| When assisting clients with their estate planning, we first study the client’s background, assets, and liabilities in detail. I recently met a client who is a successful businessman and investor. He has built a portfolio consisting of stocks, cryptocurrencies, and properties worth over RM3 million, plus RM500,000 in cash. Despite accumulating such personal wealth, he still borrows from the bank to leverage his property debts. He has two children, aged 6 and 8, and his wife is a homemaker. The question is whether writing a Will and leaving all his assets to his wife and children is the best approach to ensure his family’s financial stability in the event of his death.
Challenges of Relying Solely on a Will
Before deciding if he should distribute all his assets to his wife and children through a Will, he must consider whether his wife can cover his debts before obtaining the grant of probate. It’s important to note that it usually takes around six months to apply for a grant of probate. Even though his personal assets are worth over RM1 million, they will be frozen upon his death, and his wife will still need to obtain the grant of probate to unfreeze the assets.
In the meantime, will his wife have enough money to cover: a. Legal fees for the grant of probate b. Legal fees for property transfer c. Property debt repayments (in case the MRTA is insufficient) d. His children’s maintenance and education expenses e. His funeral expenses
Creating a Cash Flow Plan with a Trust or Life Insurance
In addition to writing a Will and leaving assets to his wife and children, he should also prepare a fund to provide cash flow upon his death to cover these expenses. One option is to create a cash trust during his lifetime, placing cash in the trust for his wife and children. The trustee can then allocate a specific sum, as outlined in the trust deed, to his wife to settle all expenses. Another option is to purchase a life insurance policy and assign it to a trustee, instructing the trustee to cover his wife and children’s expenses after his death. As we know, the value of a life insurance policy typically increases upon the policyholder’s death. Thus, many people who purchase life insurance policies are worth more dead than alive.
Stamp Duty Costs and Upcoming Reductions in 2025
The only downside is that, like most people, he will need to pay stamp duty if he assigns his policy. The stamp duty rate is based on the sum assured as follows:
The first RM100,000 1% RM101,000 – RM500,000 2% RM500,000 – RM 1 million 3% Balance > RM 1 million 4%
However, there is good news from Budget 2025, which introduces changes to the stamp duty rates:
The first RM100,000 RM10 RM101,000 – RM500,000 RM100 RM500,000 – RM 1 million RM500 Balance > RM 1 million RM1,000
Sources: https://belanjawan.mof.gov.my/pdf/belanjawan2025/ucapan/langkah-cukai.pdf (see page 18)
But the exact figure yet to be gazetted.
This means that if he assigns his policy on or after January 1, 2025, the stamp duty will be much cheaper compared to previous rates. In such cases, he can use a trust together with a Will to provide better financial security for his family.
You may make an appointment with our legal advisor here: https://calendly.com/finex-and-co-legacy-advisory/tea-talk-with-legal-expert
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Funding & Debts CancellationNovember 18, 2024by William WongIs it sufficient to use a Will as our estate planning tool?
