I will use a story to illustrate how to protect your children by creating a living trust.

Jim is a caring husband, and also a good father. Being married to Susan for two years, they own a lovely home with a six months old son. Both parents are working very hard for the future of their family well being. Realizing their economy value, Jim and Susan just increased their life insurance coverage to a total of $500,000. As usual, Jim nominates Susan as the sole beneficiary and vice versa. One weekend evening, Jim and Susan met with a terrible road accident. Jim died on the spot and Susan also passed away after two days in the hospital intensive care unit. This is known as double tragedy at the newspaper headline.

This is tragedy indeed. Let’s look at the possible problems arise:

Who should be the guardian of their son, Patrick?

In Malaysia, either one of the parent is the legal guardian of a child. But now Patrick has become an orphan. The grandparents are too old to take care of Patrick.

Who shall inherit their wealth?

Being a young couple, Tim and Susan do not have substantial wealth. But don’t forget that they had their mortgage covered by Mortgage Reducing Term Assurance (MRTA). Now their home is mortgage free. Also there shall be a large sum assured paid out from their existing life insurance policy. But both the nominees passed away. According to Malaysian distribution act, both the grandparents and also Patrick will get a portion of the deceased wealth.

Who can continue to mentor their children?

Besides proper academic education, being a parent, isn’t it our main responsibility to mentor our children to be a great person in term of spiritual, mental, and social skill development? Since Tim and Susan had passed away, there is no other medium for them to communicate their core value to Patrick. If Patrick is not lucky enough to get a good mentor, he might end up on the street crime scenes.

If you are caring enough to set up a proper incentive living trust for your children, I am sure that there is a certain level of protection predetermined. Here is the solution you can adopt:

Write a WILL

Tim and Susan shall have their own WILL written by a professional will planner. The WILL is the only way to appoint a guardian for our children. Before you appoint any person as a guardian, talk to them to get their consent. It is even better to provide certain level of regular salary to the guardian as a compensation for their care and love.

Create an Incentive Living Trust

There are a lot of things you can mention in the trust deed.

1. To provide compensation to the guardian appointed in the WILL – you can pay a lump sum of thousands dollar or you can state an amount to be paid monthly to the guardian for the time they spend to take care of your children.

2. To provide the maintenance of your child living expenses – estimate the children’s daily living expenses and pay them monthly into their trust bank account. The guardian will be able to use this funding for your children’s maintenance.

3. To provide education fund – Your children will need thousands of dollars when they study in college or university,

4. To provide incentive for your children’s hard work – have you heard the story of the donkey and carrot? You hang the carrot in front of a donkey and it will be motivated to keep walking because it is chasing for the carrot. If you simply throw a carrot to the donkey, what do you expect? You will get a lazy donkey. It is the same for our child. In the case above, Patrick is going to get hundred thousands of cash when he reaches age 18 (no longer a minor). If I know there is a lot of cash sitting somewhere for me to grab when I grow up, why would I study hard? As parents, we can’t just give money to our children like that. Please, set the conditions and terms so that your children accomplish something before they get the incentive. Example: $50,000 if he gets a degree in first class honor.

Fund the living trust with your life insurance

A trust without a trust fund is not valid. For young couple, I know there is not much wealth accumulated to put aside as trust properties. But because you are young, and still healthy, you have the luxury of using life insurance as a funding method. You can create a substantial amount of cash from your death if it is going to happen. Paying premium of a few thousand a year you might get a million dollar policy. Instead of nominating your spouse, you can assign the policy proceed into the trust. Let the professional trustee manage your money.

Child Protection Setup Incentive Living Trust Process

In order to put on a great child protection plan like this, you will have to seek advice from a proper financial advisor. Make sure the advisor has sufficient knowledge in living trust, life insurance and also will writing. Contact me if you want a confidential discussion. If you do not concern about privacy, please ask in the comment section so every reader can learn too.


Do you want to find out more about how to protect your family with Wills & Trust? Here is a free strategy report that I highly recommend:

How I’ve Protected my Family’s Financial Future with Will & Trust, and How You Can Do It Too!

Related Articles:

Managing Risk of Double Tragedy

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Personal finance author and trainer

    12 replies to "Child Protection: Setup Incentive Living Trust"

    • […] you are getting the CAI, and not the GPI, while CAI is still available. I just bought one to fund a children incentive living trust, and also another one for […]

    • Rajan

      Hi KC Lau,

      I might be going through a divorce soon. I have a property under my name (100%) with an ongoing mortgage payment. I do have some savings in the bank plus unit trust too. None of this is under a joint name with my spouse.

      As I wish to protect my property and savings for my retirement, is it adviseable for me to set-up a trust? If yes, can the court revoke this trust assuming the divorce goes through and a settlement is granted to my spouse?

      • KCLau

        Hi Rajan, I am not sure about the legal issues. It is best to look for advice from qualified legal advisors.

    • wonderful

      interesting how to setup a trust for my kid who shall i contact?

      • KCLau

        Hi, you can contact me and I will hook you up with trusted associates.

    • Jac

      May I know how to setup a trust and what is actually needed? Who do we contact and how do we find these contacts?

      My situation is like this. My parents are in their 60’s and they are independent folks and would like to setup a trust fund for their own old-age care. The would just like to play it safe, making sure that they will be taken care of when they are not able to. After seeing many real life horror stories their neighbours and relatives who has grown old and abandoned by their kids, they feel that they should setup a trust for their old age(just in case they lose their faculties etc). They came to me and ask me of my opinion. I have no objections as I know where they are coming from but at the same time, I do not have any idea on how to do this. What are the things that need to be considered when setting up a trust fund? Who do we contact? How much is the cost of setting up a trust fund and have someone professional to run/invest for us? Altogether, without their insurance policies, they have about 300K savings combined.

      • KCLau

        Hi Jac,

        You will need to talk to someone who deal with this professionally.
        I have an associate who are really good at doing this.
        Please email me at kclau [at] kclau [dot] com with your contact number and your location so that I can arrange a discussion with you.


    • Pearly

      Dear KC,
      Currently me and my husband is going tru divorce and during our marriage both of us have bought GE insurance with either:- ( me on the life of my husband as insured person ). Will divorce has any effect on insurance and the nomination? I also bought another saving policy – Maybank Etiqa whereby I put 100% beneficiary to my son which is just 5 years old. I’m confused now as after reading your article on whether to include my sister name for the nomination. Cause in case I die early how do my son get the money and he might not mature enough to handle his finance. Any advice on the beneficiary?

      • KCLau

        Hi Pearly,

        You will need a trust setup in this situation.
        For your GE policy, you shall be able to do “absolute assignment”. Please visit the nearest GE branch to get this sorted.
        For your other policies, you can nominate your son. If you have a trust, you can also assign the policies to the trust since your son is still young.

    • […] One more comprehensive arrangement is to setup an incentive trust for your children. I wrote about it here. […]

    • […] for educational expenses if we die prematurely. There is also more needs if we intend to create a child incentive living trust to manage the risk of double […]

    • […] I suggest that she read some of my articles regarding wealth distribution. These might be helpful: Child Protection: Setup Incentive Living Trust Managing Risk of Double Tragedy Save money by writing Will Thanks 5xmom for the […]

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