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UK Estate Planning Focus: Residence Nil Rate Band Planning

For clients who are domiciled within the UK, or who are domiciled elsewhere but own property within the UK, the Residence Nil Rate Band (RNRB) is of key importance. This is the largest and latest change to UK estate planning in recent years, and since its introduction on 6 April 2017 a key trend in UK estate planning has revolved around making use of this allowance.

The RNRB is an additional inheritance tax (IHT) allowance to the current nil rate band (NRB) which currently stands at £325,000. It was introduced in stages and only reached its full amount of £175,000 starting from 6 April 2021. Like the ordinary NRB it is transferable, thus allowing the surviving spouse to make use of the allowance on their own death if it was unused on first death. This means that a married couple or civil partners may potentially pass up to £1m IHT free.

The availability of the RNRB is dependent upon a number of conditions being met. The deceased must have possessed a qualifying residential interest, all or part of this interest must be left to their direct descendants or a spouse of their descendants (“closely inherited”) and their estate must not exceed the taper threshold to a point that the entire RNRB is taped away. This leaves a person with no children, stepchildren or adopted children unable to qualify for the relief. It is also unavailable to many high-net-worth individuals.

Tapering

The RNRB is lost if the deceased’s estate far exceeds the taper threshold. If the deceased’s net estate exceeds £2 million at death, RNRB will be tapered away at a rate of £1 for every £2 over this threshold.

The effect of this is that no RNRB is available for estates with a net value in excess of £2,350,000, or £2,700,000 at the date of death of a surviving spouse where 100% of the RNRB was available to transfer from the deceased spouse.

Tapering can act to reduce the amount of RNRB that is actually available to transfer on the death of the surviving spouse. This is the case even if the RNRB was not used on first death.

Qualifying for the RNRB

With the introduction of the RNRB, a number of new definitions were added to the UK IHT legislation, the Inheritance Tax Act 1984:

A “Qualifying residential interest” – An interest in a dwelling house which has been the person’s residence at some point during their period of ownership. (Section 8H Inheritance Tax Act 1984). This definition will include a property that has been purchased and used as a residence but at the time of death was rented out, but it does not include a property purchased as a buy to let.

“Closely inherited” – Inherited by will, intestacy, or survivorship by one or more of the person’s direct lineal descendants. (Sections 8J & K IHTA 1984). Also, where the interest is left on trust where the descendant is treated as owning the asset. This means a property left to a direct descendant via a bare trust, immediate post death interest, bereaved minor’s or bereaved young person’s trust qualifies for the relief.

“Direct lineal descendants” – Children, grandchildren, and remoter issue as well as their spouses or civil partners. Also includes stepchildren, adopted children, foster children, and children of which the person had guardianship while they were under 18.

If estate exceeded the taper threshold, then the unused RNRB that is available to transfer will be reduced. If the first to die’s estate exceeded £2,350,000 then there will be no RNRB to transfer.

The RNRB may only be applied to a single property. If a person has more than one qualifying residential interest that could qualify for the relief, then their personal representatives must nominate a property to apply the RNRB to.

The property itself does not need to be located in the UK. It is possible for the RNRB to be applied to a foreign property provided all of the above requirements are met. However, this will be affected by the deceased’s domicile. If a person is domiciled in the UK, their worldwide estate is subject to UK IHT and so the RNRB may be applied to a property that is located abroad. If a person has a non- domiciled status, then their property must be located in the UK for the RNRB to apply, as only their UK estate will be subject to UK IHT.

Modern Estate Planning Techniques

Since the introduction of the RNRB, there has been a decline in the number of clients utilising Flexible Life Interest Trust (FLIT) and Discretionary Wills to protect their interest in real property. This is due to the fact that these types of Trust fail to meet the requirement that the qualifying residential interest is closely inherited.

There are therefore two modern solutions to protect the property with a trust while also qualifying for the RNRB. The first is to separate the qualifying residential interest from the rest of the estate and deal with this separately by placing it into an immediate post death interest trust for the surviving spouse, with the children nominated to inherit it immediately on the spouse’s death. This allows the residue of the estate to fall into the FLIT or discretionary trust to allow protection for generations to come, while still qualifying for the RNRB.

