An Overview of Estate Planning in Malaysia

Introduction

Estate planning, simply put, involves our plans on how to distribute our estate upon death. Eerie as it may sound, this topic was once again received sporadic attention of many Malaysian in the aftermath of 2014, the year of disaster in Malaysia, when few air tragedies come and go unpredictably.

For those who own insurance policy, there will normally be guided advice by insurers to nominate our beneficiaries who would receive our policy money upon our death, as stated in the Financial Services Act 2013. Likewise, to the contributors of the Employee’s Provident Fund (‘EPF’), there is similar advice by the EPF Board to nominate our beneficiaries who will receive our EPF money upon our death.

Otherwise, the most common, simplest, and practical way of having a workable plan to our estate upon death is by making a will (‘Will’). As defined under the Wills Act 1959, a Will is a declaration intended by the will-maker to carry into effect upon his/her death in respect of his belongings, child’s guardianship and charitable causes, and so on.

Making a will is encouraged for its obvious benefits as follows:-

1. The testator will be able to appoint an executor to carry into effect his/her intention upon his death. It is the law that an executor is empowered to undertake any action on behalf of the testator the moment he/she passed on, including passing a proper title of the property to the rightful beneficiaries.
2. Contrary to common belief, the law provides that the executor shall be indemnified out of the testator’s estate against all testator’s liabilities, thus an application to the High Court for a grant of probate by the executor upon testator’s death not only formalizes his or her authority to carry on testator’s affairs but allowed them to be shielded under the cloth of an executor.
3. Last and most importantly, having a Will would hasten testator’s wishes to be carried into effect upon his/her death as an application for grant of probate takes only about 1 month from the date of testator’s death.

It is understandable that most people do not have estate plans as it is perceived as petty and expensive to have one. Some may think that it is only for the wealthy people, as they have many assets to be given away; or that the distribution of estate can be done when they get older, not realizing that life is unpredictable.

However, it is more important to know that not having a Will may lead to practical issues such as:-

1. Without a will, an estate will be distributed according to the law under the Distribution Act 1958 upon someone’s death, i.e. the law dictates the method of distribution of your estate (refer to Distribution of Estate under Distribution Act 1958).
2. There is a need for someone to apply to High Court or Land Office (through the District Land Administrator) for a letter of administration and distribute the estate according to the Distribution Act 1958 (‘DA 1958‘). The applicant must be someone agreed by all the beneficiaries and express consent is required by all beneficiaries. Procrastination might set in when there is no concerted view on this.
3. There is also a need to produce two sureties by the administrator. Such sureties must have owned assets equivalent to the gross value of the deceased’s estate in order to enter into an administrative bond to secure the due administration of the estate by the administrator, though this may be applied to be exempted in the case of family distribution.
4. The period of time to complete the entire affairs of distribution from the time of death would take averagely 3 to 6 months’ time due to the legal processes involved in the High Court. If one were to apply to the Land Office for a letter of administration, the entire affair may take at least 6 months on average.

The awareness of making a Will so far …

Various online sources revealed that only 5% to 10% of Malaysians are believed to have made their wills. Another online source revealed that, as of September 2014, it is estimated that there was some RM60 billion worth of estates left in the country with the various agencies by the intestates, and this figure does not include those unclaimed monies fall under the Unclaimed Moneys Act 1965.

Such figures are trending upward from RM38 billion in 2006, RM40-38 billion in 2007, RM42 billion in 2009, and RM45 billion as of 1 October 2013. If at all such figures are believable, it shows a steep increment in the Malaysians’ estates not falling into the right hands in a timely manner when most Malaysians passed on.

However, it is also generally acknowledged that the number of Malaysians who have made their wills has increased despite the percentage stagnant, due to the growth in population to nearly 30 million.

Recent trends have shown that there is a shift of estate planning from the conventional will-based method to trust-based method, due to the demand for professional trustees to manage the estate not only with the intention to preserve it but to generate growth of wealth for the descendants of the deceased. We will look forward to exploring this in our future publications.

About the Author

This article was written by Chia Swee Yik, Partner of this Firm, who has provided advice on probate law.

Feel free to contact us using the form below if you have any queries.