Do you feel that you did your part as a responsible adult once you insure your life for a million dollars? We often believe that insuring ourselves against known risks completes our risk management journey. However, if you are a parent, a spouse or a child, it might be the beginning. In this article, we share with you the million dollar question you might have neglected asking.
Do you know if your $1 million dollars will be managed properly?
We insure ourselves in order to ensure our dependents can be continually taken cared of even when we are no longer around. This is our motivation to pay for a yearly premium for the coverage. Very often, we like to believe we have done our duty as long as we left the money for our dependents. What if I tell you this thought process might be overly simplistic?
Our effort will only be meaningful if the pay out meets our objective. That is to take care of our dependents. If the pay out ends up being mismanaged and squandered, then our objective will not be met.
What is the likelihood the money ends up being mismanaged?
A common assumption parents have when they insure their lives is to that if something bad happens to either party, there's the other parent to take up the mantle. Even if there's a low probability of both parties concurrent demise, it should not be unaccounted for. This is especially crucial if the children are still minors or very young adults. How will children with little life experiences know how to handle large sums of money?
When it comes to adult dependents, there's also a list of considerations. What if one spouse does not have an active role in managing money? Would they suddenly know how to handle large sums of cash? Would elderly parents who are dependent on your income become susceptible to scams if they suddenly inherit a million dollars?
The flaw in our risk management thinking process
Our thought process when we insure our lives for a sum of money often lead to this belief that as long as our family have this money set aside for them, they will be fine. We don't question if our family members are competent to handle that money. We are also optimistic about the altruism of human kind. We neglect the possibility that many 'kind Samaritans' may appear to offer advice on how our family members should handle the money. Some advice might be well-intentioned but unsuitable, some may be ill-intentioned and self serving. It may also not be surprising if friends and extended family suddenly have many 'investment opportunities' for your family members. All this stems from our flawed optimism that our family members will figure it out. What if there's a better way?
Estate planning provides a structured approach to distribute and manage your assets
This article is written to address the risks to protect our more vulnerable family beneficiaries. A simpler wealth distribution process might suffice for financially savvier beneficiaries. Of course, this also depends on the size of your estate.
Estate planning enables us to stipulate how we wish to handle the distribution of our wealth once the money is disbursed. We can do so through vehicles like Wills and Trusts. Many people understand estate planning as an instruction to dictate who will get what and how much. However, proper estate planning can even structure your intentions to do the following:
Determine the legal guardian(s) who will be caring for your children if they are still minors. The guardian must be agreeable of course.
Manage how much resources the guardian has access to and for what purpose they can use it for. (this might include an amount to thank them for their time)
Determine how much resources will be released to beneficiaries at different life stages (eg: children going to university, children getting married, children turning a certain age, spouse reaching retirement)
Determine how the funds should be disbursed (through monthly income or lump sum) and if exceptions can be made for emergencies such as medical bills.
Estate planning can include 'what if' considerations such as in the event children are going through divorce, they can't get access to the assets, etc.
Handling large sums of money can be overwhelming
Lottery winners have proven that a sudden windfall does not help them move up the socio-economic ladder unless they steward the money well. Those who do are the exception, not the norm. Some common challenges our loved ones might face when they become overnight millionaires.
Young children
What is important to a child at 18 versus 30 is very different. I can't even recall what I was spending my money on at 18 but it certainly won't be to grow my assets and secure my retirement. When I was just out of Poly, I tried my hand at business and blew a couple of thousands on it. This doesn't mean I'm not suitable to run businesses but it also meant I needed to accumulate experience and those thousands of dollars are my learning fees. We want to empower our children to have the opportunity to try new things. Do we want them to blow their entire account on their first venture?
Less financially savvy spouse and elderly parents
Some of our spouses and elderly parents are highly dependent on us. They have no prior experience making big financial decisions. They may also not know how to apportion their money when asked to manage it over a prolonged stretched period. Overspending tendencies is not uncommon among humans. They may also have good intentions to steward their funds through financial instruments but lack the awareness on how to do proper due diligence. Under such circumstance, would we prefer to provide them with a monthly stipend instead of giving them immediate access to a large amount of money?
You have done the first step to provide for your dependents, it's important you secure what you set up for them!
Inheritance planning is often assumed to be for older people. Ever wondered how old is old enough?
Once we insure our lives with a sizeable amount, we technically have built assets to distribute. Put it this way, we would not have made an effort to insure our lives if not because we want to cater to our loved ones. Now wouldn't it be a waste if we had the foresight to provide for them but miss out on helping them to protect what we gave them?
Above all, capitalizing on our eventuality can be an opportunity for our next generation to have a head start. This is if they steward the money well. One helpful question we can ask ourselves. If we were alive and living to a ripe old age, how would we have steward our resources before we hand it over to our loved ones? Wouldn't you want to set up a contingency plan to continue to do so even when life throws your family a curve ball?
After reading this article, you may have some questions or may want to find out more about distributing your assets through a conversation with me. You can reach me by dropping me a message.
Be sure to share the article if you feel this information is helpful. You will enable a lot more people to learn about inheritance/estate planning.
About Janice I specialize in wealth management and retirement planning. Clients look for me primarily to outsource their retirement planning needs so that they can focus on other aspects of life that interests them. Many of whom are very good in earning their incomes in their respective professions and wish to ensure their monies continue to work harder while they focus on what they are good at. Refer to client testimonials here. I've helped many clients who are referred to me achieve tangible financial goals without compromising on their aspirations and many clients reach out to me in order to achieve their ideal retirement goals. You can reach me at 94313076 or my social media accounts on Facebook and Instagram. Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.
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