Question:
Hi, I’m Mr. Ching, a retiree who is now residing in Subang Jaya. As I write, I have RM 2.5 million in assets, which comprises RM 200,000 in cash and fixed deposit, RM 700,000 in EPF balance, and three residential properties, where their details are as follow:
In addition, I have three life insurance policies where the combined sum assured is RM 600,000.
I have three sons namely, Peter, James, and John aged 35, 28, and 20. Presently, Peter is married with Sarah and they are blessed with Max, their 3-year old son. James is working as an accountant in Australia. Meanwhile, John is pursuing his marketing degree in Monash University and is residing with me in Subang Jaya.
I wish to leave behind my assets and insurance monies to my sons equally in the event of my passing. Hence, my question is: ‘Should I write a simple Will to leave behind all of my estate to all my sons equally?’
Answer:
Supposedly, Mr. Ching is to write a simple Will where it states the following:
‘I shall bequeath all of my assets to all of my beneficiaries namely, Peter, James, and John in equal proportions.’
So, what happens to Mr. Ching’s estate and insurance money upon his passing?
1. Life Insurance
Mr. Ching’s sum assured shall be paid to his beneficiaries nominated in all of his
life insurance policies. If Mr. Ching nominated his three sons to receive ⅓ of the sum assured, then Peter, James, and John shall receive RM 200,000 each (⅓ of RM 600,000) as rightful beneficiaries of Mr. Ching’s policies.
2. EPF monies
It is similar to Mr. Ching’s life insurance policies where his EPF monies would be paid to his nominated beneficiaries.
3. Cash and Fixed Deposit (FD)
They will be frozen upon Mr. Ching’s passing. If he has an executor named in his will, the executor shall apply for the Grant of Probate to unlock his cash and FD. Upon settling Mr. Ching’s outstanding debt and taxes (if any), the executor shall distribute the net proceeds to Peter, James, and John in equal proportion.
4. 3 Properties
The process for distributing Mr. Ching’s real estate is similar to cash and FD. The title deed for his three properties shall be transferred from Mr. Ching’s name to Peter, James, and John after settlement of Mr. Ching’s outstanding debt and tax payments. As such, Peter, James, and John shall be co-owners of his properties.
Isn’t a Simple Will Like This Solves The Problem?
For immovable assets such as cash, FD, EPF and insurance monies, a simple Will is sufficient to have them distributed equally to Mr. Ching’s beneficiaries.
The issue, however, lies in his real estate.
Why? This is because conflicts may arise when it comes to real estate especially when co-owners could not come into agreement on how best to manage them. The issues include:
1. Difficulty in Disposal
Let’s say, James intends to raise funds to start a business or to fund his wedding by selling off the property in Subang Jaya. John, his little brother is residing in it and thus, refuses the disposal. In this case, the property could not be sold off in the market as all co-owners have to first agree to its disposal before selling.
2. Who Bears the Cost of Managing the Properties?
Let’s say, the property in Subang Jaya requires a list of minor repairs which may include plumbing works, replacement of cracked tiles … etc. Should John be the one who forks out all of the expenses as he resides in it? Or, would it be fair for the siblings to share the cost equally among each other?
Also, what if one of the co-owners does not wish to share the cost together and simply default on his share of property-related expenses conveniently? Will this cause strife and conflict among Peter, James, and John?
3. What if a Co-Owner Passes On Prematurely?
Let’s say, Peter passes on prematurely. His interest of all of the three properties will be bequeathed based on his testacy status. If Peter does not have a Will, his interest shall be distributed in accordance to the Distribution Act 1958. This will include Sarah and Max where they will receive ⅓ and ⅔ of Peter’s ⅓ interest in the three properties. This will complicate the decision making process of all the properties as they now have more co-owners.
So, What’s the Best Solution?
Should Mr. Ching instruct the executor appointed in his Will to sell off all of the properties and distribute the sale proceeds evenly to his sons?
Yes, this is a viable method.
But, what if he wants the property ownership to be retained with his sons?
Then, it is best for Mr. Ching to bequeath one property to each of his sons. But, the question is: ‘What would be the market valuation of his properties upon his passing at a future date?’
How then Mr. Ching is able to distribute his estate evenly among his sons?
Here, let me suggest a practical solution.
1. Mr. Ching should first determine which of his properties is to be passed on to which of his sons. Let’s say, Peter, James and John shall inherit from their father Property 3, 2, and 1 respectively.
2. Mr. Ching may instruct the executor of his Will to first purchase the valuation report for his properties upon his passing. Let’s say, at that time, the properties are valued at:
3. Next, Mr. Ching may also instruct the executor to tabulate all of his liquidable assets. Let’s say, upon his passing, Mr. Ching has RM 1.2 million in liquid assets, consisting of cash, FD, EPF, and insurance monies. He may choose to bequeath his liquid assets based on the table below:
Why is this Better Solution?
This is because the responsibility of managing each property shall be delegated to each of his sons accordingly and thus, reduces conflicts among siblings. Also, if one of the three siblings passes on, the property owned by the deceased will be frozen and thus, not affecting properties owned by the other siblings.
In short, writing a Will to state:
‘I shall bequeath all of my assets to all of my beneficiaries namely, Peter, James, and John in equal proportions.’
is not an effective solution to distribute all of your estate to all of your children. In this case, you may need to reconsider how you should write your Will, which requires the assistance of a qualified estate planner. If that is you, you can book yourself an appointment with our consultant by filling up the details below:
