Estate planning will minimise potential issues for multi-generational families 

By Yanika Liew

In Malaysia, as well as in other countries, families with multiple generations need a well-rounded estate plan. Armed with proper financial and legal awareness, families will be able to minimise tax liabilities and ensure a stable and robust financial future for their loved ones.

“The recent implementation of a Capital Gains Tax (CGT) in Malaysia has fundamentally altered the estate planning landscape. Families must now strategise to account for these potential tax implications when transferring wealth, a concern that was previously non-existent except for the Real Property Gains Tax (RPGT),” licensed financial adviser representative Lee Khee Chuan said.

Navigating the diverse needs and expectations of multiple generations remains a significant challenge in contemporary estate planning, he added.

As families expand and diverge, Lee noted that members often have different objectives regarding the family’s wealth and business ventures. Striking a balance between these interests, while ensuring equitable treatment and maintaining familial harmony, requires delicate handling and thoughtful planning.

In addition to the recent introduction of the Capital Gains Tax, Lee pointed out that there has been market talk about a possible re-introduction of the inheritance tax, which was under the Estate Duty Enactment 1941 but was repealed in November 1991.

Careful planning and potential restructuring of existing estates may be necessary to comply with the new tax regulations.

Estate planning tools such as a will, power of attorney and trust may need to be deployed to transfer wealth to the next generation periodically. Where wealth is consolidated using a trust or a family foundation, assets may be transferred upon death using a Will or a trust with a power of attorney, Rockwills International Bhd group chief executive officer Azhar Iskandar Hew said.

Strategies for estate planning

“Utilising structures such as Labuan Private Family Foundations can greatly enhance estate management. These entities offer legal protections, tax efficiencies, and facilitate the governance of family wealth, ensuring assets are preserved and controlled according to the founder's intentions,” Lee said.

The Labuan Private Family Foundation, under the Labuan Foundation Act 2010, serves as a strategic legal vehicle, offering significant advantages over traditional entities such as a Sendirian Berhad.

“The Foundation provides continuous control by patriarchs, enhanced privacy, robust asset protection, flexible structures and efficient costs to better manage family wealth. These features are particularly designed to meet the intricate needs of family wealth management and succession planning, providing legal safeguards that support the objectives of wealth preservation and multi-generational wealth control,” Lee explained.

Families may also be interested in implementing life insurance policies, which provide crucial liquidity to an estate. This ensures that there are sufficient funds available to meet obligations such as taxes and debts, avoiding the possibility of forced sale of valuable family assets.

“Developing a comprehensive succession plan for family businesses and assets is critical. This involves grooming the next generation for leadership roles to ensure business continuity and the long-term prosperity of the family’s legacy,” Lee added.

Outside the legal strategies families can make, conducting regular meetings to discuss estate plans and engaging family members in the planning process is vital. 

“It is essential to establish decision-making and conflict resolution structures or processes with the establishment of family councils playing a crucial role in dealing with investments, management succession in the family business and allocation to distribute dividends to deserving family members,” Hew said.

There should be an investment committee reporting to the family council to strategise the investments of the family wealth, he added.

Where assets are collected over the years and scattered in different countries, there is a need at some point to track and review the assets so that the executor or trustee and beneficiaries are in the know. Tax planning experts may need to be engaged to provide solutions to mitigate adverse tax impacts.  

“As family members age, multigenerational planning must set aside funds for long-term care of elderly family members. A sum from the annual income received could be set aside for reinvestment and thereafter used to pay for such long-term care in the future,” Hew said.

New challenges

In today’s dynamic environment, estate planning for multi-generational families faces several challenges, such as ever-changing family structures. 

“As much as the patriarch may want the traditional family structure to be maintained, it may need to be reviewed for change considering modern families today often have diverse structures, including blended families, unmarried couples, co-habiting couples and non-traditional arrangements. These complexities must be taken into account whether to recognise co-habiting couples or their children or unmarried couples to be part of the family to benefit from the family wealth,” Hew said.

In addition, there is also the rising cost of healthcare and education. 

“With the advances in medical science, life expectancy would increase leaving many surviving elders to provide for their healthcare. In addition, education costs tend to increase each year. Both present a challenge for the family's wealth to grow and put pressure on the family business to continue being the main cash provider,” Hew said.

For the long-term success of multigenerational planning, passing on financial knowledge, core values, and life skills to future generations becomes crucial, both Hew and Lee noted. 

“To address these challenges requires careful consideration within the family council, the engagement of qualified professionals giving a different perspective can often lead to a resolution being found, as well as ongoing review and adaptation of new strategies enabling multi-generational families to effectively navigate the complexities of today's world,” Hew said.

Source: Rockwills

“It is essential to establish decision-making and conflict resolution structures,” Hew said.

“Developing a comprehensive succession plan for family businesses and assets is critical,” Lee said.