The Ultimate Guide to Safeguard a RM 2+ million Estate with Will and Trust

Supposedly, you have the following assets: 

• A house (market value: RM 750k; mortgage balance: RM 250k)
• Cash + FDs + Stocks = RM 500k
• EPF = RM 500k
• Insurance policies (sum assured: RM 500k)

The question is: ‘What is the best way to preserve and distribute these assets in the event of a premature death?’. 

Obviously, the answer lies in the article’s title: Will and Trust. But, as easy as the two vehicles are, most in Malaysia don’t have a will and many more don’t know how to use both will and trust to protect their estates which often are the fruits of years and decades worth of labour. So here, I’ll like to share some pointers to you on strategies on using them to preserve the interest of your loved ones. 

Let us begin: 

#1: House

Upon death, the house will be frozen and shall form part of your estate. Here, it means that the ownership of your house cannot be sold or transferred. Now, as there is a mortgage balance of RM 250k, the banker would require this ‘balance amount’ to be settled first. So, if you purchased a MRTA policy which covers RM 250k, your insurer shall settle the mortgage in full. This situation is ideal. 

But, there are two more scenarios.
 

• You don’t have a MRTA policy. 
• Your MRTA policy covers below RM 250k (mortgage balance).

In both cases, your banker shall require the mortgage instalments to be paid on time, promptly every single month. Your debts don’t ‘evaporate’ after death. As such, your beneficiaries are required to pay the mortgage instalments to ensure that the property is retained. Otherwise, the house would be auctioned off and this will cause your beneficiaries to lose this inheritance. 

Tip 1: 

• MRTA coverage ? Mortgage: Ideal Situation. 
• Mortgage ? MRTA coverage: Beneficiaries have to service your loan. 

Why is this important? 

This is because let’s say, you have a will. Your executor could take 3-6 months to apply for the Grant of Probate (GP) from the High Court. The GP enables him to retrieve your estates (house), settle all debts and taxes, and distribute it to your beneficiaries. So, if your beneficiaries like to inherit your house (RM 750k), they will need to pay its mortgage instalments to avoid it from being auctioned off in the auction market. 

Can your beneficiaries use your cash to service the mortgage instalments?

Before obtaining the GP, the answer is no because your cash would be frozen as it is also a part of your estate. Hence, to service the mortgage instalments, your beneficiaries would finance them through: 

• Their own cash (savings).
• Your EPF money (if they inherit it from you). 
• Your Insurance Proceeds (if they are nominated as beneficiaries).

Okay, what if the mortgage is fully settled?

Here, there are two scenarios. Either, you want to distribute your house to your beneficiaries: 

• Immediately
• After a certain period of time (let’s say 5 or 10 years)

So, if the distribution is to be immediate, your will’s executor shall then transfer the house ownership to your beneficiaries. Otherwise, he shall transfer the title deed of the house to your trustee for safekeeping. The trustee shall hold onto it for a stipulated period of time (5 or 10 years). Upon maturity, the trustee would then transfer the house to your beneficiaries. 

But, what if you want your properties to be sold off? 

This would bring two more scenarios. Either, you want your property to be: 

• Sold off with the proceeds distributed immediately. 
• Retain the property for a certain period. Then only sell it off. 

In the first case, your will’s executor shall sell off the property and once sold, he will distribute the netted proceeds to your beneficiaries. So, in the second case, your will’s executor shall first transfer the house to your trustee. Then, after the trust period matures, your trustee shall sell off your property and distribute the proceeds to your beneficiaries. 

Tip 2: 

• Decide if the property is to be sold off or to be inherited. 
• Decide if beneficiaries are to inherit immediately or at a later date. 
• If the inheritance is immediate, a will should be sufficient. 
• If the inheritance is delayed, set up a testamentary trust in your will. 

#2: Cash + FDs + Stocks

Like the house, cash, FDs and stocks in brokerage accounts will be frozen and as such, form part of your estate. Your will’s executor would need to first obtain its GP to get access to your estate. This enables him to use them to pay off all your debts and taxes before distributing them to your beneficiaries. 