The second is to still utilise the FLIT over the whole estate but limit the trustees’ discretionary powers in a way that means they cease on second death. This retains all of the flexibility of the FLIT over all assets while the surviving spouse is alive, and also over all assets except the property after their death.

Both approaches unfortunately come at the cost of less protection over the property, as any protection can’t be extended beyond second death. NRB discretionary Trusts have also seen a resurgence as a result of the RNRB. This type of Trust planning had largely declined for married couples since the ability to transfer NRB was introduced in 2007, but they are now seeing a new use to help avoid loss of the RNRB due to tapering.

This use of the NRB trust involves directing assets away from the surviving spouse so that on second death, their estate doesn’t exceed the taper threshold. If leaving assets on first death directly to the surviving spouse or to an immediate post death interest for them is likely to result in pushing their estate over the taper threshold, then there may be a benefit to directing assets to a NRB trust on first death instead. On second death, the assets in the NRB trust created on first death will be outside of the estate value for IHT and if the result is that the estate is kept below the taper threshold then the RNRB is not lost, provided of course all other requirements for the RNRB are met on second death and the property is being closely inherited at that point.

Siobhan Smith

Lead Tutor for The College of Will Writing

The Society of Will Writers, UK

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The Malaysian Budget 2022 Some Key Tax Changes

The largest ever Malaysian Budget is directed at kick starting its Covid-19 ravaged economy and helping needy Malaysians. RM332 billion has been allocated for an extensive range of far-reaching initiatives. To help fund these, significant tax changes are proposed. Of these, four key tax changes are highlighted below.

The first of these is a block-buster Prosperous Tax hike that may reap significant tax revenues from a limited group of taxpayers for a brief time. The remaining have been chosen for their lasting effects on a far wider range of Malaysians with the Tax Identification Number proposal being the most insidious of them all.

The Prosperous Tax

The headline grabbing Prosperous Tax went down like a lead balloon on the stock market which saw billions of RM wiped off its value following the announcement. It is common knowledge there were business winners during the pandemic. Super-profits in the past have incurred excess profits tax and windfall taxes. This time round, it is the Prosperous Tax. The proposal is that for high-income companies other than SMEs to be taxed at 24% on the first RM100 million and thereafter at 33%. The Prosperous Tax is slated to be introduced for just one year, in 2022.

Foreign Source Income Received in Malaysia by Malaysian Residents

The Malaysian Income Tax Act 1967 charges to tax the income of any person accruing or deriving income from Malaysia or received in Malaysia from outside of Malaysia. In a move to encourage the remittance of foreign source income to provide inputs to the Malaysian economy, an exemption from taxation was granted. The exemption took effect from 2004 and since then, individuals and companies (apart from certain specialized businesses of banking, insurance or sea or air transportation) remitted foreign source income free of Malaysia tax. This will end on 1 January 2022.

From this date, income tax will be imposed on Malaysian residents with income derived from foreign sources and received by them in Malaysia. This change will potentially affect all Malaysian residents with a foreign source income producing activity unless they choose to leave the income offshore. Examples of foreign income producing activities taxable on remittance include employment income of employees commuting overseas, consultants working overseas on foreign contracts, rental income from foreign property, wealth management involving foreign investments, holding companies with foreign subsidiaries, treasury functions of international groups, special purpose vehicles for foreign joint ventures. The list goes on.

The change may be to bring Malaysia’s tax system in line with best practices at the international level. Yet it is notable that Hong Kong with its ‘pure’ territorial tax system, pure because it only taxes locally sourced income and has no concept of foreign source remitted income, has so far resisted making any change. Further, Singapore which has a similar foreign source income tax rules to Malaysia has enacted a range of significant and practical exemptions which include an exemption if the headline tax in the foreign location is 15% or more. Similarly, Singapore has not rushed to make any change.

But equally so, the Malaysian Government hopes the removal of the exemption will create a rich new source of tax revenues. But with the removal of the exemption, Malaysia’s tax system may venture back into an area of ‘fuzzy’ tax law involving taxpayer uncertainty over which is unacceptable under its Self-Assessment System.

