We now live in a more connected world, thanks to technology and easy travel access to other countries, which is why it has become increasingly normal for us to have our wealth scattered around the world.
However, I would like to urge you not to overlook and forget to protect your assets that are outside of Malaysia when you invest overseas.
Different Jurisdiction, Different Law
We often tend to take things for granted with regards to presuming that the laws and taxes where our foreign assets are domiciled are similar to the set of laws and taxes in Malaysia. As such, many Malaysians will kick-start their foreign adventure without even knowing what will affect them.
One such drastic difference that we must know from day one is perhaps the presence of estate tax or inheritance tax. If you have assets in countries like the US, your estate (US-situated asset) may be subjected to two levels of estate taxes, namely at the Federal and State levels.
Estate tax is a form of tax levied on the taxable estate, meaning after making certain adjustments to the gross estate value such as deducting funeral expenses and donating to charities, among others. It can rack up to as high as 40% of excess of US$5mil for resident and $60,000 for non-resident (on the Federal level).
My Client’s Experience
One of my clients, Mr. Y had experienced a great loss when his brother passed away. His brother is a Malaysian who is domiciled in Singapore a decade ago.
Mr. Y’s brother had accumulated his wealth both in Singapore and Malaysia prior to his death and had left behind a self-drafted will – one that was drafted about 6 years ago, with its contents neither reviewed nor changed since. Mr. Y’s brother had also appointed his younger sister, who resides in Johor Bahru, to be the executor of his Will.
However, when Mr. Y’s brother passed away suddenly, his sister refused to be the executor of the will since she couldn’t make time to go to Singapore on such a short notice.
What’s worse, Mr. Y’s brother did not leave behind a list of his assets and liabilities, which meant that they had to first find out what these assets were, and where they were located.
This responsibility was passed to Mr. Y, who had to write in to every financial institution to inquire if his brother had maintained any accounts with them. This process took Mr. Y several months, and brought him down to Singapore numerous times.
To avoid leaving a mess for our beneficiaries, consider these options to ensure that our foreign assets are protected from the two things that are inevitable in life: Death and Taxes.
1. Making a Will
While a will can lead to a smoother and simpler process of distribution, we also need to understand that not every will is executable.
The most important thing about writing a will is not about the instructions, but who the executor of the Will should be. Taking into consideration distance and proximity to decide who the executor should be might not help the situation a bit; instead the executor of the will has to be, first and foremost, someone who is capable and, at the same time, trustworthy.
As the executor might pass away before the testator, or may not have the time to handle the tedious task of executing the will, the will also needs to be monitored from time to time.
Another point to note would be that we should have multiple wills to separate Malaysian assets from foreign assets in different jurisdictions, especially when immovable assets such as properties are involved.
This will save precious time and money for both beneficiaries and executors as they can execute concurrently, rather than having to wait or decide where to apply for Grant of Probate (original will is needed to apply for probate).
2. Setting up a Trust or Foundation
A Trust or a Foundation is the recommended solution if you have a sizeable asset to leave to beneficiaries. The requirement for applying Grant of Probate is not applicable in this case as the transfer of assets into the Trust will have to occur prior to death of the settlor or founder.
Indeed, a Trust or a Foundation is the solution for investors who need a higher level of planning as compared to the use of will. A will’s role is to mainly dictate the intention on distribution of assets, while a Trust goes beyond and preserves it upon death.
A Trust or Foundation can be maintained for few generations, and some can be perpetual, provided that the funds and asset size are big enough. This can ensure succession for future kin and also allow the settlor to still have control over how beneficiaries can receive from the Trust or Foundation as there will be a Trust deed or Foundation Charter that contains the wishes of the settlor.
3. Insurance Wrap Account
An easier way to protect our paper assets overseas would be through the use of a life insurance wrapper. This is an open-architecture account whereby an investor can put in any form of liquid assets such as equities, bonds, mutual funds, bank deposits, ETFs, and even currencies into the account.
This life insurance wrapper allows investors to trade and buy stocks directly from major exchange such as the New York Stock Exchange and Tokyo Stock Exchange, and buy funds from renowned company such as JP Morgan, BlackRock and Fidelity.
Life insurance wrapper accounts can only be done via a Licensed Financial Planner and the account will be registered in tax havens such as Isle of Man, Cayman Island, the Bahamas and Panama, thus allowing protection from tax leakage as all investment returns are tax-free.
When we open a life insurance wrapper account, we will be able to nominate beneficiaries, thus allowing for smoother transfer of assets when death occurs, and at the same time maintaining protection from tax.
About the author
Kevin Neoh is a NextGen Money Coach who works with people to help them transform their relationship with money to improve their lives with the money they have. Kevin can be contacted at [email protected] and www.kevinneoh.my.
