Author: admin

I used to be a full-time musician a decade ago. I produced and arranged music from a home studio consisting of pre-owned musical gears that I bought mostly through eBay.  I was always doing research and upgrading my audio gears from time to time, ranging from keyboards, microphones, sound modules, audio interface, software, and so on. Even though music is a niche and relatively small market, there is an array of equipment available and I was spoiled by vast choices.

Costly Sound Bites

For example, just in the area of vocal microphones under Neumann Solution DS, you could find one in the price range of RM100 up to RM50k. I would first buy an entry level microphone, then upgrade it after making more money from music gigs. My first studio mic was about RM800. Then I had one that was RM2,000 a few years later. What was the difference? Of course, it was more expensive but records better quality audio. It captured a wider spectrum of sounds. However, when I played the recording clips from these two different mics to friends, most of them could not hear the difference. The improvement was very subtle.

How about those mics that cost more than RM10k? It is true that the sound quality will be better. But what is the degree of improvement? If we put it in a graph representation, let’s say the entry-level mic gives a quality of 80%, while the RM2k-mic will boost it to 90%, and the RM10k-mic will produce 95%. However, when you consider the premium you need to pay, is it worth it? There is no right or wrong answer. It depends on your needs and affordability.

What Price for Prestige?

Another case we can examine is the passenger cars segment. For a sedan, there are many models from many different brands. Consider the most affordable Perodua Bezza, the value-for-money Honda Civic, the flashy BMW 5-series, or even the stately Bentley Flying Spur. All these vehicles have the same functions like air-conditioning, air-bags, automatic transmission and so on but the most important aspect is that you will get to your destination with any of these cars.

Now let’s consider the pricing. The cost of a brand new     

BMW 5 Series 530i M Sport (CKD) (2017) (RM388,888) gives you a budget to buy up to 10 Perodua Bezza. I understand that the feeling and satisfaction you will get out of driving a BMW would be much better than a Perodua. But you will have to pay 10 times the price. Will you be getting 10 times the satisfaction?

Again, it depends on your level of wealth. You can own a luxury car when you are rich and can make good economic use of the money. From these examples, you can see that there is a premium to be paid for all the good stuff. Most of the time, you might need to fork out two times, five times or even 10 times more just to enjoy maybe a 20% boost of value.

Consider the Value of your Money

I would urge you to contemplate whenever you think of paying an extra premium for better stuff or better service. If it is for something within your budget, then go ahead. But when affordability becomes an issue, do consider the value of your money. There are always alternatives that can meet your budget and give you the best stretch for your money.

There was a research done about the level of wealth versus happiness. Psychologist Daniel Kahneman during his TED talk in 2010 made a note of studies that showed that earning less than US$60,000 per annum can have a significant effect on your happiness levels. It means when you are earning less than RM240k a year, every ringgit will contribute proportionately to your happiness. However, when it comes to making more than US$60,000 per annum, there is entirely no correlation between more income and more happiness.

More wealth does not convert to a prorated happiness boost. Similarly, when it comes to material consumption, most of the time, even when you pay 10 times the premium, it does not translate to 10 times better quality.

If this is true, how do you gain more happiness? The simple act of getting a new car, a bigger house, or a more exotic vacation is no longer the solution. I suggest that you look into areas that give you real satisfaction. Would it be a more meaningful job? Is it the freedom to make life choices? Or perhaps it would be spending more quality time with family? Know yourself.

About the author

KCLau is a financial educator, having published seven books including the current bestseller Money Smart, and co-created a dozen online financial courses. He gives away his popular Money Tips e-book volumes free at his website: https://KCLau.com

One aspect of wealth planning is managing debts. Asians, particularly Malaysians, often have the mindset of prioritising debt payment over savings for retirement. Any extra cash at the end of the day is used to pay off existing debts rather than investing into a retirement plan.

Smart Investor spoke to a few prominent financial experts to gage which should prioritised – being debt-free or saving for retirement.

Retirement Savings More Important

Kenney Khew, Licensed Financial Planner
Phillip Wealth Planners Sdn Bhd

Managing both our debts and savings is important because it increases our net worth eventually.

However, I personally would give more importance to retirement savings than reducing mortgage debt, especially now when inflation rate is pretty high. Furthermore, planning for the next 25 to 30 years is more important than focusing on debts that have already incurred.