Difficulties exist in distinguishing between capital and income. Should the settling of a debt incurred in Malaysia with foreign source income outside of Malaysia be deemed ‘received’ in Malaysia? Would there be an element of retrospectivity applying to foreign income accumulated prior to 1 January 2022 but received in Malaysia by a Malaysian resident after this date? Will dividends received in Malaysia by residents from an offshore activity of a Labuan Company be henceforth taxed?

And then there may be double taxation issues. Tax may have been paid on the foreign source income in the foreign location. Whilst it may be possible for tax relief under current tax rules to extinguish or reduce the Malaysian tax payable, the correct amount may be difficult to ascertain. For instance, take the example of separate sources of foreign income accumulated over years in various locations and the effort required, the documents involved and the costs to calculate the amount of foreign tax relief.

These examples involve areas of considerable tax controversy. Yet the list is not comprehensive. There will be other uncertainties and contentions. In addition, the cost of collecting tax on remitted foreign source income may prove expensive compared to the collection of tax from other sources of income.

It is a fine line between encouraging inputs to the economy via untaxed remitted foreign source income and generating new tax revenues by taxing it on remittance. To achieve the optimum position, Malaysians will at a minimum want to have tax certainty and need clarity on the ‘safe harbour’ transactions.

Perhaps also the final legislation should include targeted exemptions to allow certain foreign source income to be remitted tax free. Exempting foreign source income subject to tax at a headline rate of 15% or more in the location of source would make a good start. Failing which, the proposal may result in the flow of repatriated foreign source income being stemmed and net tax revenue after costs lower than expected.

Tax Identification Numbers

In another move to bring Malaysia’s tax system in line with international practices, Tax Identification Numbers (TIN) will be introduced in 2022 with the aim of broadening the tax base and to prevent leakages of taxation.

The TIN is a discrete set of characters or numbers issued automatically by a tax authority to both individual and non-individuals whether they have a tax file number or not. Because a TIN will be given to everyone and every entity, the TIN is designed to identify the TIN holders whenever a transaction is made enabling a check on compliance with their tax obligations.

The TIN is required to be given by both parties to a transaction and potentially enables the tax authority to monitor for tax evasion. One might imagine that a tax file number will be required to take out a life insurance policy, open a share trading account, invest in a unit trust or to purchase a motor vehicle. This information is then relayed to the tax authority to examine whether the transaction is reflected in an income tax return, or the expenditure or activity is consistent with the income declared by the taxpayer.

Even those who believe they are presently under the tax radar screen, the high possibility of being detected by the TIN system should weigh heavily on their minds and make them think more carefully about meeting their tax compliance obligations and paying their fair share of tax.

Tax Compliance Certificates

In a further move to discourage tax evasion and make sure the system is working fairly, a Tax Compliance Certificate (TCC) will be required as a pre-condition for tenderers to participate in government contracts. No details have been issued concerning the TCC, but it will be an official document as proof of being current with tax filings and payment of taxes.

The TCC will only be issued if the tenderer is listed as a taxpayer, is up to date with tax filings and whether income tax is paid as of a certain date. Internationally, such reviews also embrace custom duties, withholding taxes, indirect taxes, and sometimes immigration compliance. Quite possibly the TCC may be given on an annual basis.

To obtain the TCC, certain information and documents may need to be submitted. The TIN (mentioned earlier), the tax file number, proof of the tenderers address, and details of the business bank account are probabilities. In what might be an interesting development, the TCC process may even drill down to the ‘good standing’ of the owners of the business; and in the case of a company, its directors, before the tenderer can obtain the TCC.

Much of the above is speculative for discussion purposes but nevertheless based on historical and international experiences. Further developments are keenly anticipated.

Mike Grover

Former Head of Tax at International Accounting Firm

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The Private Trust Company (PTC) Solution

By Mr Lee Chiwi
Excerpt from PreceptsGroup Succession and Trusts in Wealth Management (4th edition) Book

The use of the trust has its merits but there appear to be some limitations where it concerns the person of the trustees. How can this be improved? This is where we now introduce the concept of a PTC (private trust company). This is a structure that has now surfaced in Singapore over the last few years. It is essentially premised also as a trust but where the PTC is a special purpose vehicle (a company) incorporated by the founder to act as the trustee of the family trust to hold ownership of the family companies. When it comes to family companies, the PTC offers aspects that may be absent in the traditional trust and address those short comings that were identified earlier.