Here, the amount stated in this example is RM 500k. Most likely, if beneficiaries that you nominate are capable and mature adults, you can opt to distribute RM 500k immediately to them with a will. But, if your beneficiaries are minors or as you read this, you have a sizable amount of liquid assets (let’s say, RM 2 million, RM 3 million or RM 5 million), I believe you may consider setting up:

• A living trust
• A testamentary trust

What’s the difference? 

You could set up a living trust with a preferred trustee to manage your cash. So, in the event of a premature death, the trustee continues to administer the cash placed in the living trust in accordance with the trust deed. This cash would not be ‘frozen’ as its legal ownership had already been transferred to the trustee. In this case, the cash may either be retained or distributed to your beneficiaries in accordance with the contents of the trust deed. 

The process is as follows:
 

• You set up a living trust. 
• You transfer assets (cash) into your living trust. 
• Your trustee manages the cash in accordance with the trust deed. 
• Upon death, your trustee continues to hold onto the cash. 
• Your trustee can keep or distribute it to beneficiaries. 
• Cash is not frozen so no ‘GP’ is required. 

Alternatively, you may set up a testamentary trust. In such an arrangement, the executor of your will shall collect the cash, settle your debts and taxes and shall transfer the remaining cash to your trustee for safekeeping. The trustee shall be responsible in managing the cash entrusted and distributing it to beneficiaries. 

The process is as follows: 

• You set up a testamentary trust (in your will document). 
• You retain the ownership of your cash in your bank account. 
• Upon death, cash is frozen so ‘GP’ is required. 
• Your executor collects the cash & settles all of your debt and taxes.
• The remaining proceeds shall be transferred to the trustee. 
• Your trustee can keep or distribute it to beneficiaries. 

#3: EPF + Insurance

EPF and insurance nomination bypasses nomination in a will document. So if you already have nominated beneficiaries to inherit both the EPF and insurance monies, your beneficiaries shall inherit the money. This would be suitable if you want to distribute them to your beneficiaries immediately. 

But, what if you want to distribute your EPF and insurance monies in stages? 

Then, you can choose not to nominate your beneficiaries via a will and not with EPF and insurance nomination. 

There are a handful of differences between them and they are as follows:

EPF + Insurance nomination: 

• Bypasses GP. Thus, EPF distribution is executed quickly upon death. 
• Creditor protection. 
• Most likely, one-off or lump sum distribution. 
• Suitable for beneficiaries who are adults that are mature financially. 
• Suitable as ‘emergency funds’ upon death. 

Will nomination (no EPF + Insurance nomination): 

• GP is required as EPF money forms part of your estate. 
• No creditor protection. 
• Distribution can be delayed or be in stages / instalments. 
• Suitable to stretch and prolong financial wealth. 
• Suitable for beneficiaries who are financially dependent. 

If your EPF and insurance sum assured are huge, you may choose to do a hybrid nomination where you can decide which type of nomination is suitable for your EPF and insurance monies. 

Conclusion: 

Typically, there are 2 key tools to do estate planning: Will and Trust. 

But with them, we can see that there are multiple variations to how both are to be used in protecting and distributing different kinds of assets. Thus, I believe it is practical for one to leave the job of planning our estates to one, who acquires and possesses the right skills and experiences in this area. So here, in summary, let me state the key pointers as discussed above: 

1. House

• Have MRTA coverage ? Mortgage
• Decide the form of inheritance: the house or its disposal proceeds
• Decide the time frame of inheritance: immediate or delayed. 
• If it is immediate, a will is sufficient. 
• If it is delayed, set up a testamentary trust. 

2. Cash + FDs + Stocks

• Beneficiaries = financially mature adults: a will is sufficient. 
• Beneficiaries = financially dependent: set up a trust. 
• Hand cash ownership to trustee = set up a living trust. 
• Retain ownership of cash = set up a testamentary trust

3. EPF + Insurance

• Determine if inheritance is immediate or delayed. 
• Immediate = EPF and insurance nomination. 
• Delayed = use will nomination. 
• May select a hybrid model. 

If you have any questions on estate planning, please post them below: