Benjamin Franklin’s famous quote about “death and taxes” still rings true today. In fact, the risk of death is heightened in the face of the pandemic.
According to a report, some RM60 billion in wealth left by deceased Malaysians is still stuck in the legal process.
These include single-name bank accounts, unit trust investment accounts, safe-deposit boxes, properties under the deceased’s personal name, sole proprietorship businesses, “sendirian berhad” shareholdings, and others.
People often ask how long an estate will be frozen if one passes away without a valid will. The answer is easily one year or more. The problem is compounded by the pandemic as the court system is not fully operational. In some cases, estates have been frozen for between 12 and 25 years.
There are several reasons why estates can be frozen for so long. In peninsular Malaysia and Sabah, when a person with gross estate value of RM2 million and above dies without a valid will, the Probate Administration Act 1959 dictates that all legal beneficiaries must agree on the appointment of an administrator.
This administrator must obtain an administration bond to be provided by two persons, with the amount based on the gross estate value of the deceased. The purpose is to protect the beneficiaries and creditors of the estate against the administrator, who could abscond with the assets.
A delay in applying for a letter of administration can happen when the legal heirs fail to agree on who is to be appointed the administrator. There may be a lack of trust among the heirs or they may not be on talking terms.
The failure to come to a consensus will result in a deadlock, where no one can apply to the court to administer the deceased’s estate. As a result, some assets in the deceased’s name may be left to rot, while the estate value shrinks.
It can also be a huge hurdle for the heirs to find two guarantors for the administration bond.
Untangling the issues
Another reason is that the deceased leaves a messy estate without any instructions for the next of kin on how to untangle the issues, especially massive outstanding debts.
The heirs are in a bind because creditors may have put a caveat on the estate while they try to get their money back through legal actions. In the meantime, there might be insufficient cash flow or liquid assets to pay off outstanding liabilities.
Immovables like property and land take time to convert to cash as the auction process can be draggy. The estate will always lose out as auction properties only fetch a fraction of the actual market value.
To overcome legal and financial blocks, you should have a comprehensive will in place with detailed clauses on how you like your appointed estate executor to administer the affairs of your estate.
Conclusion
During lockdown, look at a short-term solution such as engaging a low-cost but reliable online service for express wills.
When the Covid situation eases, it is advisable to seek professional advice to construct your integrated estate plan comprising a comprehensively written will, a testamentary trust in your will, a living trust, a business continuation plan, and a review of your EPF and life insurance policy nominations.
Lee Khee Chuan is a Securities Commission and Bank Negara-licensed financial advisor who has been practising estate planning for over 17 years. He also researches and writes extensively about the subject, besides lecturing for the Certified Financial Planner certification programme.
For more information, visit www.estateplanningmalaysia.com.