Dyana Sofya Mohd Daud

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Inheritance

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 its 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?
To 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, it is 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.

Alternate Life Insurance

People set aside money for reasons such as education, vacation and retirement. For members of the Penang-based Chinese Provident Association (CPA), they do so for their funeral expenses.

That used to be the case, according to CPA vice-president Khaw Teik Ghim who dismissed the morbid notion that the organisation was solely about death.

He said such associations were set up in the olden days as a means for people to put some money away for a rainy day as insurance was either non-existent or very expensive then.

The accumulated funds would then be paid out for funeral expenses and benefits for dependants when a member died, he added.

He said members could also take out a loan against their savings, but a minimum amount of RM800 was required to be kept to maintain the account.

CPA now has 1,000 members, with the membership being limited to that number by the Registrar of Societies (ROS) in the 1960s, and they contribute RM5 a month.

He said that when a member dies, the association pays out between RM3,000 and RM5,000 to the next-of-kin.

On the relevance of the CPA now with the wide availability of endowment funds, insurance products and financial trusts, he said it served as an alternative means of savings.

He said being a member also meant that friends could keep in touch with each other as the annual dinner provided the opportunity for members to catch up.

The CPA also provided education grants to the children of members and all these activities served as a social outlet, he added.

For those who are interested in joining, Khaw said membership is limited as the list was already full but vacancies would be created when a member dies.

"Those who want to join have to be below 40 years old while those over 35 would have to undergo a medical check-up first," he said, adding that only current members can act as a proposer and seconder of a new member.

Last Will & Testament

Many people have bought life insurance policies at certain points of their lives, but do they know that life insurance is incomplete without an insurance trust? More than 90 per cent of the public do not make wills and insurance trusts.

Policyholders often perceive that buying insurance is enough to protect them from untoward incidents, illness, disabilities or death but they should also realise that insurance policy without insurance trust would cause much inconvenience in distributing their insurance monies to their beneficiaries once they depart from this world.

As life insurance monies benefit their beneficiaries, policyholders need to be aware of the importance of appointing a trustee.

They should also be aware of changes made in the new Financial Services Act 2013 (FSA) which came under immediate effect from July 1, 2013, whereby in this new act the policyholder cannot appoint himself as a trustee.

A trustee, is the legally appointed entity that manages the policyholder’s insurance monies once he or she has passed away. Similar to a will, an insurance trust will ensure smooth execution of the distribution of the insured monies to the beneficiaries.

By setting up an insurance trust, policyholders can decide how to distribute their money and ensure their beneficiaries not squander the money since they may not know how to manage such a large sum of money, he said.

Most importantly, they could rest assured that the trustee will distribute the monies to the beneficiaries in accordance with the trust deed, in which their insurance objectives are fulfilled.

Medical Insurance

Five most common medical insurance exemptions.

1) Pre-existing conditions
More formally, a pre-existing condition is a medical condition that has occurred before the insured person began his/her medical insurance coverage. Pre-existing conditions are not covered by all medical insurance companies. So for example, if you were diagnosed with a terminal heart condition today and decided to sign up for medical insurance tomorrow then your heart condition would be considered a pre-exisiting condition and will not be covered by the insurance company.

2) Plastic surgery
Plastic surgery is generally considered an optional medical procedure and not a life-saving one. Medical insurance companies only cover conditions where medical attention is absolutely necessary and not situations where surgery is a luxury and/or can be entirely avoided.

3) Any claims within 30 days
Medical insurance companies normally have a so called “waiting period” at the start of your coverage where you cannot make any claims whatsoever. The period usually lasts around 30 days from the time that your coverage has begun. However, depending on the company, the time period may fluctuate. The sole purpose of this rule is to protect the company from fraudulent claims by insured candidates who may have lied about pre-exisiting conditions in their application forms. There are exception to the “30 day rule” due to accident - for example, any incidences involving accidental injury is still be covered by some medical insurance packages.

4) Dental trips
Dentals are normally not covered by your medical insurance company. Exception to the exclusion is incidences due to accident and where dental visit is deemed necessary. Though there is one clear exception to this rule, if the surgery pertains to a major medical condition such as an infected wisdom tooth or serious gum disease, then your medical insurance company might cover the cost.

5) Claims made while breaking the law
Normally, medical insurance does not offer coverage injured in event you are breaking the law.
Medical insurance companies are designed to be there to cover you in your time of need, like when you get hurt or sick under accidental circumstances.

Alternate Distribution Channel

Banks and post offices play an important role in achieving the government's target for the proportion of the insured population to reach 75 per cent by 2020 from the current 54 per cent.  Life Insurance Association of Malaysia President Vincent Kwo Shih Kang said the two distribution channels could reach out to the under-served markets such in the rural and semi-urban areas.
In the past, the focus of life insurance and takaful has always been the urban areas. Banks and post offices must play a role in now focusing on the rural and semi-urban areas. The Insurance Industry must also find a better way to distribute the insurance products.

Bancassurance presents a unique proposition for insurers to widen their outreach while maintaining acquisition costs at manageable levels. By leveraging on banks' existing branch network and customer base, which are well established throughout most Asian markets, insurers are able to scale up quickly into geographical areas and consumer segments.

He said in Malaysia, bancassurance accounted for 36 per cent of new life insurance business premium and 39 per cent of gross contribution for takaful business in 2013.