If President Obama was Chinese and you asked him what his problem was in the past few months, his reply would be “I need more water (money in Chinese)”. The gist of the whole episode recently is the U.S. government needs to borrow at least US$2.4 trillion to avoid default in payment of the country’s debt, caused by spending beyond their means over the years. This is known as “raising the debt ceiling”, failing which, the U.S. and the rest of the world will face an economic crisis. On August 2, the President finally obtained approval and signed legislation to increase the debt ceiling by at least US$2.4 trillion and cut spending by at least US$2.1 trillion over 10 years.
What this episode shows is that the most powerful country in the world with deep reserves can become vulnerable if they do not plan and manage their finances well. Taking this principle and applying it to most of our households, you would notice similarities. For instance, our monthly expenditures seem to be always chasing after our monthly income and if we cannot maintain these expenditures then a default in some of the payments is likely to happen. To cover the shortfall, some would pay by using their reserves. If this fails, then they will delay some of the payments especially credit cards.
Juggling these payments is still possible if we are still alive but have you paused for a moment to ask whether your family can maintain these expenditures if you pass away suddenly. Foreseeing this can be a problem; it is crucial you plan for them in terms of immediate funding as well as protecting the funds upon your demise. It is even more urgent if your children are still minors. One of the immediate funding that you don’t need to borrow is an insurance coverage. This is a gift and a life saver to your family. If there are minor children involved, then it is very important you set up a “Living Trust” to protect these funds. The setting up involves you, as the “Settlor”, giving the instructions to the “Trustee” on how to give the money progressively to your minor children. The Trustee can be a Trustee Company like Rockwills Trustee Bhd. Then, you have to appoint a “Protector” and “Guardian” for the Trust. The Protector acts as a watchdog on the Trustee and the Guardian take cares of the minor children if both parents are not around. Lastly, you name your “Beneficiaries”. All of these including your instructions will be stated in a legal document called the “Trust Deed”. To kick start the Trust, you must choose some of your insurance with sufficient funding and execute an absolute assignment to your Trust so that when you pass away the insurance money will immediately flow into the Trust for usage. In essence, its all about water, water, water.
Peter Lee is an Associate Estate Planning Practitioner (Wills & Trust) with Rockwills International Group. He is also an Islamic Estate Planner providing Wills & Trust services for Muslims. He is based in Ipoh and can be reached at: 012-5078825/05-2554853 or firstname.lastname@example.org. Website: http://www.wills-trust.com.my.