PERSONAL

FINANCIAL PLANNING

Lecture 10
Estate Planning – Part I
 Learning Outcome
• Discuss the purposes and importance of estate
planning
• Introduction to the probate process and the
Distribution Act 1967
• Introduction to wills and will making - Identify parties
involve in a will and when a will should be
made/amended
• Explain the Inheritance Act
More Malaysians into estate planning after recent air tragedies

http://www.thestar.com.my/News/Nation/2014/09/28/Will-making-on-the-rise-More-Msians-
into-estate-planning-after-recent-air-tragedies/
 What is Estate Planning?

• Your estate = everything you own

• Estate planning = a detailed plan for the administration
and disposition of your property during your lifetime and at
your death
▪ While you work you accumulate funds for your future and
for your dependents.
▪ As you grow older, your emphasis will shift from
accumulating assets to distributing them wisely
Purposes of Estate Planning
▪ Wealth accumulation
▪ Professional management (especially in the case of trusts)
ensures that estate is properly managed to derive sufficient
income while the individual is still living in order to provide for
beneficiaries upon his/her death.

▪ Asset Protection and Preservation

▪ Ensure properly administration to reduce leakages of wealth
through taxes and/or probate
▪ Business assets and trusts assets are separated. Creditors
may have claim on personal assets but not assets assigned
to the trusts.
▪ Professional management of trusts reduces chances of
claims from unscrupulous parties succeeding.

▪ Wealth distribution
▪ Assets from a trust continue to provide income to the
beneficiaries upon death and thus beneficiaries, especially
minors can be adequately and properly provided for
▪ To ensure that the settlors/testators wishes/intentions on
transfer of his/her estate can be properly fulfilled
▪ Death is uncertain and thus it is important to ensure that
trusted and capable executors and/or trustees are appointed
to administer the estate upon death.
 How Michael Jackson Earned Over $700 Million Since
His Death

http://www.forbes.com/sites/zackomalleygreenburg/201
Video Link:
4/06/25/how-michael-jackson-earned-over-700-million-
http://onforb.es/1nUgMeh
since-his-death/
http://www.forbes.com/sites/trialandheirs/2014/03/31/whitney-houstons-family-is-fighting-is-estate-money-to-blame/
 Estate Planning Process (Keown. 2014)

• Determine the value of your estate(i.e. Net

Worth)
• Choose your heirs/beneficiaries and decide what
they will receive
• Determine the cash needs of the estate
• Select and implement your estate planning
techniques
 Legal Documents
• Birth, marriage, and divorce documents
• Legal name changes
• Military service records
• Social Security documents
• Veteran’s documents
• Insurance policies
• Transfer records of joint bank accounts
• Safe-deposit box records
• Automobile registration
• Titles to stock and bond certificates
 Financial Planning
Lecture 10 – Part 2
Introduction to Wills
 What is a will?
• The legal declaration of a person’s mind as
to the disposition of his or her property after
death
• Have an attorney draft your will to avoid
difficulties
• Reasons to have a will:
▪ Can help expedite the legal process and
distribution of the estate
▪ Minimize family misunderstandings and
disputes
• In Malaysia governed by the Wills Act 1959
 Types of Wills
• Individual Will – Most popular type of will
• Joint Will
▪ One document for more than one person (common for married couples) but executed as
separate wills
▪ Not recommended as it no confidentiality for the surviving person when the probate is
applied for the first person.
• Mutual Will
▪ Will involving two or more persons
▪ If one person decides to change the will, he/she must get consent of the other parties.
▪ Upon the death of a joint testator, the mutual will becomes irrevocable.
• Living Will
▪ Not recognized in Malaysia
▪ Instructions on how a person should be treated in a terminal illness situation
▪ Allows you to specify whether or not to be kept on artificial life support
▪ “Do Not Resuscitate” (DNR)
▪ May also appoint someone to make health care decisions on your behalf in case you are
unable to do so
http://www.thestar.com.my/News/Nation/2015/02/26/Euthanasia-and-living-wills-in-Malaysia/
https://www.thestar.com.my/news/nation/2014/12/08/living-will-for-the-terminally-ill-amd-gives-patients-greater-say-on-how-they-wish-to-die/
 Types of Wills (continued…)
• Privileged will
• Applies to members of armed forces in Malaysia in actual military
service (in time of war) and a mariner/seaman (including member
of naval force in Malaysia) being at sea
• Need not be in writing or be witnessed
• Not valid if the testator survives the expiry of one month.