Whereas the traditional trust form requires the settlor give up ownership over certain assets to someone else, in the PTC, the settlor might be more comfortable in shifting his assets into a special purpose vehicle where it is his family members that are seen as “owners” or the legal shareholders. The founder being used to the concept of a holding company sometimes sees the PTC as something quite similar except that the PTC is also the family trustee. The PTC offers a structure where the founder could make the transfer and consolidate the ownership of his diversified family businesses, investments and real estate into one vehicle.

In reality, the shareholders are not the persons who gain anything out of the trust assets since it is the class of beneficiaries who are entitled to the distributions of the trust. The shareholders can be the same people as the beneficiaries, but may not be so.

A comparison table comparing between the Traditional Trust and the PTC is set out below:

Aspect Traditional Trust Private Trust Company 
Entity Form Not an entity An incorporated company 
Trust Management, Administration and Control Trustees The PTC through its appointed Directors 
Type of Trust Discretionary Trusts as the modern approach Discretionary or Fixed Trust elements for family branches 
Restrictions on type of Trust None 

Confined to specific family trusts, where settlor and beneficiaries are connected persons 

Governance Trust Deed & the Trust Law 
  • Trust Deed, Trust Law & 
  • Laws relating to Companies 
  • Special form of Memorandum & Articles with sole objective to act as trustee for specific family trust 
  • Family Council and Family Charter 
Protectors Common to have protectors as watchdog of the trust Unnecessary as there is a family council which supervises the board of the PTC 
Taxation Taxed as though corporate entity Needs looking into the tax aspects concerning the trust cum corporate structure 
Ownership of Trust Assets Trustees PTC itself 
Parties involved in trust Settlor & Trustees enter into Trust Settlement Settlor & PTC enter into Trust Settlement 
Distribution of Trust assets income and capital Beneficiaries can be non- related persons Beneficiaries must be connected persons to the settlor/s 
Shareholders None PTC may have shareholders but they do not benefit from trust in anyway unless they are also beneficiaries. There may be no shareholders if the PTC is 

structured as a company limited by guarantee 

Administration Aspects Trustee responsible, audits are optional Other than directors & shareholders, the company secretary, registered office. Usual appointment of auditors to carry out audit 

Conceptually the Singapore PTC is similar to PTCs allowed in some offshore jurisdictions to give broader breadth and scope to the trust industry in Singapore.

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Why Set Up a Trust?

By Mr Lee Chiwi
Excerpt from PreceptsGroup Succession and Trusts in Wealth Management (4th edition) Book

There are many different reasons why your client may consider setting up a trust. The following are examples:

To make adequate provision for the client’s family in case of unforeseen circumstances.

Preservation of wealth within the family.

To prevent heirs who lack the financial maturity from squandering away their inheritance.

Protection and provision for infants, special needs or vulnerable persons.

To assist in tax planning. Setting up a trust may help to reduce tax liabilities.

To make a gift with conditions based on the client’s wishes or the beneficiary’s circumstances.

Guidelines could be drawn up on how the trustees should deal with the trust, and at what age and in what circumstances the intended beneficiaries could have full benefit from the trust.

Asset Protection where assets settled under a trust would under certain conditions be free from creditor attack or be under a liability used to pay off the debts of the settlor or beneficiary.

To mitigate estate duty, where it might be applicable in the jurisdiction concerned.

If the client feels that an outright lifetime gift is not appropriate, the trust is one way to achieve such purposes.

Avoidance of Forced Heirship rules. In this connection, to provide benefits to heirs who might otherwise not be able to benefit from the settlor’s estate at death because of restrictions on how his estate is to be disposed.