One way to manage mortgage debt is by purchasing the Mortgage Reducing Term Assurance (MRTA) from banks. The MRTA is usually incorporated in the mortgage debt or monthly housing instalment to mitigate anything untoward happening to the primary borrower, namely accidents, death, total permanent disability and critical illness.

If this happens, the insurance company will pay a compensation to the bank to fully settle the mortgage loan.

However, if your Debt to Service Ratio (annual loan payment/annual take home pay) is greater than 35% and Debt to Asset Ratio (total liability/total assets) is greater than 50%, you might want to consider settling your debts first.

Debt is Cheap

Steve Lim, Chief Learning Officer
Affin Hwang Asset Management

I think it depends a lot on an individual’s cost of debt verses investment returns. If I make say 12% returns from my investment in the long run, I would rather put more attention to retirement savings than paying off my debts that’s costing me 4% per annum.

Of course, you can quickly pay off your debts if you decide otherwise, but you’re only going to save 4%, and give away differential returns of about 6-8% on retirement savings.

As Asians, we have a debt-free mentality. But debt is very cheap in this environment right now. Everyone is getting very low interest rates, thus, if you can accumulate a return of 10% on your investment, better focus on that than settling a debt that is very cheap.

The only time an individual needs to focus on debt is if he is a conservative investor, investing predominantly in fixed income instruments that gives him a return of 5-6% per annum. With a 4% cost of debt, he would be quite indifferent as to whether he should pay off his debts or invest for retirement.

Understand your debts first before managing them. For instance, concentrate on settling short-term debts like credit card and car loans rather than mortgage loan. It’s wise to keep your short-term debt low as the repercussions of non-payment can be quite damaging.

Housing loans, on the other hand, are long term, and if you have a savings buffer of 6 months to a year, you should be able to pay off the instalment if you lose your job.

In fact, a home loan can only become a non-performing loan (NPL) after a year, so you shouldn’t be too worked up over a long-term debt, as you still have time. Therefore, my advice is to put things into perspective rather than doing intuitive.

Balance the Scale

Yong Chu Eu, Licensed Financial Advisor
Fin Freedom Sdn Bhd

In my opinion, both are equally important, so instead of choosing to prioritise one over the other, we should try balancing the scale – meaning settle our debts and have adequate retirement savings.

If you’re debt-free upon retirement, which is highly recommended, but lack savings, you will be having a tough time managing even your daily expenses.

Likewise, if you have adequate savings, and still have a high level of debt upon retirement, most of your wealth will be used to settle those debts. This is why I always stress on simultaneous management of debt and savings.

Most Malaysians are conservative. They prefer to utilise their free cash flow to clear off debts, only then think of investing for retirement. But this is not a good idea as they will have lesser time in compounding their wealth.

The best way is to service your debts on a monthly basis according to the loan requirements. Take note that your total debts should not be more than 40% of your monthly salary.

Invest extra cash into an investment vehicle that you’re familiar with, but make sure that the returns are higher than the loan interest rate.

50/30/20 Budgeting Rule

Gor Sheau Shuenn, Licensed Financial Planner
Blueprint Planning Sdn Bhd

Reducing mortgage debt is recommended if it’s for self-occupancy because we want to have a debt-free home to live in upon retirement.

However, if it’s investment property, just follow the loan repayment schedule and cover the commitment with rental income. Furthermore, the interest on loan are allowable tax expenses, which could be used to reduce chargeable income.

Nevertheless, saving for retirement is equally important. Retirement cashflow should focus on living necessities instead of loan repayment.

If you put all your money into paying off mortgage loan, eventually, you would have a house to stay, but not money to fund for basic living needs. What would you do then?

Of course, investment property can be disposed off anytime for capital gains and parked under retirement fund. But the question is whether you would be able to liquidate the property immediately.

Therefore, I would like to introduce to you the 50/30/20 budgeting thumb rule:

• 50% of your take-home pay should be used to pay for mortgage, home insurance and maintenance, hire-purchase loan, car insurance and maintenance, and other bigger commitment.
• 30% of your take-home pay should be used to pay for groceries, dining out, entertainment, and other family and personal expenses.
• 20% of your take-home pay should be used for savings, out of which 50% should be kept for retirement and the balance 50% for other financial goals and emergency purpose. This is on top of your EPF savings.

For instance, assuming you are 25 years old today, with the ability to invest RM500 every month into an investment instrument which gives you a return of 7%.

In 10 years’ time, or by the time you’re 35, you will be able to save RM86,500, and RM260,500 by 45.

