in foreign jurisdictions, as well as ensuring that the estate is distributed to the rightful beneficiaries using instruments such as wills and trusts.

In contrast, legacy planning creates a lasting legacy and addresses the transfer of a person’s values when he or she is no longer around. It is something that takes a lifetime to do and transcends the purchase of financial products or the creation of legal structures.

The writer is chief executive officer, Providend Ltd, South-east Asia’s first fee-only comprehensive wealth advisory firm.