The objectives in setting up a trust can also roughly be summarized under six heads:

• Economic, Tax and Estate Duty Minimization

• Succession and Inheritance

• Wealth Preservation and Enhancement

• Maintenance and Provision for the family

• Asset Protection and Avoidance of Potential Adversity

• Philanthropic, Charitable and Esoteric purposes

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Family Office

By Mr Lee Chiwi
Excerpt from PreceptsGroup Succession and Trusts in Wealth Management (4th edition) Book

Some of the high-net-worth individuals (HNWI) may have the resources and need to set up what is termed as a “Family Office” to manage the substantial wealth and private matters of their family. The Family Office model is largely borrowed from the United States where the origins of the modern family office had likely emerged from. It is essentially a structure that engages in the management and succession of say a family’s diversified wealth like a corporation. Like other corporations, the Family Office employs permanent staff and professionals to undertake various functions relating to investments, asset management, legal affairs, trusteeship, risk management, and tax. Professionals that are engaged include asset managers and investment advisers, trustees, in-house counsel, tax advisers, and accountants. Family members may be appointed as board members alongside external persons with expertise that the family may lack among themselves.

A tenet of the Family Office is the objective of educating the family members, especially the younger members on the values, objectives, investments, and financials concerning wealth management and their grooming to take leadership positions in the future as part of the ongoing succession and generational planning for the family.

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What is a Person’s “Domicile” and Its Relevance for Probate and Administration

By Mr Lee Chiwi
Excerpt from PreceptsGroup Succession and Trusts in Wealth Management (4th edition) Book

A person’s domicile is basically the place where he intends to make his permanent or ultimate home and where he will return to, even if he may presently reside somewhere else. In the law of probate and administration, the domicile of a person determines the right of that person to make a will and how his estate is to be distributed. The domicile therefore also determines the country where the primary probate process is to be obtained in relation to the deceased’s estate and the rights of his personal representatives to administer his estate.

Some of the factors that determine a person’s domicile include:
• his nationality and place of residence;
• whether the person has bought or owns any property in the country;
• whether his family is with him;
• the length of time that he has been living in a particular country.

For some people who may have several ‘residences’ and other assets in different countries, his personal representatives may have to confirm and prove the most probable country of domicile. A person can possess only one domicile at any one time.

Case Study of Peter Rogers May v Pinder Lillian Gek Lian [2006] SGHC 39

In the proceedings, issues were raised as to whether the deceased had died domiciled in Singapore or in England. The executor had commenced probate proceedings in Singapore on the basis that for the last 30 years of the deceased’s life, Singapore had represented the focal point of his personal, social, financial and business activities. Documents, such as the deceased’s passports, his personal tax submissions and newspaper reports articulating his actual intentions all served to fortify the conclusion that the deceased was domiciled in Singapore prior to his death. He had also significantly assumed Singapore citizenship.

On the other hand, in an attempt by his widow to stay certain court proceedings, she contended that the deceased had always been domiciled in England, notwithstanding his close connection to Singapore. The deceased was born and educated in England and had at all material times an English passport in addition to his Singapore passport, stayed in London regularly, owned property in London, had married her in London and was even on the London electoral role. She also commenced proceedings in England for a declaration that the deceased had died domiciled in England. The Court ruled in favour of the executor’s application for a determination whether a notation should be endorsed on the grant of probate that the deceased died domiciled in Singapore.

The Court also held that: “A testator’s domicile was not determined by the place where a will was prepared or the identity of those involved in preparing the will. The place where a will was made and the law pursuant to which it was made did not establish or even begin to point towards the domicile of a testator. After all, even a declaration of domicile in a will was legally irrelevant as this issue would in the final analysis be determined by the court taking into account the entire matrix”.

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Importance of Planning the Perwalian (Guardianship)

Tri Djoko Santoso

AEPP®, CFP®

Founder, LN Consulting

Tri Djoko Santoso CFP®, AEPP® is the founder of a leading financial planning school in Indonesia. His school is a business partner of EPPL which administers the AEPP® training in Indonesia. He is a Precepts Estate and Succession Practitioner.

 

It is imperative for every family in Indonesia to understand the importance of planning the Perwalian. In most family situations, children’s lives and assets are affected when they lose one or both parents. How Perwalian regulation is applied in Indonesia should be considered for Indonesian families when they have assets not only in Indonesia but globally.

 

What is Perwalian?

Perwalian or guardianship serves 2 purposes. Firstly, for the supervision of minors (under 18 years old including children who are still in the womb) who are not under the control of the parents, and secondly, for the management of the children’s assets. Due to the minors’ incapacity in taking legal action, they may be vulnerable to the actions of their Perwalian.