• Holographic Will
• Handwritten will, signed by testator but without witnesses
• NOT recognized in Malaysia

• Islamic Will
• Subject to Hukum Faraid (to be discussed in upcoming slides)

Source : FPAM CFP Module 2

 Will Formats
• Holographic will
– Will that you write, date and sign, entirely in your
handwriting
– May not be recognized in some states
• Formal will
– Usually prepared with attorney’s assistance
– You must sign and have two witnesses, neither of
whom can be beneficiaries
– Beneficiary = person you have named to receive
property
• Statutory will
– A type of formal will on a preprinted form
– Available from a lawyer or stationery store
– May include provisions which are not in the best
interest of your heirs
https://www.youtube.com/watch?v=1X3NQO06tWg
 Will Terminology
Intestate and Probate
• Testator
• Person who makes the will

• Executor
• One who is willing and able to carry out
the provisions of your will.

• Intestate
▪ A person who dies without a will
▪ The state distributes an intestate's assets
▪ May mean the state will decide on a guardian
for your children
▪ Very complicated if a “blended” family is
involved.

• Probate
▪ Probate court generally validates wills and
makes sure your debts are paid
▪ Expensive, lengthy, and public
 Executor’s Role
▪ Testator : Person making the will
▪ Executor: one who is willing and able to carry out
the provisions of your will.

Tasks may include:

• Preparing an inventory of your assets
• Make funeral arrangements
• Apply for Grant of Probate
• Collecting any money due and paying off debts
• Filing all income and estate tax returns
• Making decisions about investing or selling assets to pay off
debts or provide income
• Prepare Statement of Account
• Distributing the estate and making financial accounting to your
beneficiaries according to the testator’s will.
 Other Parties in a will
▪ Guardian
▪ Person who assumes responsibility for providing
children with personal care and managing the
deceased estate for them
▪ In Malaysia, guardianship is required for children
below 18 years old
▪ Guardianship ends when child attains 21 years of
age.

▪ Trustee
▪ Holds or manages property for the benefit of
someone else under a trust agreement

▪ Beneficiary
▪ Person(s) you have named to receive property under
the will

▪ Witness
 Contents of a Will
• Opening clause → Identification of testator
• Revocation of previous wills
• Appointment of executors – Maximum 4 in Malaysia
• Appointment of guardian
• Particulars of asset distribution
• Funeral Arrangements
• Terms of endearment
• Definition of “children”
• Survivorship clause – Special conditions to enable beneficiaries who survive
the testator more than a certain period to be entitled to the inheritance
• Reasons to exclude dependents or specific persons from a will (Inheritance
(Family Provision) Act 1971.
• Testamentary trust
• Residual interest – Important to prevent partial intestacy
• Will must be attested and signed in the presence of at least two(2)
witnesses
Source : FPAM CFP Module 2
 Intestate- Example

http://www.forbes.com/sites/financialfinesse/2012/10/17/what
-we-can-learn-from-celebrity-estate-planning-gone-wrong/
 Intestate- Example

http://www.forbes.com/sites/financialfinesse/2012/10/17/what
-we-can-learn-from-celebrity-estate-planning-gone-wrong/
Source : Rockwills (2015) http://rockwills2u.com.my/wp-content/uploads/2014/01/Rockwills-
Will-Writing-Brochure.jpg
• Anita Mui wrote a will before her death to give a
large portion of her estate to “Karen Trust”
• Under the terms of the Karen trust:
– Her mother gets HK$70,000 for monthly living
expenses
– Brother’s 4 children get HK$400,000 for university
expenses
– Properties to be given to a retired designer
– If mother deceased → her estate to be distributed
to New Horizon Buddhist Association
• Her mother challenged the will and took a lawsuit
against the administrators of the estate
• Lawsuit was dismissed → court held Anita was of
sound mind when she signed the will based on
testimony of witnesses (doctor, godmother of 20
years and private trust director).

