Estate planning: Why everyone should do it

Estate planning is the process of anticipating and arranging for the disposal of an estate during your life.

Estate planning typically attempts to eliminate uncertainties over the administration of a probate and maximise the value of the estate.

The following four steps will help you ensure that your estate planning is on track.

1. No matter what your net worth is, it’s important to have at least a basic estate plan in place.

Such a plan ensures that your family and financial goals are met after you die.

2. Take inventory of your assets.

Whom do you want to inherit your assets? Whom do you want to handle your financial affairs if you are incapacitated?

3. Everybody needs a will.

Discussing your estate plans with your heirs may prevent disputes or confusion.

4. Insurance as an estate planning tool

Insurance allows you to use your cash/other assets today and still leave the amount that you want for your heirs.

How does insurance as an estate planning tool work?

For example, Mr and Mrs Lim have each RM100,000 in cash assets (total RM200,000 in cash and liquid assets).

They would like to leave at least RM50,000 each to their two children (total RM100,000 inheritance).

Using life insurance as a tool, they can spend up to the RM200,000 they have and yet leave RM100,000 to their children as an inheritance.

Below are the monthly costs based on the minimum amount (coverage amount) that they want to leave their children.

Coverage Costs for Mr and Mrs Lim.

Note: It is slightly cheaper for females (e.g. Mrs Lim) compared to males (e.g. Mr Lim) due to average lifespan factors.

Mr and Mrs Lim decide that they can set aside RM200 each per month (total RM400) without affecting their lifestyle as they have residual income that will cover the RM400 per month.

Mr and Mrs Lim now have up to RM200,000 that they can spend to travel and give to their favourite charity without worrying that they are depriving their children of their inheritance.

This article first appeared in

MyPF is on a mission to help simplify and grow Malaysians’ personal finances through financial education.