Looking back years of practice (PART 1)

Looking back years of practice (PART 1)

Being in practice, A.D. FINANCIAL, having the basic instinct of “PRESERVATION” had definitely come a long way in understanding the complexities of Malaysian wealth.

In this Part 1 article, we shall firstly define the extent of complexities of an individual‘s wealth and in Part 2, we shall discuss the 10 common mistakes that a high complex individual had committed in their Asset Protection and Preservation strategies on their hard earned wealth.

Defining High Complex Individual

Polygamous for Muslims or ‘Hiddengamous’ for Non Muslims

Whether you are a Muslim or a Non Muslim, legitimate or illegitimate spouses are just matters of legitimacy in the eye of law. Such complexities are equally the same and most of the time, they are detrimental to the wellbeing of a family’s wealth. Issues like squabbling, squandering and spendthrift heirs are some most common problems in such families. Can such internal strife be solved amicably among heirs without bickering, lawsuit or rivalry? What would happen upon death, will the situation worsen? Do they have “Preservation” strategies in their Estate Plans?

Too Many Companies – unable to identify the best HOLDING structure

Having too many companies can be messy at times and because of these companies, our client had accumulated massive wealth. The complexities arise when they come to the Preservation planning of their businesses.

  1. Imagine having 10 wealth generating companies in your own personal name and owning mostly in majority shares. In the event of Death/TPD, will the surviving partner(s) short change the deceased family with some accounting or siphoning creativities?
  2. Will the surviving partner(s) form a new company and transfer the clients to their company?
  3. How can you pass down the baton to your children when they are not interested in the business?
  4. Supposing you are one of the 4 siblings who owned the businesses and each sibling have 4 children, can the businesses be passed down to the next generations with 16 cousins owning the businesses?
  5. How will the death of your Muslim partner affect your business? Will the Faraid heirs be allowed to come into the business?
  6. Is the pre-signed form 32A (share transfer form) and pre-signed resignation letter by your proxy/nominee workable?

Many Foreign Assets

Ever since the Malaysia Capital Control has been lifted on 1st April 2005, more and more Malaysians have been investing offshore. Since investing can be lucrative at times, many investors still lack the preservation mindset for their offshore assets. Questions like whether there’s Estate duty, Inheritance tax, Estate Administration and Legal hassles have never crossed the mind of our Malaysian investors. Likewise, upon demise, how can one transfer the offshore assets without physically transferring it back?

Squandering heirs – unable to set up a generational wealth strategies

Dealing with spendthrift and squandering heirs can be a great challenge. Without proper planning and disciplining, it can be detrimental to our hard earned wealth. Imagine having all your hard earned wealth passed down to your children. Being young, they have not acquired the competency in managing such massive wealth. The mindset of ‘giving’ but not letting them ‘own’ your wealth until they reach to more mature age like 35 or 40 has never crossed the mind of high complex individual. Passing it to them through a Will is not advisable as it does not provide constructive generational wealth strategies.

Vulnerable to lawsuit, subject to bankruptcy

Known as one of the most common risks that befall our clients especially when they are needed for Director’s Guarantee for a Business Loan that their company has undertaken. Being a director carries lots of risk in their fiduciary duties too. Issues of Director being framed and sued for breach of trust are common nowadays. As a result, wealth is lost. To circumvent wealth from being drained away, an asset protection strategy needs to be in place to reduce your wealth profile and the segregation of your wealth from your name is vital to prevent your creditors from claiming your hard earned wealth.

Tax Liabilities – is too much avoidance equals to evasion?

Tax audit and investigation are being rampantly carried out by IRB officers to nab tax defaulters. While avoidance of tax is permissible, over doing it could be seen as evasion from the eye of IRB. Often negotiation and competency skills are needed to overcome such an ordeal. In fact with a minimum of RM10,000.00 tax default owed to the government, IRB can file for bankruptcy notice and freeze the assets of the defaulter. Preservation strategy such as Mean Test Capital Statement will determine and substantiate whether or not you have any undisclosed income as claimed by IRB. Furthermore, the myth about IRB not being able to claim the estate upon one’s death is entirely wrong. Upon one’s death, one needs to get IRB’s clearance for Estate Administration.

Muslim convert – the implications when not planned

Cross marriages between Muslims and Non Muslims have been a norm in our multiracial country. Often Non Muslim spouses are not aware or ignorant about their rights for their Estate plans. Imagine their Non Muslim family members (such as parents or children from their first marriage) not being able to claim a single cent of the wealth according to the Syariah laws in Malaysia. Alternatively, all these can be circumvented by planning special provisions for their Non Muslim family members.

Messy wealth – unable to determine their Networth

It is rather common that most of our clients’ wealth is not in proper order. Situations like where, what and how their assets are performing can be difficult to substantiate at times. The first exercise in Asset Preservation is to know all the assets and liabilities that one owns and to determine its healthiness level. Subject to the goals and objectives, one can then plan for any preservation strategy, be it generational wealth strategy, asset protection or etc. Creating a systematic inventory listing will enable coherence judgment in their planning

Any other matters of COMPLEXITIES that creates an ANXIETY or CONCERNS in life.

  1. Retirement planning on whether or not their retirement lifestyle is indeed a big question. With inflation catching up at 3%-4% annually, it can further deplete their savings. Hence, funds may not be able to take them through their post retirement lifestyle till the end of their mortality age.
  2. We often hear from our client with regards to their handicapped child and how to provide for them in the event of their death. Imagine the amount of funds needed to be set aside and how it should be spend can be a great challenge too. Guardianship issues and monthly income to guardian are one common factors that are left out during their planning.
  3. Multiple marriages had resulted in having children from previous marriages. Question like how to plan effectively is vital in order to prevent those wealth passed down to those children from being squandered away by their immediate family.
  4. Ensuring the funds of our philanthropic heart goes to the right channel and being spent to utmost good faith can be a great challenge especially dealing with huge sums of money. Setting a right structure for perpetual existence has always been the right model.
  5. Family squabbles especially among siblings over the inheritance of wealth can be one good reason for planning your Estate. In this manner putting all wealth in a Will is always the wrong and not complete choice.

Alvin Yap is the Principal Consultant and Group Managing Director of A.D. Financial Sdn Bhd (“ADF”). Under his leadership, ADF has expanded its footprint in Asia by establishing offices in Singapore and Hong Kong to provide consultancy for high net worth clients from Singapore, Indonesia, Vietnam, China and other countries. Besides that, he is highly sought after to speak in regional and international family wealth planning seminars. His expertise in Business Succession Planning has led many business owners and founders of listed companies to seek his advice on their complex business continuation and personal wealth matters.

Alvin is currently devoting his Practice to Multi Family Office Advisory for high net worth Individuals in structuring their complex wealth matters with a view to preserve their hard earned wealth. A strong believer of “Preservation First, Accumulation Second” and “Distribution Last”, Alvin’s expertise injects a fresh perspective on how wealth and family values can be preserved for many generations in Asian families.

If it is worth striving for, it is worth preserving


Share This
© 2021 A.D. Financial Sdn Bhd. All Rights Reserved. Developed by CrunchyFrogPro