Apply the Rule of 72 every 10 years, and you would be able to double up your capital by 7% per annum. By the time you reach 65, you would already have RM1 million, even if you have stopped investing at 45 years old.

Financial Discipline is Key

Tan Kim Book, Licensed Financial Planner
Philip Wealth Planners Sdn Bhd

For an individual who would like to plan for effective wealth accumulations for retirement and distributions, we would first have to take a look at his personal financial statement.

If the cost of mortgage is higher than the rate of return on your investment, then I would advise you reduce your mortgage debt, which is logically and mathematically very effective as this can reduce the instalment tenure and save the mortgage cost.

However, you need to have the discipline to save more for your retirement after reducing your mortgage debts. Sometimes, you might have the discipline, but alas, time and compound interest may not be on your side.

Liquidity for day-to-day cash flow and accumulating for future retirement income is equally important. Unless you have a very high annual savings ratio of 20-30%, you may want to consider reducing your mortgage debts. Otherwise you have no choice but to increase your savings through your earning capacity.

On the other hand, if the rate of return on your investment is higher than the cost of mortgage, the problem is solved.

For instance, let’s assume that the cost of your mortgage is 4.5%, and the rate of return on your investment is 8%. In this case, there is no hurry to reduce your mortgage debts.

Instead, you should channel your surplus into the Employment Provident Fund (EPF) or a Private Retirement Scheme (PRS), and allow time and compound interest to work for you.

An important fact that many of us aren’t aware of is that we shouldn’t withdraw the savings in our EPF Account 2 facility, either monthly or lump sum, for paying mortgage instalments or early settlement, if the EPF return is higher than the mortgage cost.

It’s an Ongoing Process

Kevin Neoh, Licensed Financial Planner
VKA Wealth Planners Sdn Bhd

I would say both are equally important. Debt management is also part of the key component towards a sound retirement planning, for if we have debts on our shoulders, we can never truly retire as we still have to service the loan when we stop working.

But if one has to take precedence over the other, then it is important to note that usually, our mortgage has a tenure that is as long as our time horizon towards retirement.

If one repays more to reduce the mortgage and to redeem the property from the financier earlier than the tenure stated in the loan agreement, no doubt there will be extra cash in hand and also a property that is free from incumbencies.  

However, what happens when the person runs out of retirement fund? Does he have to sell his property then? If yes, where will this person stay after that?

Hence, it is important to prepare for a retirement fund while we are still working, as there is still ample of time before reaching retirement age. In short, just follow your mortgage repayment schedule and save the extra cashflow towards building a retirement fund!

Regardless of your level of wealth, estate planning is a vital part of your overall financial plan, with effective estate planning providing you with greater control, privacy and opportunity to leave more of your legacy to your loved ones.

To put things in perspective, an Estate Plan is a collection of preparation tasks that serve to manage one’s asset base in the event of their incapacitation or death, thus ensuring that all the individual’s personal assets go to his/her intended loved ones.

However, good estate planning is much more than just making a plan in advance and naming whom you want to receive the things you own after you die – there are many important factors to be considered in this aspect. Here’s what the experts have got to say.

Pay Attention to the Details

The key points to consider when doing estate planning and successfully leaving a legacy depends on whether the person is preparing a Will of trust, or both. Generally, an estate plan should include:

1. The list of beneficiaries;
2. Who to appoint as the trusted executor of the Will;
3. If the children are young, then appointment of guardians is recommended;
4. What are the assets to be distributed;
5. In what proportion, as well as the terms of distribution;
6. Substitute beneficiaries will need to be considered, depending on the family’s lifestyle such as yearly family holidays, along with the number of beneficiaries to be named.

In addition to the above, it is important to have a complete and accurate record of assets and liabilities including tax file status; items held in trust by others and for others; and a list of overseas assets.

Special attention must also be given to joint properties, assets or funds where nominees have been made earlier. It is also important to ensure that there is enough liquidity to pay debts.

For business owners, it is important to plan for proper business succession, both in terms of management and ownership. Not to forget, preservation of controlling interest as well as preservation of capital, including protection against creditors and ex-spouse claims.

With the above, the individual can then leave clear instructions to prepare a comprehensive Estate Plan to ensure he has a successful legacy. Depending on the person’s objective, Estate Planning can also cover various aspects including planning for business succession, education and retirement.