Source : Lee (2012)

 To be discussed in the tutorial

Reasons for reviewing/changing the will

• Death of intended executor or change of executor
• Substantial change of financial situation
• Death of an intended beneficiary
• New arrival in the family
• Separation or divorce occurs
• The testator remarries or enters into a de facto relationship
• Change in laws affecting estate taxes/duties
• Death of witnesses or difficulties in locating them
• Intention of testator to reallocate assets to the beneficiaries
• Intention to set up a trust fund for beneficiaries.
Codicil - Document that explains, adds or deletes provisions in your
existing will
Source : Rockwills Corporation Sdn Bhd(2015) http://rockwills2u.com.my/wp-
content/uploads/2014/01/Rockwills-Will-Writing-Brochure.jpg
 REVOCATION of a will
• Divorce DOES NOT REVOKE a will → Need to rewrite the will
upon divorce or ex-wife can still inherit property
• Valid marriage automatically revokes a will written prior to the
marriage → Applies to remarriages
• Testator destroys the will with an intention to revoke the will
• A later will → Can only be ONE will at any time in Malaysia
• Revocation is formally made → Attested by at least 2 witnesses
• Conversion to Islam
 Letter of Last Instruction
• Not legally binding
• Provides heirs with information
• Could include:
– Funeral preferences
– Names of people to be
notified of your death
– Location of bank accounts
and safe deposit box
– Assets and debts
– Social Security number
– Disposition of personal effects
 Financial Planning
Lecture 10 – Part 3
Wills (continued)
Estate Planning for Non-Muslims and Muslims
 For Non - Muslims
• With a will
▪ Obtain death certificate and apply for the Grant of Probate
▪ Executor’s duties begin

• Without a will
o Need to apply for Letter of Administration
o Appoint an Administrator (if there are minors – 2 Administrators
required) – Beneficiaries need to agree or else court cannot
intervene
o Administration bond (2 sureties-act as Guarantors)
o Appointment of legal guardian for children below 18 years old
o Estate is “frozen” until matters are settled
Source : Rockwills (2015) http://rockwills2u.com.my/wp-content/uploads/2014/01/Rockwills-
Will-Writing-Brochure.jpg
 Some notes on the laws of intestacy in Malaysia
(FPAM CFP Module 2) Updated

• No need for Administrative Bond ( Section 35 Probate and Administration

Act 1959):
• The gross estate value is RM50,000 or lower
• The Administrator is the sole beneficiary of the estate
• A trust (under the Trust Companies Act 1949) is appointed as the
administrator
• The Court may grant a waiver of administrative bond.

• Summary administration is applicable for small estates:

• Public Corporation Act 1995
• Application to Amanah Raya Berhad is required
• For moveable assets below RM600,000
• The estate can be testate or intestate.
• Small Estates (Distribution) Act 1955 (Gross value below
RM2,000,000)
• Application to District Land Administrator
• For immovable or partially immovable assets.
 /
http://www.amanahraya.my/estate-administration
 Implications of NOT having a will in Malaysia
• For Non-Muslims - Distribution Act 1958 (amended in 1997)
Intestate Entitlement
leaving In the case when and intestate dies without
leaving a surviving spouse, child or parent,
Spouse only Spouse – 100% the following person(s) are entitled to the
Issue Only Issue – 100% estate in accordance to priority :-
Spouse and Spouse – 50% Parent(s) – 50% 1. brothers and sisters
Parent(s) 2. grandparents
3. uncles and aunts
Parent(s) only Parent(s) – 100% 4. great grandparents
Issue and Issue – 2/3 Parent(s) – 1/3 5. great uncles and aunts
Parent(s) 6. Government
All surviving Spouse – 1/4 Applies to West Malaysia and
Issue - 1/2 Sarawak only
Parent(s) – 1/4

