Facebook Twitter Google Plus Vimeo Youtube Feed Feedburner

ROS LBoard 1

Giving your family the gift of inheritance

May 7, 2014

Inheritance law in Malaysia are generally divided into two sections, whether you are a Muslim or a non-Muslim and we'll explore both aspects in detail in this article.

FEATURE

Last Will and Testament document with a Death Certificate, a pair of metal rimmed reading glasses and a fountain penBy Chester John

Adam was a happily married man. But all good things have to come to an end – he is now bedridden and taking in his last breath. But before he found himself in his current condition, he did a very smart thing, something everyone should be very well aware of –  he drew up a will for his assets to be divided equally among his wife, his one daughter, and one son.

Throughout the whole ordeal, to the rest of the family, his health would be top priority over anything else, but material possessions and family heirlooms are important to ensure a family’s legacy, don’t you agree?

Inheritance law in Malaysia are generally divided into two sections, whether you are a Muslim or a non-Muslim and we’ll explore both aspects in detail in this article.

Non-Muslim inheritance

First and foremost, a will is a document containing the details regarding the distribution of your estate in the event of your death.

In order for an executor, who can be themselves a beneficiary, an appointed lawyer, and often times a bank, to formally distribute your wealth according to the Will, your immediate family will need to apply for a Grant of Probate (GP) from the Court of Probate.  This will ensure that your assets and properties are given to their rightful owners.

Let us clarify something – estate here does not exclusively mean a landed property, but simply all the valuable things you own, including but not limited to life insurance, investments, jewelry, and yes, real estate – minus the expenses for your funeral, testamentary, and other debts and liabilities payed out of your estate following your demise. In other words, your wealth.

“Estate here does not exclusively mean a landed property, but simply all the valuable things you own, including but not limited to life insurance, investments, jewelry, and yes, real estate.”

This responsibility falls on the executor, who will pay off any debts and taxes owed before even beginning to distribute your assets to the beneficiaries. A lawyer cum executor will usually charge a fee, and in some cases up to 1% of the estate’s worth, which could be justified, as it is no easy task to distribute the assets according to the will while also held liable by the beneficiaries should anything happen to the estate during execution of the will.

When a non-Muslim dies with no will, the riches he leaves behind will be distributed among his family members according to the Distribution Act 1958, in addition to the Inheritance Act 1971, applicable for those in Peninsular Malaysia and Sarawak. For Sabahans, they will comply to the Intestate Succession Ordinance 1960.

So… what happens when someone dies without a will?

Simply put, your wealth will be frozen indefinitely. No, not the Frozen you’re thinking of; Frozen in this context meaning the deceased asset’s such as houses, vehicles, and bank accounts that cannot be transferred to the appropriate heirs.

Your family will need to apply for a Letter of Administration (LA) to have access to your assets before being able to transfer it to beneficiaries. It is a more complicated and longer process than applying for a Grant of Probate, as there are two questions the courts must determine:

  1. Who has the right to administer your wealth?;
  2. Who are the rightful beneficiaries?

Islamic Inheritance

Will the situation change if Adam’s family were Muslim? Would the difference be worlds apart? Decidedly so. The origins of the Islamic inheritance system can be found in the Qur’an, and is bounded by it’s divine laws. The Islamic equivalent of a will is called a Wasiat. Similar to a will, a Wasiat is a testimony made during your lifetime regarding the transfer of your assets, either to charity or other purposes, adhering to Islamic law.

“A Wasiat is a testimony made during your lifetime regarding the transfer of your assets, either to charity or other purposes, adhering to Islamic law.”

For this, you will also have to appoint a Wasi, similar to an executor, to carry out the instructions in your Wasiat. Usually, this role will be delegated to professionals at an Amanah institution, to carry out the following:

  1. Determine the authenticity of your will;
  2. Manage the probate of the estate from the Civil Court;
  3. Prepare statement of accounts;
  4. Dividing all your property according to the will;
  5. Distribute the remaining assets by Faraid.

As set out in the Qur’an, only 1/3 of the your wealth can be distributed to non-heirs. Non-heirs can mean adopted family members, or religious and charitable organisations such as orphanages. The other 2/3 will have to be transferred to your heirs, following the rules defined in the Faraid. So far, we have mentioned the term Faraid, but what is it exactly?

Faraid is the default wealth distribution law that will be enforced when the family is in disagreement with each other over the distribution of assets. By right, under faraid, of the 2/3, your wife gets to inherit 1/8 of your assets, while your son is entitled to two times the portion entitled to his sister, which means he gets to keep 2/3 of the assets while the sister gets 1/3.

Wasiat vs. Faraid: which one wins?

128728To reiterate, Faraid is the only solution when there is a dispute in the family about who gets to keep what as stated in your will.

For example,

In the case of Adam, let’s say he has left RM500,000 in wealth. If one of his sons opposes the distribution defined in his will, and quarrels for his two portion share, then the Faraid system can intervene.The son will get his appropriate portion of RM291,666.67, and the balance divided among the wife (RM62,500) and daughter (RM145,833.33) as per Faraid.

On the flip-side, If both the son and daughter mutually agree that everything should go to their mother, the wife – despite the Faraid portion they are entitled to, there should be no problems. Faraid provides a solution if a settlement cannot be reached. In essence, every Muslim individual is tied to the law of Faraid.

So this begs the question, why do you need to produce a Wasiat with the presence of the Faraid? With the allowance for 1/3 of your assets going to non-heirs, you will then be awarded in the after-life for contributions to charitable and religious causes. Additionally, you will be able to appoint a proper executor to carry out your will, making everything easier.

Inheritance Tax

Inheritance Tax is a fee paid by a person who inherits money or property from a person who has passed away.

In dealing with inheritance, it is important to note that, and this might come as a shocker – but Malaysia does not practice Inheritance Tax. This makes it easier for families to accumulate their wealth and pass it down from generation to generation, legal fees notwithstanding.

In extension, in the case of a property, there will be zero Real Property Gains Tax(RPGT) to be paid on your death, even when you have owned the property for less than 5 years prior to your death. Why is this so? It is because the transfer is seen to have taken place at the price that you have originally bought it for, thus no profit is made from it.

A Family’s Legacy

If there is one thing that is true, is it that your own parents have given you so much, and when they are gone, what else is there to remind you of them? Memories fade, sure, but inheritance, that’s something that’ll last the centuries – We’re sure you’ll be proud of the legacy that they themselves have or will leave for you.

Chester John is an Investigative Journalist of SaveMoney.my, an online consumer advice portal which aims to help Malaysians save money through smart (and most of the time painless) savings in their daily banking, technology, and lifestyle spending habits.

 

 


Comments

Readers are required to have a valid Facebook account to comment on this story. We welcome your opinions to allow a healthy debate. We want our readers to be responsible while commenting and to consider how their views could be received by others. Please be polite and do not use swear words or crude or sexual language or defamatory words. FMT also holds the right to remove comments that violate the letter or spirit of the general commenting rules.

The views expressed in the contents are those of our users and do not necessarily reflect the views of FMT.

Comments