As an example, Mr Tan and his wife are the shareholders in two private limited companies involved in manufacturing and services. His two children are working for him.

Both Mr Tan and his wife intend for the companies to continue to be owned by the family for many generations to come. The solution would be for Mr Tan and his wife to create a trust by settling in it their shares in the two companies.

An independent trust company should be appointed as the trustee to hold the shares of the two companies for the benefit of the children and their lineal descendants.

During the lifetime of Mr Tan and his wife, they have sole ownership control over the companies and upon their passing or disability, the two children will be given control, and thereafter suitable and qualified descendants will be appointed as successors.

The trust should spell out the detailed succession and distribution plan so that control remains within the family.

With a proper business succession plan, the ownership of the two companies will be fragmented which would lead to in-fighting among the descendants which in turn may cause the companies’ business to be disrupted.

In the same trust, Mr Tan and his wife can instruct the dividends received by the trust to be used to pay for the tertiary education of the descendants that is related to the business of the companies. This would ensure that there would be continuity of suitable and qualified successors in the business.

Don’t Procrastinate Estate Planning

Kenney Khew, CFP
Philip Wealth Planners

Estate planning is important throughout our cycle of life, regardless whether you’re in your 20s, 30s, 40s or 50s. Many tend to have the misconception that only the rich should think about distributing their wealth, while others may even feel uncomfortable to broach the subject when you’re still alive!

That aside, wealth planning is crucial as it allows you to leave your hard-earned wealth to the beneficiaries of your choice in the shortest time possible with very few hassles and setback through the application of a grant of probate (testate).

In the case of Intestate (not having made a Will before one dies), the deceased’s family will need to apply for a Letter of Administration by choosing an Administrator to determine the value of the estate, and get two sureties (guarantors) to unlock the frozen assets.

Should we want to leave a legacy for our children, there are certain aspects to consider:

1. Your appointment of trusted Executors – A valid Will should spell out the appointment of executors to carry out your wishes so that wealth is properly distributed to your loved ones as soon as possible, and the best person is a trust corporation or professional trustee, and it is important to look for a qualified person who is professional, independent and knowledgeable;
2. Your choice of guardian for your children below the age of 21 – With the choice of guardians in your hand, you can be sure that your children will be well taken care of;
3. Your choice of beneficiaries and their entitlements – how much of your wealth is to be distributed to your beneficiaries upon your demise has to be clearly stated in your Will (normally in the form of percentage);
4. Testamentary Trust – a testamentary kicks in upon your death and allows your young children and ageing parents to receive a sum of money for living expenses and school fees. In these circumstances, you will need to entrust the trustees to carry out your wishes accordingly.
5. Will custodian – in this case, a will custodian is very important as it is pointless to write a Will only for your loved ones to not be able to locate your Will. The safekeeping of the Will and its easy retrieval are vital in order to ensure your wealth is distributed to your beneficiaries with no hassle.
6. Witnesses – once the Will has been drawn up, it is not effective until it has been signed in the presence of two witnesses. These witnesses have to be present at the same time when the Will is signed to confirm that you are of sound mind, that the Will is made voluntarily and without pressure from another person, and that the Will was not signed when you are intoxicated or drunk.

A Will is a Must!

Kevin K.M. Neoh, CFP CERT TM, MBA
VKA Wealth Planners Sdn Bhd

When it comes to effective estate planning, you mainly need to consider the position of the estate (i.e. if there will be anything left to be given away to the beneficiary).

If the person has more debts than assets, then this person would die insolvent, which means that it does not matter if the person has written a legit or complete Will or not, since most of the estate would be used to repay his outstanding debts.

Next comes tax matters. It is important to ensure that we keep proper filing and do our tax filings well, and have no outstanding and unpaid dues.

The basic form that we need to consider when it comes to estate planning is perhaps writing a Will. A will is simply a legal document and we will need an executor to carry out the wishes of the testator.

Appointing executors, therefore, is a very important matter because if the appointed executor is not capable or have a good sense of responsibility, the entire process may go haywire and worse, the interests of the beneficiaries may not be protected.

In my article published in August 2017 entitled “Have You Prepared Your Will?” I dealt with the general process of making a will, the advantages of having a will made, and some questions that I have answered from my clients over the years with regards to the will-writing process.

I have since then received further queries on whether it is necessary or mandatory for one to use the services of a law firm, or a professional will-writer for the purposes of writing a will. This article will deal with that question from a legal and practical perspective.

