Will to transfer
NST-PROP 3/7/2004
An advertisement aired on TV not too long ago featured a lawyer encountering
difficulty reading the will of a rich man to his grieving family, for he had
failed to use a good piece of paper when drawing up the testament.
Although rendered in a light-hearted manner, there is actually nothing funny
about the business of taking care of your properties in the event of your
demise. In fact, neglecting or doing a poor job of it may lead to further
grief, unnecessary complications and perhaps, even legal tussles among family
members.
So, how do you ensure your family’s future well-being when you are no longer
around? The most common way is via estate planning.
According to OSK-Signet Trustees Bhd chief operating officer Ong Eu Jin, estate
planning is about making the necessary arrangements as to how a person’s assets
should be distributed when he or she is no longer around.
“Under the law, when a person passes away, all his or her assets will be frozen,
resulting in dependants or loved ones being unable to withdraw money from
the deceased’s bank accounts. Likewise, they will also be unable to transfer
the person’s real estate, shares, unit trusts or cars.
Imagine the problems a deceased’s dependants would face if they are in desperate
need of financial support,” he said.
Ong said one of the most important objectives of estate planning is to unlock
assets of the deceased in the shortest possible time without incurring unnecessary
costs.
He said the estate of the deceased will remain frozen until “Probate” (when
a valid will exists) or the Letters of Administration (where there is no will)
have been granted by the High Court.
According to Ong, there are two ways to plan one’s estate, namely drawing
up a will and/or establishing a trust fund.
Where there is a will…
The most basic aspect of estate planning involves drawing up a will, which
sets out how a person wishes to distribute his or her assets upon demise.
This legal document takes effect only after the death of the
maker of the will, who is also known as the testator.
“Anybody with assets and loved ones needs to have a will,” he said.
Amanah Raya Bhd (ARB) managing director Izham Yusoff said it is important
for people to be responsible for their assets in the event of death.
“We are in the best position to decide how our loved ones should be taken
care of once we are gone. This can be done by making a will as we are assured
that our wishes will be carried out,” he said.
Having a will drafted is undoubtedly preferable. According to OSK-Signet’s
Ong, the advantages of having a will, as compared to not having one, are as
follows:
• It is likely that the distribution of the assets from the deceased’s estate
would be faster, more efficient and less costly;
• No administration bond is required in an application for Probate, unlike
Letters of Administration when the deceased leaves no will;
• The testator can choose his or her beneficiaries and determine their entitlement;
• The testator can choose the executor(s) who will carry out the instructions
set out in the will; and
• If the testator has children who are under the age of 18, he or she can
appoint a testamentary guardian who will look after their interests and welfare.
Izham said many Malaysians are still ignorant of the importance of having
wills as they are considered a taboo (or pantang) subject.
“This is more evident in the Muslim community, which believes that there is
no necessity to draw up a will as the religion has already provided the necessary
provisions under Islamic inheritance law or Faraid upon their demise,” he
said.
Ong, however, believes Malaysians are aware of the need to draw up a will
but many do not feel the urgency to do so.
“About 95 per cent of Malaysians procrastinate in writing their wills as they
think that they will not die so soon.
“The minority that do prepare one are in their late 30s and beyond and come
from the upper-middle class and above,” he said.
Ong explained that anybody can write a will as long as it is in accordance
with the Wills Act 1959. However, for Muslims, the Syariah principles apply.
He added that in Malaysia, most wills are prepared by legal firms and increasingly
in the last decade, by will-writing and trust companies.
Izham said a will is valid if it is drawn up and witnessed by two people.
He added that although it may be cheaper to draw up a will on your own, the
drawback is that the testator may not be well-versed in the intricacies of
Malaysian succession or inheritance laws to structure a will in the best possible
manner.
On the costs, Ong said it varies from legal firm to legal firm and the will-writing
or trust companies engaged. On average, charges range from RM280 to RM5,000,
depending on the will’s complexity.
He added that many Malaysian testators are reluctant to appoint trust corporations
as executors for their wills as trust corporations charge for their services
pegged from one to two per cent of the value of the asset per annum.
Ong said some testators in an attempt to save on estate administration costs,
appoint relatives and friends as executors. Sometimes this can backfire as
under Section 43 of the Probate and Administration Act 1959, an executor or
administrator of an estate may be allowed by the High Court to get a commission
of up to five per cent of the value of the assets.
