Estate Planning:
What is it & why does it matter?

As a civil litigation lawyer with a practice focusing on inheritance disputes, I have come to realise that many inheritance disputes can be avoided or mitigated had there been proper estate planning by a wealthy parent.

So, what exactly is “estate planning”?

The short answer is that it is the process of putting in place your wishes and intentions for the management and distribution of your assets after your death.

One of the most basic estate planning tools is a Will. Most people think estate planning is all about making a Will. This is a huge misconception as a Will is merely an estate planning tool and many other tools can be used as part of a comprehensive estate planning strategy. Some of the common estate planning tools, other than a Will, are:

• Trusts;
• Gifts made to intended beneficiaries during a person’s lifetime;
• Joint ownership (e.g. joint bank accounts); and
• Private limited companies (e.g. a Sdn Bhd).

This list is not exhaustive and it is best to speak to a professional on what your options are based on your net worth, intentions, and familial relationships. It is common to also see a hybrid of all these tools being used in particularly large estates where there are more complex familial relationships.

Which of the estate planning tools are more suitable for you depend on many factors including the size of your estate, your intentions, the type of assets in your estate, and of course, the complexity of your family structure or familial relationships.

For example, setting up trusts as opposed to having a Will remain an attractive option for many high net worth (HNWI)[1] and ultra-high net worth (UHNWI)[2] individuals as discretion and privacy are often more important to them. The downside of leaving everything in a Will is that the administration of their estates will have to go through the probate court which runs the risk of the extent of their wealth, contents of their Wills, and information of their beneficiaries becoming public information.

Another common misconception is that estate planning is only for the “rich”. But in reality, estate planning is also important for just about anyone who has a positive net worth. It is the extent and complexity of one’s estate planning strategies that often differ. This is why for many people, just having a well-drafted Will is sufficient estate planning.

I think Malaysians tend to take estate planning less seriously compared to people in other countries for the plain reason that we are not presently subject to inheritance tax, unlike other countries. Whilst there had been talks by the former administration to bring inheritance tax back, no real attempts have been made thus far to do so.

However, inheritance tax aside, there are real reasons why estate planning matters and why it should matter to more to some people.

Why does estate planning matter at all?

Good estate planning will protect your beneficiaries’ interests in accordance with your wishes and hopefully, avoid disputes and litigation between your beneficiaries after your death.

Here are a few scenarios which may make estate planning all the more important for you if any of these apply to you:

• You have a life partner you wish to provide for

Marriage is certainly not for everyone and indeed, marriage is not the only reason to want to provide for someone. There are circumstances where life partners make the decision to share their lives and are happy to do so without succumbing to the societal expectations of having to be legally married.

I would caution that estate planning is necessary for people who are cohabiting without being legally married to each other. This is simply because Malaysian laws as they currently stand do not afford protection, in so far as inheritance is concerned, to a cohabiting life partner and concepts like “common-law spouse” have no place in passing on property where a person dies without leaving a Will, save for limited circumstances like if he went through a customary marriage before 1^st March 1982.

• You have children born out of wedlock and from different partners

I have previously written more extensively on this topic in an earlier article. It is sufficient for present discussions to state that children who are born out of wedlock are not recognised as beneficiaries or legal heirs if a parent, especially a father, dies without leaving a Will. The Courts have repeatedly interpreted the provisions of the Distribution Act, 1958 literally for children to only mean “legitimate children” who are born in wedlock, legitimised by a subsequent marriage or children who have been legally adopted under the applicable legislation[3].

This is a fertile area for protracted inheritance litigation even if there is a Will and in particular, where a Will is not properly drafted.

• You have assets in Malaysia and other countries

You should consider estate planning seriously if you have assets in Malaysia and other countries as laws governing inheritance may differ from country to country.

For example, the matter may be more straightforward where your assets are in Commonwealth countries where a grant of probate or letters of administration from a Commonwealth country can be resealed in another Commonwealth country and have the same effect as if it has been granted in that particular country. It is still often advisable, for example, to have separate Wills to deal with assets in different countries.

Things may be more complicated in situations where you own assets in civil law countries where “forced heirship” laws exist and limit who can inherit from your estate (e.g. countries like Italy, Switzerland, and France). On the other hand, some countries may also have more favourable laws in respect of the inheritance rights of a cohabiting partner (e.g. Australia) or children born out of wedlock than others.

As my experience in handling cases of this nature showed me, where an individual owns assets in multiple jurisdictions but failed to do any form of estate planning, it can result in a costly, tedious and time-consuming exercise in ascertaining who are the lawful beneficiaries in each country. Things are usually further complicated by an individual having assets in multiple jurisdictions as well as a cohabiting partner and children born out of wedlock.

Final thoughts…

The list of scenarios above is not exhaustive and it may be impossible to come up with such an exhaustive list of scenarios. The above list is meant to highlight the more common situations where litigation over inheritance rights is commonly seen. These are my observations from my own experience in handling contentious probate matters and how unfortunate it always seems to be that many of these disputes can be avoided had there been proper, well-advised, and well-executed estate planning by the deceased person.

Awareness towards estate planning is undoubtedly increasing in light of the Covid-19 pandemic as more and more people are not only rushing to prepare their Wills but are also now more open to talking about death and their intentions for the distribution of their assets.

As part of CLC’s Estate Planning Series, I hope to discuss some of the estate planning tools commonly used by HNWI based on my experiences in my future writings.

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