Question: 

Hi, I’m Cyrus, a 40-year old property investor based in Cheras. Together with Lee Ling, my wife, we have eleven properties valued at RM 5 million in our portfolio. Here are the details:

a. The title deed and mortgages to these properties are held under our names. 

b. The properties are invested collectively with six other co-investors where they had contributed the properties’ down payment, legal costs and renovation fees.

c. My wife and I have around RM 4 million in outstanding mortgages where the monthly installments are RM 20,000 per month. We opted for the shortest term of MRTAs for most properties to save on costs.  

d. Presently, we collect RM 18,000 a month in rental income and the monies are banked into a joint account set up by me and my wife. We administer all related affairs to our properties such as rent collection, mortgage installments, making payment of maintenance fees, sinking fund, utilities, quit rent and assessment… etc via the joint account. 

e. All eight of us would top-up monies into the joint account to cover equally for any cash shortfalls that arise from property portfolio on a monthly basis. 


My question is: ‘Should I write a Will to distribute all my interests in the property portfolio equally and evenly to my wife and six other co-investors?’ 


Answer: 

This is a tricky situation. If Cyrus passes on prematurely, there will be two major issues that will complicate how the portfolio is to be managed in the future. 


Problem 1: The Properties are Hard to be Disposed

First, it is important to understand that having a will alone does not prevent the properties to be frozen. They will still form part of Cyrus’s estate and thus, shall be frozen and be distributed in accordance to his will. The entire process would take around two years to complete, transferring his interest in the properties to his wife and six other co-investors. 

In other words, the eleven properties cannot be transacted for two years, thus, causing all capital contributed into the portfolio to be stuck. 

Second, fast forward to two years later, when the interest in the properties had been successfully transferred to Lee Ling (Cyrus’s wife) and six co-investors, the title deed for each of these eleven properties shall have seven names. This shall complicate the administration of these eleven properties if these co-owners do not unanimously agree on how best to manage them. 

For instance, if six of these co-owners wish to sell one of the properties in their portfolio and one does not agree to it, the property could not be transacted. 

Also, what if one of these seven co-owners passes on subsequent to Cyrus after receiving his interest in the properties? Did he pass on with a Will? If he passes on without a Will, all eleven properties would, once again, be frozen and it shall take 2-5 years to distribute his interest to his beneficiaries and most likely, they could be his parents, his wife, and his children. This will add more co-owners to the eleven properties, which complicates things further. 

In short, it is a bad idea for Cyrus to write a will as a method to distribute all his interests in the properties to his wife and six co-investors because it is almost a sure way of keeping these properties stuck, frozen and unsellable in the future. 


Problem 2: Who Owns Cyrus’s Monies in the Joint Account?  

Doesn’t it all belong to Lee Ling? 

Not necessarily. If Cyrus passes on without a Will, the monies shall form part of his estate and will be distributed based on the Distribution Act 1958. Hence, his share of the monies in the joint account could be distributed to his parents and their children, if any, apart from herself. 

What if Cyrus nominates Lee Ling as the beneficiary of the monies? 

This would be a little more helpful. But, it depends on who Cyrus has appointed to execute his Will. The executor could be his wife or a third-party executor like a trustee company. Rightfully, the executor will first collect the monies from the joint account and use it to settle all of Cyrus’s outstanding debts and taxes prior to distributing the monies to his beneficiaries. 

From above, Cyrus and Lee Ling have RM 4 million in outstanding mortgages. In this case, it is likely that the monies will be used to settle these mortgages prior to handling them over to Lee Ling. This is because they opted for MRTAs which are shorter in term.  

In short, Lee Ling is entitled to use only half of the amount in the joint account, which may not be sufficient in making all of the required payments to maintain the properties in the portfolio. If so, it presents a risk for Lee Ling and the six co -investors to lose their properties if they fail to make the payments to keep the properties. Worst still, as Lee Ling is named as a mortgagee to these properties, she may be at risk of being blacklisted in the financial system. 


So, What do You Reckon? 

First, the objective is to prevent the eleven properties from being ‘frozen’ in the estate distribution process. This involves having a Property Trust established to hold onto their title deeds where the trustee shall be given legal rights to these properties via Power of Attorney (POA). 

If Cyrus passes on, the trustee can be instructed to sell off all eleven properties. Their sale proceeds shall then be distributed to the trust’s beneficiaries namely, Lee Ling and the six co-investors. 

Second, Cyrus and Lee Ling could buy themselves each a term life policy where the sum assured is equivalent to 60 months of the mortgage installment. Then, they should assign their life policies and their joint account to a trust where the trustee can have access to their sum assured and monies in the joint account to continue to make all necessary payments to keep the properties while they are being disposed in the open market, upon the passing of either Cyrus, Lee Ling, or both simultaneously. 


In Conclusion: 

Property Trust is a tool that helps many real estate investors to avoid having the properties they had invested from being stuck in the estate distribution process upon the passing of their partners or themselves. Meanwhile, Insurance Trust is helpful to fund the daily affairs of these properties while they are being sold off in the market. 

Are you a serial real estate investor who invests with multiple partners? If so, it is best to consider the tools above to protect your real estate investments. You may feel free to book yourself a short private session with our estate planning consultant to explore for ideas to best protect yours by filling 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.

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