Today, here’s the hypothetical story of Ryan and Mia, who are husband and wife: Malaysians, non-Muslims, still residing in Malaysia.

Ryan earns RM11,000 a month as a project engineer. She earns RM5,000 monthly as a schoolteacher. They co-own and live in their RM900,000 home, with an outstanding mortgage of RM800,000.

Their monthly instalment is RM4,000 at present. In addition, they each own a fully paid-off car, have their own savings and EPF accounts, and have no other debts.

Here are four questions:

1. Would Mia inherit Ryan’s estate automatically if he were to pass away?

No. Ryan’s estate, which includes his stake in the property, his car and savings accounts shall be frozen immediately upon death. The ownership cannot be transferred – there is no such a thing as an “automatic inheritance”.

The exceptions are Ryan’s EPF accounts and any life-insurance policies. Assuming she has been nominated as the beneficiary, Mia can inherit her share of these proceeds as these are not frozen and do not form part of Ryan’s estate.

These could be vital for Mia as she could then use the funds to retain her home and sustain her lifestyle.

2. Would Ryan’s debts be cancelled immediately upon his death?

Unfortunately, debts don’t “die” together with the deceased; they live on and require continuous servicing. In Mia’s case, she would need to continue paying RM4,000 a month upon Ryan’s passing.

If Ryan had an MRTA policy covering RM400,000, upon his death, the mortgage would be reduced from the original RM800,000 to RM400,000. This would be good, although the instalments would remain at RM4,000 a month and not be reduced accordingly.

In Mia’s case, she would still be burdened even with an MRTA policy as she only earns RM5,000 a month, and paying off the mortgage would require 80% of her monthly income.

This explains the significance of Ryan’s EPF and life-insurance accounts. Also, it is vital for Ryan to ensure Mia is nominated so she can receive the proceeds and use them to service these debt instalments.

3. What if the house were to be fully paid off?

Let’s assume Ryan leaves RM1 million in his EPF and insurance proceeds to Mia. She uses RM800,000 to settle the mortgage in full. Would Mia inherit Ryan’s stake and become the sole owner of the house?

It depends. If Ryan bequeaths his stake in the property to Mia via a valid written will, then yes: there is no ambiguity. The executor would be able to apply for a Grant of Probate from the High Court, collect all of Ryan’s estate, and distribute them to his beneficiaries after settling his debts.

Thus, if Mia were named the sole beneficiary of the property, she would be its sole owner, and she could then do with it as she wished – rent, renovation, disposal, etc.

If, however, Ryan were to nominate his parents as co-inheritors of his property, Mia would have to co-own the home with her parents-in-law. All decisions pertaining to the home would then need to be agreed upon by all parties.

This means if Mia wanted to sell the house off at a future date, her parents-in-law would have to be agreeable in order for the property to be transactable.

4. What if Ryan were to write a will?

Let’s say Ryan owns a 50% stake in the property. Assuming he and Mia have no children, his stake will be distributed 50:50 to Mia and his parents. As such, the ownership of this RM900,000 home would be as follows:

Such distribution is stipulated by the Distribution Act 1958.

Without a will, the process to transfer Ryan’s estate to his beneficiaries would take a much longer time, owing to key factors such as:

• failure to appoint an administrator quickly;
• failure to locate all assets and liabilities;
• failure to secure two sureties or guarantors if assets are worth above RM600,000.

This explains why estates worth billions of ringgit remain frozen for years in Malaysia: not because of a lack of beneficiaries, but lack of estate planning.

In conclusion, it would be helpful for Ryan and Mia to engage an estate planner who will be able to formulate a complete strategy to eliminate future problems, delays and other issues arising from the absence of a will.

This article first appeared in KCLau.com.

Ian Tai is a financial content writer, dividend investor, and author of many articles on finance featured on KCLau.com in Malaysia, and ‘Fifth Person’, ‘Value Invest Asia’ and ‘Small Cap Asia’ in Singapore. Read more articles by Ian here.