Firstly, the law does not compel you to appoint a law firm or a professional will-writer to have your will written.

Unlike applying for Letters of Administration or a Grant of Probate where the services of a lawyer are required for the purposes of filing the requisite applications in Court, will-writing can be done by the individual.

However, when you undertake the will-writing process without the services of a professional, it is prudent that you are fully aware of the requirements and intricacies of the laws relating to inheritance, in particular, the Distribution Act 1958, The Wills Act 1959 and the Probate and Administration Act 1960. 

Will Writing: Dos and Don’ts

The worst thing you can do is to use a standard template obtained from the internet, which could eventually lead to various problems, including your will being challenged.

Neither should you use templates given to you by friends as their wills may have been drafted under different circumstances from yours.

It is important to remember that a lack of clarity and vital omissions in your will can lead to disputes between your family members and unnecessary protracted and costly litigation.

If you wish to intentionally leave out a particular family member from your will, it is advisable that you set out expressly that you wish for this person to be excluded and give reasons for that exclusion. This will reduce the chances of a successful challenge in Court.

There have even been circumstances where the Courts have gone against the contents of the Will, and pursuant to the Inheritance (Family Provision) Act 1971, made provisions for other members of the family, where the Court was of the opinion that the deceased had not made reasonable provisions for the maintenance of a particular dependent.    

When the Court makes such a decision to contradict or go against the contents of a will, the Court will consider all circumstances, including the assets and income of the dependent, the conduct and relationship of the dependent with the deceased, the size of the estate, and the interest of the named beneficiaries.

If you are unwell or are under heavy medication for a prolonged sickness, it is advisable that you get your doctor to confirm your state of mind when your will is being signed, as there have been instances where a will has been challenged on the grounds that the deceased was of unsound mind or under heavy medication, and therefore, making it impossible for the deceased to have known what document he or she was signing, let alone the contents of the said document.  

The Courts have in the past dealt with disputes where family members have challenged a will on the basis that the contents of the will had been altered, the signature of the deceased had been forged and that the execution of the will was not properly witnessed.

It is prudent to note here that wills do not need to be stamped, but there is a requirement in law for the will to be properly witnessed.

I have read lots of articles about this matter and have heard many people say that will-writing is a simple matter that any lay person should be able to handle on their own.

However, I am cautious about taking such a position as it may not be as simple as it seems, as I have described above.

Knowledge is Key

Firstly, you must be very clear in expressing your intentions in writing. It is advisable to appoint a professional, who will be able to craft your thoughts and intention on paper, rather than to be left with a document that is ambiguous, and thus open to challenge in the future.

It is also necessary for you to constantly review and update the contents of your will. This is important as you may have sold some of your properties and may want to omit those properties from your will.

In other circumstances, the status of your relationships may have changed and you may want your will to reflect that. It is important to make those changes and have it properly documents.

There have been circumstances where family members have produced two different wills by the deceased in Court and have challenged the authenticity of later will.

It is my opinion that one should not look too lightly at the will writing process. From a litigation lawyer’s perspective, a badly drafted will can mean years of protracted, costly litigation and years of turmoil and dispute between warring family members.

It is important that one does not leave a legacy of strife and for that, I would advise that the services of a professional be sought for the purposes of writing your will.    

About the author

SHARMILA RAVENDRAN is the founder of the law firm, Messrs Ravindran located in Mont Kiara, Kuala Lumpur. She has more than 14 years of experience in the legal industry servicing clients that include local and foreign companies. She is now actively involved in corporate advisory work and commercial litigation and is a Panel Adjudicator with the Kuala Lumpur Regional Centre for Arbitration. She also sits on the Bar Council Child Rights Committee and is the Legal Director for Lean in Malaysia. She can be contacted at sharm@ravindran.com.my.                    

Lee-Wang’s story is not unusual these days. He and his family have been living in Asia for more than 25 years. But as his business expands globally, he spends more and more time shuttling between countries.

The globetrotting businessman is in the process of getting his citizenship through a Portuguese golden visa programme that offers a real estate investment route to gaining residency and potential citizenship in the country and hence European citizenship.

A big driver is for his two children to have the ease of travel a European passport offers in the future. The golden visa programme in Portugal is the most popular in Europe.

Portugal Golden Visa Programme

It was launched by the Portuguese government in 2012 to stimulate investment into Portugal and has since encouraged several billion Euros in real estate investment and over 2,000 family applications each year.