“This provision is applicable even though the will does not expressly provide
that the executor be paid the commission. In addition, such people may not
have the time and expertise to administer the estate, and as a result, professionals
are engaged whereby the fees are charged to the deceased’s estate. Consequently,
the estate administration costs and fees may work out to be much more than
what trust corporations charge,” Ong pointed out.
Trust is the wordOng said unlike a will, a trust
does not refer to a document but to a legal structure or relationship in which
a person known as a trustee is the legal owner of the asset(s) but holds it
on behalf or for the benefit of other people known as beneficiaries.
Izham said the requirements of a trust have to include a creator (or settlor),
a trustee (a person or an organisation), beneficiary(ies) and a trust property
(movable or immovable assets).
He said that usually, the settlor will transfer the legal title of the intended
trust assets into a trust and the trustee’s duty is to distribute the properties
according to the terms stipulated in the trust deed, which are determined
by the settlor.
The most popular trusts are known as living or inter vivos trusts that are
created during the lifetime of its settlor.
Izham added that by creating a trust, the settlor’s wishes are immediately
carried out according to the deed, thus safeguarding his or her beneficiaries’
future.
“The advantage of setting up living trusts is that assets in the trust do
not form part of the settlor’s estate, thus precluding it from any legal challenge
in the future,” said Izham.
Ong concurred, saying that in the event the unexpected occurs while the settlor’s
assets are frozen, the beneficiaries are assured that they will receive the
properties within the trust without delay as they do not have to wait for
Probate or Letters of Administration to be granted.
“Another advantage of trusts is that one can maintain confidentiality by concealing
the identities of the beneficiaries. The beneficiaries under a will, on the
other hand, will be identified when applying for Probate,” he said.
However, in order to transfer properties into a trust, the settlor must be
willing to part with legal ownership while he or she is still alive. Besides
that, the properties must be free from encumbrances and be fully paid-up as
financial institutions will not allow such transfers
until the outstanding loans are settled.
On whom should a person approach to set up a trust, Ong said a settlor can
appoint either individuals or trust companies approved and registered under
the Trust Companies Act 1949 to act as trustees.
“When the settlor appoints individuals as trustees, the services of a lawyer
would be engaged to draft the trust deed as well as to effect the transfer
of the legal title of the properties into the trust,” he said.
He added that the settlor has to be content with various costs when
establishing a trust. Besides the trustee’s fees of between one and two per
cent of the value of the asset on an annual basis, there are also lawyer’s
fees involved, where the amount depends on the charges set by the firm in
question.
“Lawyer’s fees are applicable when lawyers are engaged for legal advice, drafting
of trust documentation and effecting the transfer of properties. On the other
hand, when trust companies are engaged, most of the time lawyers are not required
as the trust documentation will be prepared by the trust companies’ legal
officers,” he said.
He also said the settlor may also incur tax consultancy fees but this is only
relevant if the trust structure is complicated.
Additionally, the settlor will have to pay stamp duty and Real Property Gains
Tax (RPGT). Stamp duty is applicable with regards to transfer of properties,
based on the price stated in the Sale and Purchase Agreement or market value,
whichever is higher, while RPGT will be levied if the properties transferred
to the trust realises a gain and were acquired less than five years ago by
the settlor.
Under the Stamp Duty Act, the first RM100,000 will attract a duty of one per
cent. The second RM100,000 of the value up to, but not exceeding RM500,000,
will be charged two per cent. Amounts in excess of RM500,000 will be at three
per cent.
Meanwhile, gains earned within the first two years attract a tax rate of 30
per cent while gains in the third, fourth and fifth years will be 20 per cent,
15 per cent and five per cent respectively. Thereafter, no tax will be due.
Ong said many clients who set up trusts would select a trust company as trustee
because of the issue of accountability. He maintained that it is imperative
a trustee be able to account for funds and compensate “if something goes wrong”.
As a result, most trust companies are affiliated to reputable financial institutions
and financially sound companies.
He also said trust companies are selected due to the advantage of having a
team of experienced professionals and also because most trusts require an
independent third party to make impartial decisions for the benefit of beneficiaries.
However, trusts are not so popular with Malaysians as people are not comfortable
about “losing” legal ownership of their properties. As a result, those who
set up trusts are unlikely to transfer all their properties into a trust.
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