Question:
Hi, my name is Ben, a 30-year old manager working for a local trading firm.
Two years ago, my father bought a landed property in Puchong for RM 800,000. He had paid for its down payment, transaction costs, and renovation. I obtained RM 740,000 in mortgage, inclusive of its MRTA. My mortgage tenure is 35 years and the interest cost is 3.3% per annum. The loan installment amount works out to be almost RM 3,000 a month. My father is paying for this installment.
This property is currently resided by me and Ellie, my wife, who is pregnant with our first child.
So, my questions are as follow:
1. Will I inherit my father’s share of the property upon his passing?
2. Will my father inherit my share of the property upon my passing?
Answer:
The short answers to both questions are ‘not necessarily’.
Let’s work on both situations separately, one at a time.
If Ben’s Father Passes On
And let’s say he passes on intestate (without a will).
It is easy to assume that Ben could inherit his father’s stake in the landed house as its sole beneficiary. That is not true.
According to the Distribution Act 1958, his father’s interest in the property shall be distributed to his surviving parents, spouse, and children, based on the ratio of 25%:25%:50% respectively.
Let’s say, if his father’s parents (both Ben’s grandparents) are still alive, they can inherit 25% stake of his father’s interest in the property. So, if Ben’s father owns 50% of the property, Ben’s grandparents shall inherit 12.5% of the property and this ownership is splitted 50-50 to each grandparent. Thus, they could inherit as much as 6.25% of the property each.
Next, if his father’s spouse is alive (could be Ben’s mother or stepmother), then, she will inherit 25% stake of his father’s interest in the property. In essence, she would be allocated 12.5% stake in the property.
Then, if Ben’s father has other children (Ben’s siblings and also his half-siblings), they would collectively, including Ben, 50% of his father’s share in the property. So, to make it simple, if Ben has 3 more siblings, then, his 50% interest could be splitted into 4 equal parts where each sibling inherits 12.5% of the property.
So in summary, his father’s stake in the property shall be allocated as follows:
Here lies the issue.
If Ben’s father passes on, who shall service the monthly loan installments?
Is it Ben alone?
Or, is it Ben and the beneficiaries of his father’s stake in the property?
Well, the answer is Ben as the mortgage carries his name only. So, Ben shall pay for the RM 3,000 a month in loan installments but do not get his full benefits as the sole owner of the property. He cannot rent or sell off this landed house as a sole owner because he needs consent from all the beneficiaries of this property to do so.
As such, if you are Ben today, are you okay with this arrangement?
If you are not, then you should do the following:
1. Get your father to write a will.
Make sure that he nominates you to inherit the 50% ownership of the property. In the event of his passing, you will become the sole owner of this property and thus, eliminate all issues related to joint-ownership of a single property.
2. Leave some cash for you.
Also, the process to transfer the 50% house ownership takes time and money. It would be wise if your father could leave you some cash to pay for any costs and fees arising from such a transfer and more importantly, to pay for the mortgage installments. This would be best arranged, if your father buys himself one more life insurance policy and nominates you as the sole beneficiary to that policy.
If Ben Passes On
and likewise, he passes on intestate (without a will).
Ben’s father will not automatically inherit Ben’s stake in the property.
Instead, Ben’s stake shall be allocated to his parents, his wife, and his child (let’s assume that his child was born prior to his passing on), based on the same ratio of 25%:25%:50% respectively.
If Ben passes on, the mortgage of the property would be reduced depending on Ben’s MRTA policy. Hence, the continuity of the mortgage repayment is less of a problem. It is also possible that the property becomes a fully-paid one upon the passing of Ben.
But, the issue for Ben’s father is this:
‘Are his wife, his daughter-in-law and his grandchild the ‘intended beneficiaries’ of this landed property?’
So it is best for Ben to have a candid discussion with his father on this.
If his father prefers to inherit the property as a sole owner, it would be better in Ben’s case to write a will and nominate his own father to inherit his stake of the property.
What If Both Ben and His Father Pass On Simultaneously
Tragically, this is also a possibility.
In this case, the landed property would be distributed as follows:
This could be a very complicated issue.
In this case, it is once again best for Ben and his father to discuss it candidly.
From an estate planning viewpoint, here is an option to be considered.
If Ben and his father pass on, one option is to dispose of this property. From the net proceeds, they can nominate their beneficiaries to inherit this money.
This arrangement is more efficient and it can be done with writing a will.
Conclusion:
It is not wise to assume that surviving joint owners of a property shall inherit or receive automatically the deceased’s stake in the same property upon death. At present, if you are a joint owner of a property, it is wise to discuss this matter in clarity and manage this issue efficiently via writing a will.
Ideally speaking, it is wiser to have a professional estate planner to assist you in this area so that your assets could be managed and distributed more efficiently. You can start by filling up your details below to book yourself a short 30-minute consultation session to find out the latest practices to best protect your assets.
