Question: 

Hi, I’m Mr. Chou. I’m 60 years old this year. Presently, I reside in a bungalow unit in City Heights with Ai Ling, my wife and Nick, the youngest of my three children who is pursuing a finance degree in a private university. Brian and Dani, my two eldest sons, have moved out and are residing in Australia. 

I bought my bungalow unit for RM 3.2 million nine years ago and it is estimated to worth RM 3.7 million presently. I still owe around RM 1.3 million in mortgage on this unit. Thus, my question is, ‘What is the fairest method of distributing the property fairly and evenly to my three sons if I pass on?’ 


Answer: 

Well, is it to write a will, where Mr. Chou can evenly distribute the ownership of his bungalow unit to his three sons: Brian, Dani, and Nick, if he passes on? 

The above arrangement seems to be the most ideal and logical. 

But unawarely, it is this type of arrangement that had resulted in needless strife and conflict among the closest of family members. Here, let’s say, Mr. Chou had passed on and had bequeathed his bungalow unit equally to his three sons. The three sons are now ⅓ owners or joint owners of their father’s bungalow unit. 

There are three potential issues that may arise: 


1. Maintenance Costs 

Who would bear the maintenance and renovation costs of the bungalow unit, if any arise? Are they willing to split them in equal proportions? For instance, let’s say, Nick continues to reside in the bungalow unit and the air-conditioning units of the bungalow require servicing. The question is: 

Should Nick bear the full cost or should his brothers share the servicing cost? 

In Nick’s viewpoint, he believes the cost should be shared because the property is jointly-owned with Brian and Dani. 

But perhaps, from Brian and Dani’s viewpoint, they opine that Nick should bear the full cost as he is the one who resides in the bungalow. 

Thus, this could potentially give birth to animosity among the three brothers. 


2. Property Disposal

In Malaysia, a jointly-owned property could only be sold if all of its joint owners are agreeable to the sale of their property. This means if Brian wishes to sell off the bungalow unit, he needs to convince his brothers, Dani and Nick to agree to the sale before the property could be sold to a new buyer. Here is a question: 

What if one of the three brothers does not wish to sell? 

Let’s say, Nick wants to reside in the bungalow unit but his brothers want to sell off the property for cash so that they could use it to either buy their own house in Australia or to start a business or to get married or to travel the world … etc. 

In their case, as long as Nick refuses the sale, the property could not be sold. As such, Brian and Dani could not cash out their stake in the bungalow unit. 


3. The Death of a Joint-Owner 

This would become even more complicated, especially if the deceased owner is married and has kids. For instance, let’s say, Brian is married to Jessica and they have two children namely, Mary and Martha. Years after Brian had received the title deed to his father’s bungalow, he passed on without a will. 

So what happens next? 

In essence, Brian’s stake in the bungalow unit shall be distributed to Jessica and his children: Mary and Martha. Thus, it will create three additional joint owners to the bungalow unit. Is having more owners, the merrier? I doubt so. 


The Moral of The Story 

Hence, the idea of splitting a property’s ownership to multiple beneficiaries has many shortcomings and is a flawed idea. 

In Mr. Chou’s case, what would be an option that he could consider if he wishes to leave behind his estates fairly to his three sons and eliminate once and for all the potential strife and conflicts mentioned above? 

The answer is to sell off the bungalow unit and have the proceeds distributed in either a lump-sum or in installments to his three sons: Brian, Dani, and Nick. 


Here is how it works: 

First, Mr. Chou starts by writing a will, where he would appoint an executor and instructs him to, first hold onto the property for a minimum period of five years to lower the applicable real property gain taxes (RPGT) payable from 30% to 5% only, and subsequently, dispose off the bungalow unit. 

Second, Mr. Chou could form a trust where the executor, after disposing off the bungalow unit, could transfer its net sales proceeds to the trust. He could name his three sons: Brian, Dani, and Nick as the beneficiaries of his trust. The money within the trust shall be managed by its trustee in accordance to its trust deed. 

Mr. Chou can determine how his money is to be distributed to his beneficiaries: Lump-sum or Instalments and how his money should be managed by its trustee when it is yet to be distributed. 

In short, the flow of how Mr. Chou’s estates could be managed is as follows:


Through this arrangement, Mr. Chou could: 


1. Reduce potential conflict arising from the administration of his estates. 

2. Avoid issues arising from joint-ownership of a single property. 

3. Assert higher level of control on how his estates shall be managed. 

4. Avoid transfer of partial ownership of his estates to unintended beneficiaries. 

5. Ensure continuity and sustainability of his legacy. 


Conclusion: If I’m a Property Owner … 

I would consider the above as a viable way to administer my property portfolio, especially if I have more than one properties and numerous children. It is much fairer, less complicated and effective in preventing unnecessary conflicts among family members.

Here, if you happen to be Mr. Chou today and would like to find out more in detail about what you can do best for your estates, you can book yourself a 30- minute free consultation with our professional estate planners by first filling up the details below: 


Jocelline Chee
Jocelline Chee

As a Full-time Senior Professional Estate Planner, Jocelline seeks to understand every client’s unique asset holdings and legacy wishes, before recommending a suitable Will and/or Trust structure to meet their needs. She is well-equipped to point out various blindspots in Legacy Planning, that her clients may have. With Jocelline, you can be assured that your legacy planning journey will feel more like having an open-hearted coffee session with a trusted friend, as compared to a formal and awkward session with an equipped advisor.

    5 replies to "Should I Bequeath My Bungalow to My 3 Children?"

    • Lim Tan Chin

      How much is the trustee fee, upfront and per annum? Beneficiaries must be informed about this expenditure. All trustee fees are not tax deductible if the trust generates rental income. Don’t forget that trust has to pay income tax of 24%. And worse if the property is not able to be rented out, who will be responsible to get tenant? And in case it’s not rented out, beneficiaries have to pay the trustee fee. Other points to ponder: Trust’s RPGT is 10% after 5 years holding period (only individual M’sian citizen is enjoying 5% RPGT after 5 years). Bear in mind that Trust cannot enjoy schedule 4 exemption and private residence exemption on the disposal of property. So always weigh the pros and cons before making decision

      • Jocelline Chee

        Hi Lim, Thank you for the input. The trustee fees involved the set up fee and management fee. The fees will be various from the complexity of the structure. The set up fees is from RM1500. Please leave your contact details for my team to understand your needs and wishes. We are providing one to one free consultation.

    • Steven

      What if I am the only son, and my father wants to transfer all his assets to me? Would that be a bad thing to do other than paying high stamp duty?

      • Ian Tai

        Hi Steven,

        It depends on (1) your relationship with your father (2) your ability to manage your estates (3) the complexity when it comes to managing the assets. As such, it is hard to give a one-liner to the above question.

        Regards
        Ian

      • Jocelline Chee

        Hi Steven, Thanks for dropping us a message. It’s really encouraging. As wealth transfer of real estate could perform during the life time of a person and take note the stamp duty and legal fees applied. There will be an exemptions for the transfers between family members. For Parent to child is 50% exempted from the initial rate of stamp duty.
        Thus we are giving an option to our client to transfer the real estate to the beneficiaries by written a Will. The huge cost saving on stamp duty, as the real estate transfer from an estate upon the demise of the person is only nominal which is RM10.

        Please feel free to leave your contact details our team will give you a call to assist further. 😊

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