The emergence of the Perwalian is caused by the termination of a marriage arising from death of one or both parents, the divorce of the parents or a court decision regarding the revocation of parental power which will have legal consequences for both the husband and wife, especially the interests of the neglected child.

 

Who Is Eligible for The Appointment of a Perwalian?

The Indonesian government has issued a revised regulation no. 29 of 2019 concerning the terms and procedures for appointing a Wali (guardian). This revision includes the arrangements for the appointment of a Wali, procedures for the appointment and termination of a Wali, guidance and supervision of child guardianship, as well as reporting and documentation. The aim is to protect the child’s rights and meet the basic needs of the child as well as managing the child’s assets.

To be appointed as a Wali, the parties in the following order are prioritized:

  1. Children’s family (blood related family up to the third degree*) or
  2. Paternal or maternal such as uncle or aunt or
  3. Other people or
  4. Legal entity, for example, technical implementing units of ministries/ agencies.

* Third degree is a common term used in Indonesia for Perwalian which means descendants up to three generations; for example, father and child are first degree, grandfather and grandchild are second degree.

 

They should meet some basic requirements to be appointed as a Wali such as being physically and mentally healthy; well behaved, economically stable, sharing the same religion as the child and have obtained a court order. The Perwalian will end when the child attains the age of 18 years.

 

What Are the Duties and Responsibilities of a Wali?

The duties and obligations of a Wali include taking care of the child’s assets and be responsible for any losses caused by poor management, the maintenance and education of the minor, representing the child in all civil actions, carrying out the recording and inventory of the child’s assets and be accountable for the discharge of duties as a Wali .

 

Balai Harta Peninggalan

Balai Harta Peninggalan (abbreviated as BHP) is the guardian supervisory board in Indonesia. BHP as the supervisory guardian board will provide legal consideration in terms of rights and BHP is a Unit Pelaksana Teknis (Technical Implementation Unit) under the Directorate of Civil Affairs, Ministry of Law and Human Rights of the Republic of Indonesia. In essence, the duties of BHP are: “representing and managing the interests of people (legal entities) who because of law or legal decisions cannot carry out their own interests based on applicable laws and regulations”.

 

Role of Trusts

Trust is a primary tool as part of financial planning for Indonesian families with offshore assets. Trusts can be considered as an alternative to the Wali to protect and preserve children’s assets in Singapore. A Trust can continue to function even when they are over 18 years old. It helps every parent to have the peace of mind to ensure that their children and assets in Singapore are safe for the longer term.

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Case Study Relating to the Validity of Wills

By Mr Lee Chiwi
Excerpt from PreceptsGroup Succession and Trusts in Wealth Management (4th edition) Book

A Battle of Wills and the Propounder Having the Burden of Proof to Show Mental Capacity

In Chee Mu Lin Muriel v Chee Ka Lin Caroline (Chee Ping Chian Alexander and another, interveners) [2010] SGCA 27A the fight in court was between two sisters over the contrasting Wills that were made by their late mother, Madam Goh. On 16 March 1989, Madam Goh had executed the 1989 Will appointing C, who was her favourite daughter, as the sole executrix of her estate and bequeathed to her almost the entire residuary estate. Madam Goh made the 1989 Will about a month after her husband (the father) was incapacitated by a stroke. Other than providing for his needs, the grandchildren’s education and giving $150,000 to one son, she left the rest of her estate to C. In 1995, Madam Goh also transferred a half-share in the Holland Road house to C and her husband at a ‘discounted’ price. At the time of Madam Goh’s death, she owned several properties, the main one being the Holland Road house worth about $13 million. C’s sister M however propounded a 1996 Will executed by Madam Goh which gave C an option to buy her half-share of the house. This Will stated that the sales proceeds, with the rest of her estate, was to be shared equally among C’s five siblings. The 1996 Will cut C out of the inheritance. M, from getting nothing under the 1989 will, was to get a one-fifth share of her mother’s assets. In arriving at its decision, the Court held that M, as the propounder of the 1996 Will, had the burden of showing that Mdm Goh had testamentary capacity at the material time and the medical evidence adduced by her was insufficient. To discharge that burden, M had to adduce other non-medical evidence to show what the medical evidence did not show. While M did adduce other contemporaneous evidence in the form of eyewitness testimonies of what had happened during the signing of the 1996 Will to try to show that Mdm Goh had testamentary capacity, this evidence was rejected.

