Jocelline Chee, Senior Estate Planner of Rockwills Trustee
Time and time again, property investment has been touted as a fool proof plan to early retirement and a guarantee to our future generation’s financial security. Most investors spend a lot of time and effort gathering data on the right locations, price appreciation, and looking for the lowest interest rates offered by banks. In the event of a tightening of lending policy, some goes the extra length to beat the system by either purchasing under a joint tenancy or merely titling a property in someone else’s name. While this is all well and good, there is one aspect of owning a real estate that we often overlook or generally avoid talking about – death.
Agreements that are as such, while beneficial to buyers who are looking to borrow someone else’s credit score, may create complication in the event of the title owner’s death. Since in the eye of Malaysian law, only the owner whose name is registered in the Sales & Purchase agreement (S&P) is recognised as the owner of the property (legal owner), the rightful owner who has been paying for the property losses his or her whole right to it.
Under the “intestate succession” laws, when a person dies without a will, his or her assets will be passes on to the closest relations; in other words, the state will make up a will for you and decide who gets a portion of your share. “In cases where a person dies without a will or trust, the law of intestacy will decide who is the legal beneficiary,” explains Jocelline Chee, Senior Estate Planner & Area Licence Service Centre of Rockwills.
While the purpose of intestate succession statutes is to distribute the decedent’s wealth in a manner that closely represents the average person’s design of his or her estate plan, it either differs dramatically from what the person really would have wanted or create complications for the unconventional ownership arrangements. In such cases, it is important to have either a will or a trust in place.
The difference between ‘will’ and ‘trust’
Will and trust are both useful estate planning devices that serve different purposes, and both can either work separately to serve specific conditions or together to create a complete estate plan. By having a will or trust in place, the rightful owner will have the peace of mind of knowing that his or her interests are protected and that the property invested will benefit his or her family members.
CASE STUDY ONE
Richard purchased a condominium unit with his wife, Brenda. Both of their names are registered in the Sales and Purchase Agreement, however, as the bread winner Richard is the only name on the mortgage. If Brenda were to die, would Richard get the full rights on the property?
Theoretically, they both have equal rights on the property since they were beneficial joint tenants at the time of death. However, in the eye of the law, if the wife passes away the husband will only be entitled to 25% of her share of the property. Under the law of distribution, 25% of the share will be given to her husband, the parents of the deceased are entitled to 25% while the children will receive 50%.
Brenda should write a will that states 50% of the property that is registered under her name should be given to her husband, Richard.
CASE STUDY TWO
Punitha, a mother of three, purchased a property on behalf of her brother, Ananth, a father of two children. While her name is registered under the S&P, Ananth takes on the responsibility of paying for the down payment and loan repayments. In the event of Punitha’s death, who will get the rightful share of the property?
In the eye of the law, Punitha is the legal owner of the property. Without a will, in the case of her death, the property will be frozen and become part of her estate and will be distributed according to the Law of distribution order. In the case of Ananth’s death however, without a will in place, the law does not recognise his rights on the property.
Without a will, according to Rules of Intestacy, Punitha’s spouse is entitled to 25%, her parents 25% and her children are entitled to the remaining 50% of the property. If the parent of the deceased is no longer alive the 25% share will be distributed among her siblings, who are automatically entitled to a small portion of that share.
A will can be changed secretly without the knowledge of anyone, while a trust is binding and can’t be changed without the consent of Ananth. Create a trust that names Ananth as the beneficiary and substitutes his wife and children as beneficiaries if he dies.
CASE STUDY THREE
Yusoff who is married with 2 children bought a piece of factory land in Seberang Prai for investment purpose with his business partner, Chan who is married to a foreigner, with 2 children. Both Yusoff and Chan’s names are registered in the S&P and the mortgage loan instalment is shared among them through a joint named bank account. They planned to sell the property within five years. But what happens to Chan’s share of the property if he dies? Can the remaining partner still sell the land to the market?
If Chan were to die without leaving a will or trust, the property will be frozen and become part of his estate. According to Rules of Intestacy, 25% of his share will be distributed to his wife while the remaining 75% will be shared by his children equally. His wife will not be able to sell the property without his partner, Yusoff’s agreement and vice versa.
Chan should set up a property trust that allows the investment to be bought or sold, thus the investment interest is protected as there is a guarantee return of investment.