Question:
Hi, I’m Adrian, a 40-year old IT manager and property investor based in Petaling Jaya. I’m currently married to Abby and we’re blessed with Angie, our 1-year old daughter. Presently, I own three properties and their details are as follow:
As I write, I make RM 12,000 a month from my current employment and Abby is making RM 6,000 per month from her employment as an Assistant Manager. As of now, in addition to the three properties, I have the following financial assets:
Here is my question:
Can I bequeath my three properties, cash and FD to Abby by writing a will?
Answer:
Yes, Adrian could write himself a will to bequeath his properties, cash and FD to Abby in the event of his premature death.
Here, let’s assume Adrian passes on prematurely.
How will his estates be distributed to his wife and how long would it take for his estates to be fully transferred to his wife? Well, let me expound on this below:
#1: Classification of Adrian’s Assets
First, Abby would inherit RM 200,000 from Adrian’s EPF account upon his death as it does not form part of Adrian’s estates. She will not inherit the sum assured from Adrian’s life insurance policy as he purchased it before his marriage and in his nomination form, he named his mother as his beneficiary to the policy.
Second, the rest of his assets consisting of his properties, cash and FD would be frozen and form parts of Adrian’s estates. Adrian’s will document will be helpful to unlock these estates. The executor named in his will document will begin the administration process by applying the Grant of Probate from the High Court. It will cost Abby a few thousand Ringgit in legal fees to process this application.
#2: Collection of Adrian’s Estates
Upon receiving the Grant of Probate, the executor would proceed to retrieve all of Adrian’s estates. The executor will collect RM 150,000 in cash and FD as both of these estates are straightforward. After paying off Adrian’s outstanding taxes and debts, the remaining proceeds shall be distributed to Abby.
But now, here lies the issue:
All of Adrian’s properties carry outstanding mortgages as follow:
The banks will not transfer the ownership of these properties to the executor.
Abby, the beneficiary named, will be demanded to settle off all RM 1.14 million in outstanding mortgages to the banks first, before the transfer of ownership of Adrian’s three properties to the executor. Thus, the question is this, ‘Does Abby have RM 1.14 million in cash-in-hand to settle these mortgages?’
This would lead to one key question below:
Can these properties be sold off to settle these mortgages?
Yes, these properties could be sold off to settle their mortgages.
However, Abby would need to service their mortgages, which works out to be a total of RM 7,000 per month to keep these properties from being auctioned off by their respective bankers in the auction market.
Thus, if Abby does not have the financial ability to service these mortgages, it is likely that Abby would sell off the properties at massive discounts.
Otherwise, these properties would be auctioned off in the auction market.
So, the question is, ‘How long can Abby keep up with the mortgage payments?’
Real Estates or Real Liabilities
From the above, we can see that Adrian has the intention to bequeath Abby, an estate valued at RM 2+ million in the event of his premature death. However, in reality, what Abby could be inheriting from Adrian is RM 1+ million in debt. This is especially if Abby wants to keep all of her husband’s properties.
The next question is this:
‘What should Adrian do if he wants to bequeath all his three properties to Abby debt-free?’
The answer is simple.
Adrian can buy a life insurance policy with a sum assured of RM 1.4 million that is designated to settle all outstanding mortgages if he passes on prematurely. In addition, Adrian could write a will to bequeath his properties to Abby. To go the extra mile, Adrian may consider set up a living trust and place some excess cash (let’s say, RM 50,000-RM 75,000) for the purpose of providing funds to Abby for legal fees to apply for the Grant of Probate from the High Court and to fund her immediate living costs upon Adrian’s premature death.
Will Your Real Estate Empire be Just a House of Cards?
That depends on how well you do up your estate plan.
Savvy real estate investors will strengthen their real estate portfolios with savvy estate plans and so should you. For a start, you may fill in the details below and book yourself a short 30-minute consultation session with our estate planner to find out how you can leave behind a real legacy to your loved ones, instead of a mere house of cards.