An investment of €500,000 is required in real estate in Portugal. The property, either residential or commercial, can be rented for income. Any number of properties can combine to make up the €500,000 minimum investment.

Joint buyers can pool investments into one property. The property can be mortgaged for any investment exceeding the minimum.

Portugal has a very favourable tax regime for anyone considering living in the country. No taxes are charged on overseas income for the first 10 years.

For those non-resident individuals, tax is charged at 28% on income derived in the country. This can be reduced with expenses for rental income.

Capital gains tax is 28% and there are allowances for costs and depreciation. There is no inheritance tax in Portugal. Applicants can apply for permanent residency after five years and Portuguese citizenship after six years.

Global residency and citizenship programmes have been in existence since the 1980s. The demand for the benefits of such programmes expanded rapidly in recent years. The new golden visa programmes in Europe and the Caribbean have wide appeal across many countries.

However, not every country and programme are the same. There are significant differences relating to investment level, family qualification, permanent residency, minimum stay, citizenship and passports, and not to mention, the differing economic states and real estate investment prospects in each country.

The EU Context

A number of European countries offer golden visas through investment in real estate, government bonds and donations. A citizen of any EU country is a citizen of the EU. Citizenship and a passport from any EU country allow the holder to live, work, study or travel visa free to any EU country because they are a European citizen.

A resident of any Schengen countries can travel freely throughout the Schengen zone without border controls even though they may not have a European passport.

The Schengen Area is the area comprising 26 European countries that have abolished passport and any other type of border control at their common borders, also referred to as internal borders. It mostly functions as a single country for international travel purposes, with a common visa policy.

Based on experiences, some of the motivations behind global residency and citizenship planning are:

Investment Return

Most programmes offer real estate investment as the route to gaining a golden visa from that country. Long, medium and often short-term investment horizons lead to significant capital gains for real estate.

Safe Haven Investment

The USA and Europe remain safe havens for investment with clear property ownership laws, democratically elected governments and established taxation rules.

The laws of the Caribbean countries offering citizenship programmes are based on UK law with democratically elected governments.

Legacy for Family

Once the investment is made and the visas, residency cards and citizenship are granted then the ties and contacts with that country begin to increase.

Children can be included, they eventually move on perhaps for an education, eventual jobs, eventual citizenship and the next generations have firm roots which they have either put down or have the option to do so.

Education for Children

Once permanent residency is established by living full time in the country, children can be educated under either the state or private education system.

Looking to the future, as European citizens, children can gain access to universities in English speaking countries such as the UK at European and not international rates (a substantial saving).

Some Caribbean countries offer higher education offering ease of access to universities in the USA.

Ease of Travel

A golden visa will lead to a residency card or eventually citizenship and a second passport. In all cases this can significantly improve an applicant’s ease of travelling throughout the world.

A European passport allows the holder to live, work and travel anywhere in the EU including countries outside the Schengen Zone, such as Switzerland, the UK and Ireland.

Second Passport

The second passport and citizenship option arise from all the Caribbean programmes and several golden visa programs in Europe.

Taxation

Taxation is a big concern for most wealthy investors. This is an area where more detailed planning will be needed. The Caribbean countries offer low or no taxation on overseas income.

In Europe, some countries such as Portugal impose no further taxation on overseas income for the first 10 years of residency.

No doubt, there are changing times ahead, with residency and citizenship planning or getting a Plan B already becoming an essential part of an offshore wealth management strategy for high net-worth individuals.

On a final note, beware of fraud. The demand for second citizenships has created opportunities for fraud and misrepresentation.

Be sure to perform the necessary due diligence or hire a qualified advisor or consultant specialising in such programmes. Get the right advice that is balanced and independent.

About the author

YH Wong has over two decades of experience in the financial services industry. His clients include high net worth investors and boutique institutions such as family offices and investment partnerships in the region. He is currently a senior partner with Satori Consultancy Ltd, a financial services company regulated by the Mauritian Financial Services Commission. He can be reached at yhwong@satoriconsultancy.com.

We now live in a more connected world, thanks to technology and easy travel access to other countries, which is why it has become increasingly normal for us to have our wealth scattered around the world.

However, I would like to urge you not to overlook and forget to protect your assets that are outside of Malaysia when you invest overseas.