When the Will Is Given to Non-Family Members and Not the Next of Kin

In Dec 2007, the English High Court upheld the will of Golda Bechal despite attempts by her family to challenge it. Her entire £10 million estate was left to her Chinese friends, Kim Sing Man and his wife Bee Lian Man who run the Lian restaurant in Witham, Essex. The couple had been friends with “Goldie” Bechal, who was 89 when she died, and her husband Simon for many years. Her five nephews and nieces who contested the Will claimed their aunt was suffering from serious dementia, “lacked testamentary capacity” and demanded access to her fortune. But the High Court judge upheld the wishes of the widow and ruled that they would inherit none of Ms Bechal’s huge fortune. Ms Bechal left nothing to her surviving relatives.

Ms Bechal died in January 2004, leaving a portfolio of commercial properties. The judge accepted the Mans’ evidence that Ms Bechal, sad and lonely after the death of her husband and of her son, Peter, at the age of 28, became almost part of their family. The judge ruled that Golda “Goldie” Bechal was in sound mind when she gave the bulk of her estate to the Chinese couple whom the widow considered to be closer to her than her family. The Mans, who often served Ms Bechal her favourite dish of pickled leeks and beansprouts, expressed delight on the steps of the Royal Courts of Justice that their friend’s wishes had been granted. Mrs Man said of Ms Bechal: “She was like a mother to us. We had a very special relationship. She described us as being like her children.”

The presiding judge dismissed a claim by Ms Bechal’s nephews and nieces that she did not have testamentary capacity when she made a pair of wills in May and August 1994.“It was not in any sense irrational to give the bulk of her estate to Mrs Man, whom she regarded as the daughter she never had, and to her husband,” he said. The court was told that Ms Bechal, who died in 2004, grew close to the Mans and went on holiday to Israel with Mrs Man in 1994. The judge said: “I am satisfied that by 1994 Ms Bechal did regard Mrs. Man with all the affection she would have given to a member of her own family.”

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Malaysian Estate Planning Trends

Sam Chan

LLB, CLP

Assistant General Manager Franchise Development & Training 

Rockwills Corporation Sdn Bhd

 

Estate Planning with a holistic approach had started as a trend in Malaysia since the mid-90s. Holistic estate planning is more than writing a Will where planning involves taking into consideration a person’s liabilities, his family’s financial sustainability, mitigation of financial risk upon his death, and many more aspects. Estate planning has to be customized depending on what concerns or assets a person owns. As the society or economy develops, so does the approach to estate planning.

In Malaysia, the unprecedented challenges brought by the current Covid-19 pandemic have caused a surge in the demand for estate planning services. The fear of getting infected has fuelled the urgency on a public scale where Malaysians need to sort out their affairs and to prepare for the worst that could happen to them. The legal requirements of signing the Will or Trust documents further complicate the situation due to the strict movement restriction and social distancing procedures imposed by the Government.

The Covid-19 pandemic has also caused a lot of Malaysians to be stranded in overseas countries. Most of them are working overseas to make a living. They would save or invest their earnings back in Malaysia for their family members. There are also foreigners who work and own assets in Malaysia.

They would be concerned with what they could do to protect their families during the international travel restrictions. Can the Estate Planner give them advice and take their instructions remotely? Can the Will be prepared in Malaysia while they are in another country? Can the Will be signed outside of Malaysia? Can a Will or Trust be signed electronically? Can a non-Malaysian citizen be a witness to the Will?

In Malaysia, a person writing a Will must comply with the formalities stated in Section 5 of the Wills Act 1959 for the Will to be valid and effective. Among other requirements stated in the Act, the Will must be attested by at least two witnesses in the presence of the testator and each other.

All these years, Estate Planners, like any other professionals, would meet the testator in person to  discuss their estate plan. A meeting will be arranged to find out the testator’s concerns before proposing appropriate solutions that meet the testator’s needs for the preparation of the Will or Trust documents. The Estate Planner would bring the finalised Will or Trust for the client to sign in the presence of the witnesses. When the nation declares an emergency lockdown, the Estate Planners have to adapt quickly to the situation.

