6 Pitfalls of Writing only a Will
In 2016, Singaporeans ranked #3 globally for household wealth and #197 for birth rate. What this means is that our children are going to be much richer before they are ready. Wills are a common and familiar tool most affluent individuals use to distribute their assets when they are no longer around.
In China, the government has initiated a free will writing program to help curb social ills and legal issues arising from millions of affluent citizens without proper estate planning. However, are wills enough to solve the problem?
Here are 6 potential mistakes of using only wills in wealth succession planning.
Mistake #1: Ignoring the wealth maturity of beneficiaries
Are our heirs ready to receive our inheritances immediately after we leave this world? Money that comes fast goes away fast, as seen in the case of lottery ticket winners and the reality TV shows, like “Ultra Rich Asian Girls”.
There is no emotional attachment to the money because it was not earned through their own efforts and personal sacrifices. Our heirs need to be equipped with the right money mindset and attitude.
While they are acquiring such maturity, the inheritance we plan to leave them is better off in the hands of mature trustees and custodians. Without going through the due maturing process, our heirs will not truly be blessed by what we leave them in our wills.
Mistake #2: Leaving succession to the next generation to chance
“Wealth does not last over three generations” is a familiar Chinese saying.
Essentially, a will is a two-generational wealth-transfer instrument not suitable for transferring wealth across multiple generations. For many families with two professionals working or running a successful business, the estate left behind may be far bigger than the lifetime needs of one or two dependents.
A handful of my clients believe that they have already set up their adult children for life and the inheritance can enrich successive generations. In such cases, wills may be less effective because it cannot handle how the second generation handles the money.
Mistake #3: Cutting the tree and scattering the fruits
Think of capital as a fruit tree and the fruits as the income. If we leave behind more than one beneficiary, the fixed assets divided among them will no longer be whole. Siblings growing up together may still preserve the family house or the parents’ business. However, by the third generation, the ‘cousin conglomerate’ have little incentive to keep things intact.
The tree – the inheritance that was left to the second generation – can no longer produce fruits for the third generation. Family businesses, such as Eu Yan Sang and Yeo Hiap Seng, are prominent examples of company shares becoming diluted as the family wealth was spread across generations.
Mistake #4: Leaving an open door to unwanted attention
Wills are open documents. This means anyone who can prove interest in the estate can apply to scrutinise its content – and any loopholes it may contain. This often leads to domestic fights and unwanted media attention.
If you think that only the ultra-rich face this issue, think again. Many ‘rich-but-not-that-rich’ families also run into this problem. At the demise of a rich family member, you may find yourself faced with unwanted guests: cash-strapped relatives, financial advisors who are ‘here to help during this difficult time’, and maybe a swindler or two.
Take for instance the case of the Changi widow who lost $1m within the year of her husband’s passing. Or the case of the late Mdm Wan Chin Neo, whose death brought 31 ‘distant relatives’ into the limelight, all claiming to have a share of Mdm Wan’s $4 million Katong property. Let’s also not forget about the 2015 Chee family dispute over a $540,000 Holland Village HDB flat.
Mistake #5: Losing the chance to connect values to valuables
Behind a wealthy individual is usually a story of hard work, grit, sacrifice, and faithfulness to a task. Most wills are drawn up only to deal with assets or valuables after someone passes on. Hardly do we see the more precious values effectively passed down in wills. Have you ever wondered why?
Because wills make immediate distribution of wealth without conditions. Without the proverbial ‘dangling carrot’, few heirs can accept the discipline of values that a predecessor wants to impart.
In the 2006 movie, “The Ultimate Gift”, a rich grandfather left an inheritance for his spoilt grandson, Jason. However, it came with a condition: Jason must complete 12 separate assignments within a year to receive the inheritance. Each assignment is centred around a ‘gift’ or value. For example, friendships, work, relationships, giving, and learning.
Mistake #6: Diminishing family connections and shared experiences
The matrimonial household upon which a family is built holds long-lasting memories of shared experiences and is the heart of family connections. When the family house is sold and divided among the children, there is much more than capital growth potential that is lost. It is the same with any family-run businesses. Without co-labouring and co-ownership, siblings tend to go their own ways and family connections diminish over time.
Though wills are a common tool used to distribute inheritances, it’s a mistake to assume they are sufficient. Sound estate planning can be summed up by two proverbs: “A good man leaves an inheritance to his children’s children” [i] and “an inheritance claimed too soon will not be blessed at the end.” [ii]
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- [i] Referenced from Proverbs 13:22
- [ii] Referenced from Proverbs 20:21
- Eu Yan Seng. (2021, October 31). About Us. Retrieved from Eu Yan Seng: https://www.euyansang.com.sg/en/about-us/eyscorporate1.html
- Lim, J. (2014, June 8). $1m gone in one year: Widow of killed Changi Airport worker is now broke. Retrieved from The Straits Times: https://www.straitstimes.com/singapore/1m-gone-in-one-year-widow-of-killed-changi-airport-worker-is-now-broke
- Lim, Y. (2015, October 28). Family in court tussle over $540,000 estate. Retrieved from asiaone.com: https://www.asiaone.com/singapore/family-court-tussle-over-540000-estate
- Poh, I. (2014, January 5). 31 people claim share of $4m bungalow in Katong. Retrieved from The Straits Times: https://www.straitstimes.com/singapore/31-people-claim-share-of-4m-bungalow-in-katong
- Yeo’s. (2021, October 31). History and Heritage. Retrieved from Yeo’s About Us: https://www.yeos.com.sg/about-us/history-heritage/