Different Jurisdiction, Different Law

We often tend to take things for granted with regards to presuming that the laws and taxes where our foreign assets are domiciled are similar to the set of laws and taxes in Malaysia. As such, many Malaysians will kick-start their foreign adventure without even knowing what will affect them.

One such drastic difference that we must know from day one is perhaps the presence of estate tax or inheritance tax. If you have assets in countries like the US, your estate (US-situated asset) may be subjected to two levels of estate taxes, namely at the Federal and State levels.

Estate tax is a form of tax levied on the taxable estate, meaning after making certain adjustments to the gross estate value such as deducting funeral expenses and donating to charities, among others. It can rack up to as high as 40% of excess of US$5mil for resident and $60,000 for non-resident (on the Federal level).

My Client’s Experience

One of my clients, Mr. Y had experienced a great loss when his brother passed away. His brother is a Malaysian who is domiciled in Singapore a decade ago.

Mr. Y’s brother had accumulated his wealth both in Singapore and Malaysia prior to his death and had left behind a self-drafted will – one that was drafted about 6 years ago, with its contents neither reviewed nor changed since. Mr. Y’s brother had also appointed his younger sister, who resides in Johor Bahru, to be the executor of his Will.

However, when Mr. Y’s brother passed away suddenly, his sister refused to be the executor of the will since she couldn’t make time to go to Singapore on such a short notice.

What’s worse, Mr. Y’s brother did not leave behind a list of his assets and liabilities, which meant that they had to first find out what these assets were, and where they were located.

This responsibility was passed to Mr. Y, who had to write in to every financial institution to inquire if his brother had maintained any accounts with them. This process took Mr. Y several months, and brought him down to Singapore numerous times.

To avoid leaving a mess for our beneficiaries, consider these options to ensure that our foreign assets are protected from the two things that are inevitable in life: Death and Taxes.

1. Making a Will

While a will can lead to a smoother and simpler process of distribution, we also need to understand that not every will is executable.

The most important thing about writing a will is not about the instructions, but who the executor of the Will should be. Taking into consideration distance and proximity to decide who the executor should be might not help the situation a bit; instead the executor of the will has to be, first and foremost, someone who is capable and, at the same time, trustworthy.

As the executor might pass away before the testator, or may not have the time to handle the tedious task of executing the will, the will also needs to be monitored from time to time.

Another point to note would be that we should have multiple wills to separate Malaysian assets from foreign assets in different jurisdictions, especially when immovable assets such as properties are involved.

This will save precious time and money for both beneficiaries and executors as they can execute concurrently, rather than having to wait or decide where to apply for Grant of Probate (original will is needed to apply for probate).

2. Setting up a Trust or Foundation

A Trust or a Foundation is the recommended solution if you have a sizeable asset to leave to beneficiaries. The requirement for applying Grant of Probate is not applicable in this case as the transfer of assets into the Trust will have to occur prior to death of the settlor or founder.

Indeed, a Trust or a Foundation is the solution for investors who need a higher level of planning as compared to the use of will. A will’s role is to mainly dictate the intention on distribution of assets, while a Trust goes beyond and preserves it upon death.

A Trust or Foundation can be maintained for few generations, and some can be perpetual, provided that the funds and asset size are big enough. This can ensure succession for future kin and also allow the settlor to still have control over how beneficiaries can receive from the Trust or Foundation as there will be a Trust deed or Foundation Charter that contains the wishes of the settlor.

3. Insurance Wrap Account

An easier way to protect our paper assets overseas would be through the use of a life insurance wrapper. This is an open-architecture account whereby an investor can put in any form of liquid assets such as equities, bonds, mutual funds, bank deposits, ETFs, and even currencies into the account.

This life insurance wrapper allows investors to trade and buy stocks directly from major exchange such as the New York Stock Exchange and Tokyo Stock Exchange, and buy funds from renowned company such as JP Morgan, BlackRock and Fidelity.

Life insurance wrapper accounts can only be done via a Licensed Financial Planner and the account will be registered in tax havens such as Isle of Man, Cayman Island, the Bahamas and Panama, thus allowing protection from tax leakage as all investment returns are tax-free.

When we open a life insurance wrapper account, we will be able to nominate beneficiaries, thus allowing for smoother transfer of assets when death occurs, and at the same time maintaining protection from tax.

About the author

Kevin Neoh is a NextGen Money Coach who works with people to help them transform their relationship with money to improve their lives with the money they have. Kevin can be contacted at kevin@nextgenadvisors.my and www.kevinneoh.my.