Despite all the complicated explanations and financial products out there in the market, my sharing is normally short and sweet so that everyone (even if you are not a financial savvy person) will easily understand. OK, let’s begin.
In general, most of us work and source for income, income minus of expenses (basic living expenses, movie, clothes, transportation, internet connection, phone, phone bills, utilies etc) and minus off income tax, we will have some savings. Next, we’ll put this into banks, fixed deposit, bonds, invest in unit trust, invest in shares either locally or overseas stock exchange, lands, purchase insurance or some of us who owns business will most likely re-invest their savings into their own business for expansion and development.
This whole picture is called financial planning. The whole purpose for this is to grow our income, let’s say from RM 100 to RM 1,000 or more. Most people will focus on this area of wealth and income accumulation, income protection. While you grow and accumulate your wealth, there’s another important piece of action that you also need to consider, that is wealth distribution.
How are you going to distribute the assets that you have accumulated when you are no longer around ? So that you family and loved ones will not go through tedious process to benefit from what you have worked so hard to accumulate for them ?
Well, to summarize you have three choices.
You can choose to not take any action or don’t bother planning for distribution. Upon death, the first is of course funeral. Whether you have a will or don’t have a will, all your assets will immediately be frozen. Let’s look at if you don’t have a will. An administrator will be chosen among your beneficiaries, if you have beneficiaries that is below the age of 18, then 2 administrators will be needed. Most of the time, delays and conflict arises here because some family members don’t want their siblings to be administrator. After choosing administrator, 2 sureties is needed. the sureties acts like a guarantor just in case administrator runs away with your assets, then the beneficiaries can claim from the 2 sureties. If your asset is worth RM 10 million, then the sureties will need to have the equivalent assets, which is RM 10 million for each sureties. By this time, you will see that further delays because I believe it’s not easy to find these two guarantors. Since there’s no will, then the administrator will apply for Letter of Administration. They’ll need to prepare for all asset list in proper manner and if there’s no will or asset inventory list, then most likely delay will happen because beneficiaries will “treasure hunt” for the deceased assets.
After the Letter of Administration is granted, the administrator can not distribute to the beneficiaries yet because there’s one more important step to clear. which is to pay the debts (housing loan, hire purchase loan, other personal loans) and also need to do an income tax clearance with the IRB. You can google “Borang TP” to find out. The administrator will need to fill up this “Borang TP” and obtain income tax clearance.
After all the mentioned process is cleared, only then can the administrator distribute to the beneficiaries. So, in some cases when the deceased might have RM 10 million worth of assets, after paying off debts and clearing unpaid income tax, the family member might only get a fraction. In the below example, I just put there RM 6 million.
With a Will, it’s easy because the an executor has been appointed in the Will to apply for Grant of Probate. This will save a lot of time. However, upon the extraction of Grant of Probate, the executor will still need to pay the debts and proceed to do income Tax clearance before distributing to the beneficiaries. So, this process might take 6 months or 1 year or more depending on the time taken in each process. We call this “Probate Process”
One more choice that you can consider to ensure your family can have access to your assets are to consider setting up a Trust. In this Aug issue of Money Compass, I will briefly explain what is a Trust, I will elaborate more in Oct issue. So, by setting up a trust and placing certain assets into the trust, you can actually sidestep the probate process and your beneficiaries can benefit from the trust assets.
You can now see clearly that no matter which choice you make, there’ll be an impact to two things, one is your family and loved ones, another one is the assets and wealth you accumulate all this while. Many people understand the importance of writing a Will but has procrastinate, this indirectly means they have chose choose number 1 (don’t bother or don’t care) and this action of their will likely be disadvantage to their family in the event of his death. As a service provider myself, I like to share this three choices to the public because it is very easy for them to understand.
In the Will, there are some important people (terms) that you should be familiar with.
Testator: The person making the WILL. If it’s your WILL, then YOU are the Testator.
Beneficiaries: A person who benefits from the deceased’s WILL
Witness: Two witness is needed when Testator signs and finalize his or her will.
Executor: A Person named in the WILL to obtain the grant of probate and administer the deceased’s estate
Guardian: A person to take care the testator’s minor children in the event of death of testator.
Important Notes before writing Your Will
- Your Beneficiary Can Be Your Executor
- Your Beneficiary Can NOT be Witness
- Your Beneficiary’s spouse Can NOT be Witness
You will see from the above people that the one that you should really pay attention to is appointment of your executor, he/she is really the key person to make sure your assets gets distributed to your beneficiaries. Below are the duties of your executor, looking at the responsibilities and duties, it is advisable that you ask the consent of the person (maybe you plan to put your brother or friend) before making him/her your executor. It is also a good practice to always have a professional trustee company as your backup executor or substitute executor in the event the individual executor in your will is unwilling or unable to act as executor. Below are the duties of your executor.
- Make funeral arrangements
- Locate your WILL
- Gather Documents & Information
- Appoint & Liaise with Lawyer
- Attend Court hearing
- Submit tax return & obtain income tax clearance
- Liaise with bankers/financier/creditors
- Advertise notice to creditors
- Insure & Protect assets
- Liaise with Government Departments
- Locate, collect, assemble, call in all assets
- Value & liquidate assets
- Maintain separate trust account
- Invest assets
- Compile list of creditors
- Determine priority of creditors
- Pay Debts/Liabilities
- Detailed Accounting for Beneficiaries
- Pay Estate Tax
- Distribute Assets/Testamentary Trust
For husband and wife, it is very common that husband will nominate the wife as executor and vice versa. it is very risky because what if both husband and wife pass away in a common tragedy ? Therefore, a backup executor of a professional trustee company will cover if this unfortunate event happen.
After writing your will, make sure that you keep it in a place that your executor can locate. Besides that, you can always have your Will reviewed and change your will anytime you want to. Some of the reasons why people re-write their will are
- Change of your Marital Status (either married, divorced or widowed)
- Change of your witness, executor’s and guardian’s status (migrate, death, relationship breakdown, bankrupt)
- Change of mind regarding your beneficiaries. Addition to the family such as grandchildren
- Substantial increase of wealth (You started a business, purchased properties)
The last and final important information that I find it very seldom communicated in most articles and this is one thing I would also like to share the terms of the fees because this is the most common questions people will bring up and ask me. You should ask your service providers and be clear on each items on the fees incurred
Will Writing Fee: Fees charged by the service provider to write your Will.
Will Custody Fee: Fees charged by the service provider to safe keep your Will.
Estate Administration Fee: Fees charged by the executor to execute the instructions and distribution of your Will. The fees charges starts from the extraction of Probate until distribution to beneficiaries stated in the Will.
Is there other Fees involved ? Yes, Solicitor fees and expenses for applying for Grant of Probate.