Thanks to the advancement of technologies and the internet, estate planning services are still accessible during the restrictions imposed as a result of the Covid-19 pandemic. In line with the social distancing SOP, the Estate Planner would be using online meeting platforms to meet and discuss with the testator regarding their Will and Trust set up. As the Will and Trust documents must still be in hard copies, the documents would be couriered to the Testator’s residence. The testator will then sign the Will in the presence of the witnesses such as their neighbours, to comply with the legal requirements. In the meantime, the Estate Planner can use video calls to guide the testator and the witnesses for the attestation.

Digital Assets

Even before the pandemic, we are already in the era of convenience where banking and investments, taxi and food deliveries are just a few swipes and taps on our smart devices. Digital lifestyles are inevitable. Hence, there are growing concerns from the public as to whether it is possible to include their digital assets in their Wills especially those who have invested in cryptocurrencies that are significant in value.

Digital assets are assets that are in a digital form or other intangible forms by electronic, magnetic, or optical means or by some other similar means giving the owner an ownership claim or a right of use or interest in these. Examples would be cryptocurrencies, social media accounts, e-wallet accounts, and cloud storage accounts. These are assets that can be given to loved ones. Some digital assets such as social media accounts and cloud storage accounts require the consent of the platform operator before the executor of the estate, who does not have account details, can gain access to it. Digital assets, unlike the traditional assets which can be kept in a safe deposit box or drawer, may not give any ownership title. It largely depends on the terms set by the platform that is the digital asset enabler.

One of the common problems with digital assets planning is that family members have no knowledge of the existence of the digital assets. The digital assets are likely to be irrecoverable if no one is aware that the deceased owned these assets. However, if the digital assets are accounted for in the Will, it can save the family a lot of time and trouble to gain access to those assets and begin distribution.

Thus, a digital asset owner should state clearly in the Will the specific digital assets to be given if he/ she would like to give his/ her loved ones the contents of his/ her digital accounts, regardless of the financial value. Itemisation of the digital accounts in the Will is required to facilitate recovery of these digital assets as they are dependent on user details and passwords for the executor to recover it. Next is to put in place security to restrict access to unauthorised persons.

In summary, the demand for estate planning has increased significantly due to the COVID-19 pandemic and estate planning is constantly evolving to adapt to the ever- changing environment. There is no one-size-fits-all solution for estate planning. One can easily write a Will but will need a professional to formulate a better estate plan. Ultimately, it is important to take advice from an experienced and well-informed Professional Estate Planner who can be innovative to provide solutions. Given today’s uncertainties, it is never too early to start planning your estate.

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Avoidance Of ABSD And Purchases Under Trusts

The prosecution of the various parties is a warning to any person who attempts to use fraudulent documents to avoid paying ABSD (Additional Buyer’s Stamp Duty). Apart from the jailable terms, the couple involved was ordered to pay a penalty of S$276,000, four times the amount of ABSD evaded.

In another Channel News Asia article, it said that if individuals were aware of such evasions, they could contact the Inland Revenue Authority of Singapore (IRAS), and a reward based on 15 per cent of the tax recovered, capped at S$100,000 would be given to informants in successful cases!

A structure where ABSD is possibly also avoided relates to trusts which have been set up by many parents. Many appoint themselves as trustees; likely for their own convenience and without understanding the proper role, administration and responsibilities of trusteeship. Many of these trusts if scrutinized could be nominee arrangements instead, the motive largely being to avoid

ABSD. Under the scrutiny and audit of the IRAS, many of these trusts could be deemed as tax avoidance schemes and the “parent trustee” possibly prosecuted and fined.

The current ABSD rules introduced as part of the property cooling measures do not penalize genuine trusts that are set up for inheritance and succession planning and where ABSD is not payable when the beneficiary concerned does not own any other residential property. For the longest time, the Trustees Act already gives powers to trustees to purchase residential property for the benefit of a beneficiary. The situations where such property trusts can be planned for and unaffected by the imposition of ABSD are numerous, such as for the protection of beneficiaries who are minors, spendthrifts or even if adults are vulnerable because of the loss or potential loss of mental incapacity.

Those who are considering purchasing residential property and setting up a trust to hold the property where another person is beneficiary should seek proper legal and tax advice.