http://www.agc.gov.my/Akta/Vol.%206/Act%20300.pdf
 Distribution Act 1958 (Amended in 1997)
• Applies to West Malaysia and Sarawak only
• The following persons not entitled to inherit from the estate
• A person not legally married/Unmarried co-habiting person
• Former spouse
• “Issue” definition:
• Includes only legitimate children and descendants of the deceased
• A child born after divorce – Must be conceived during marriage
• Legally adopted children – Adoption Act 1952
• Stepchildren excluded unless legally adopted
• Surviving parent(s) of the deceased must be related by blood →
exclude step-parents
• If the deceased and wife die under common disaster (e.g. car accident)
→ Husband is deemed to pre-decease the Wife

Source : FPAM CFP Module 2

Inheritance (Family Provision) Act 1971

http://www.agc.gov.my/agcportal/uploads/files/Publications/LOM/EN/Act%2039.pdf
Inheritance (Family Provision) Act 1971
 What if the estate is insolvent?

• Beneficiaries are not liable for the debts and they

will also not receive any inheritance.

http://hk.lexiscn.com/asiapg/articles/nina-wang-home-made-wills.html
https://www.youtube.com/watch?v=1X3NQO06tWg
https://www.youtube.com/watch?v=dxDUzBINVgc&t=3s
 Estate Planning for Muslims
• Muslims – Faraid Law
– Based on Shariah Law
– Important to determine whether the deceased left a wife or
husband, sons and daughters and/or parents
– Can only make a will for one third (1/3) of his/her property to
someone that is not listed under Islamic law as one of the
beneficiaries.
– Non-Muslim parents and adopted children are not considered
as heirs.
– EPF savings, bank savings, insurance policies etc → Money
should be distributed according to Islamic law

http://www.agc.gov.my/Akta/Vol.%206/Act%20300.pdf
 Classification of Faraid Heirs
Quranic Heirs Residuary Heirs
Ashabul Furud Asabah

Entitled to fixed shares

Male In the right of another Female

Asabah bi al nafsi Asabah bi ghayri Asabah ma’a al-
(In his own right) ghayri
 Quranic Heirs (Ashabul Furud)
▪ Entitled to fixed distribution entitlements

Comprise:
▪ Husband
▪ Wife
▪ Father
▪ Mother
▪ Grandfather
▪ Grandmother
▪ Daughter
▪ Son’s Daughter (Agnatic granddaughter)
▪ Full blood sister (Germane sister)
▪ Sister from same father, different mother(Consanguine sister)
▪ Brother from same mother, different father (Uterine brother)
▪ Sister from same mother, different father (Uterine sister)
 Faraid Distribution → Fixed Entitlements to Quranic Heirs
Deceased survived by Portion Situation
Husband 1/2 Where the wife died leaving no child
1/4 Where the wife died leaving child
Wife/Wives 1/4 Where the husband died leaving no child
(Equal share if more than 1 wife) 1/8 Where the husband died leaving child
Father 1/6 Where the is a son(s) or son's son
1/6 and residue Where there is a daugther(s) or son's daugther only
Residue Where there is no child or son's daughthers
Mother 1/6 Where there is a a child or daugther or more than one sibling
1/3 Where there is no child and siblings
1/3 from residue Where there is a spouse, mother, father but without other heirs
Grandfather 1/6 Where the is a son(s) or son's son
1/6 and residue Where there is a daugther(s) only
Asabah Where there is a daughter only
Grandmother 1/6 Where there is one or more of them but she/they cannot inherit if
the mother of the deceased is alive
Daugther 1/2 Where there is no male sibling and she is the only child
2/3 Where there is no male sibling and there are more than one
female sibling
Asabah bu ghayri Where there is both a daugther and a son. The son will be entitled
to 2 times the entitlement of the daugther

- Germane/consanguine sibling will be excluded in the presence of a son or father

- Germane/consanguine sibling will be residue heirs in the presence of a daughter

Source : FPAM CFP Module 2 & MFPC Capstone Programme

Deceased survived by Share
Germane sisters 1/2 ▪ Only one germane sister
(Full blood) 2/3 ▪ More than two germane sister
Excluded = 0 ▪ With son, grandson or father

Consanguine sister 1/2 ▪ No other sister or brother (both germane and

(same father) consanguine)
2/3 ▪ More than two consanguine sister
1/6 ▪ One germane sister
Excluded = 0 ▪ With son, grandson or father

Uterine brother or sister 1/6 ▪ Only one uterine brother or sister

1/3 ▪ Two or more uterine brothers and/or sisters.
Amount shared equally
Excluded = 0 ▪ If father, grandfather,son or grandchild is
alive
 Residual Heirs (Asabah)
Male
Asabah bi al nafsi
(In his own right)
▪ Son
▪ Grandson
▪ Father
▪ Paternal grandfather
▪ Germane brother
▪ Consanguine brother
▪ Nephew (son of germaine
and/or consanguine
brother)
▪ Uncle (Germaine and
consanguine)
Asabah bi ghayri
(In the right of another)
▪ Daughter (with son)
▪ Son’s daughter
▪ Germane sister with full
brother
▪ Consanguine sister with
consanguine brother
Note:
Male heir will get 2 times the
portion of the female heir
Source : FPAM CFP Module 2
Female
Asabah ma’a ghahri
▪ Full sisters(s) with either
daughter(s) or son’s
daughter
▪ Consanguine sister(s)
together with either
daughter(s) or son’s
daugthers
 Example 1
A Muslim man dies leaving a wife, one daughter, mother and father

Note: X represents one residual share

Share 24
Wife (with children) 1/8 3 3/24 = 1/8
Mother (with children) 1/6 4 4/24 = 1/6

1 Daughter 1/2 12 = 12/24 = ½

Father 1/6 + Residue 4 + Residue 4/24 + 1/24 = 5/24
24

Residue (X) = (24- 3-4-12-4) = 1 → Share = 1/24

Source : MFPC Shariah RFP Capstone Programme

 Example 2
A Muslim dies leaving a wife, mother, three daughters, three sons and a
germane sister

Share 24 Per portion

Wife (with children) 1/8 3 3/24 = 1/8
Mother (with children) 1/6 4 4/24 = 1/6
3 Daughters 3 x X = 3X 17 XD = 17/24 x 1/9
(total 9 shares) = 17/216
3 Sons (3 x 2 X)= 6X X S= 17/24 x 2/9
= 34/216
One germane sister Excluded by son 0
24

Note: X represents one residual share → Total = 9 Shares

 Estate Planning - Muslims
• Harta Sepencarian
– Property deemed to be jointly acquired during the subsistence of a valid
marriage
– To protect the interests of wives in the case of divorce
– Declaration of Harta Sepencarian is irrevocable unless there is consent.

• Hibah
– Inter –vivos gift – Gifts while one is still living
– Unlimited amount devolution and no restriction imposed on the beneficiary.

• Wasiat (Muslim “Will”)

– Bequests – after one’s death
– Only 1/3 of estate can be assigned to non-Faraid heirs
– Also specifies the desired Executor and Guardian (if there are minors)
 Estate Planning - Muslims (cont/…)
• Waqf
– Charitable endowment
– Irrevocable dedication of property for charitable
purposes
 Tools Applicability Maximum Remarks
Will Upon death Up to 1/3 of estate Appointment of Executor
Wasiyyah Upon death Up to 1/3 of estate Provision of 1/3
Wisayah Upon death Up to 1/3 of estate Entrustment (Guardian appointment)
Waqf During lifetime No limit Charitable endowment
Upon death Up to 1/3 of estate

Harta During lifetime No limit Jointly acquired property

Sepencarian Upon death Up to 1/2 of estate

Hibah During lifetime No limit

Trust During lifetime/ No limit Terms based on trust deed

(Trustee Act Upon death Trust properties are not subject to faraid
1949)

Source : Bahari, A. (2014) Islamic Estate, retirement and WAQF planning, IBFIM : Kuala Lumpur
(Pages 8 and 9)