Question: 

Hi, my name is Wayne. I’m a 43-year old businessman and a real estate investor who has two residential properties. As I write, I plan to buy a condominium unit in Penang for investment. The details of the property is as follows: 

a. The cost of the property is RM 500,000. 

b. The property shall be bought under Mike, a 26-year old Productions Manager who has worked for my company over the last three years. With him, I would be able to buy the condominium unit by placing a 10% down payment and fund its balance with a 90% loan-to-value (LTV) mortgage with a 35-year tenure. Hence, the mortgage installment is RM 2,000 a month. 

c. I’ll be paying for its 10% down payment, transaction and legal fees, mortgage installments, maintenance fees, sinking fund, quit rent, assessment, utility bills, and all expenses related to the property. All Mike needs to do is sign the papers. 

d. I intend to hold onto the condominium unit for 10 years. By then, I plan to sell the property off to realise its capital appreciation. Here, I’d agreed to share 25%  of its gains with Mike and if the property is to be sold at a loss, I would bear the losses in full. 

My concern is: ‘What happens to my property if Mike passes on prematurely?’ 


Answer: 

If Mike passes on prematurely, the condominium will form part of Mike’s estate and it would be distributed to his beneficiaries according to his testacy status. If Mike passed on intestate (without a will), it could take 2-5 years, the fastest, for the property to be unfrozen and distributed to his beneficiaries. But, if he had a will written, the process could be shortened to 1-2 years. 

So, what does it mean to Wayne? 

a. The condominium unit shall be frozen for at least 1-5 years. 

b. Wayne may recoup his investment in the property only if Mike’s beneficiaries are willing to forgo its title deed and transfer it back to Wayne after receiving it. 

It means Wayne risks losing all of his investment if Mike passes on prematurely. 


Is having Mike Writing a Will to Bequeath the Property to Wayne a Solution? 

The answer is nope. Why? 

This is because firstly, Mike may rewrite his will at any time he wishes to and he does not need to have Wayne’s consent to do so. Secondly, even if Mike likes to honour Wayne by bequeathing the condominium unit to him, the property will still be frozen in the estate distribution system for 1-2 years. 

As such, it is a futile effort for Wayne to get Mike to write his will to transfer the property to him in the event of Mike passing on prematurely. 


So, Does it Mean that Mike is Getting the Better Out of this Deal?

Not really. 

On the flip side, Mike has his own concerns too. He may ask: 

‘What will happen to him if Wayne, his boss is the one who passes on first?’  

Who would be paying for all of the property-related expenses such as mortgage installments, maintenance fees, sinking funds, quit rent, assessment, utility bills and so on and so forth, which in total could be around RM 2,500 a month? 

If Wayne passes on prematurely, Mike is obligated to continue making payment for all of the above expenses because if not, he will risk being blacklisted by the bank and penalised by the government for unsettled bills. This could impact his credit score and thus, reducing his eligibility for a new loan in the future. 

Why? This is because Wayne is not the life insured under the MRTA policy. 

Also, this could arise if Wayne becomes comatose and permanently disable. For both situations, the property’s expenses could not be settled as Wayne had lost his ability to make transactions. If Wayne’s family members are unaware of the existence of this property, Mike would have to settle these payments or risk the above mentioned. 


How to Protect the Interest of Wayne and Mike in this Property Deal? 

So, what can Wayne do about it? 

There are two things that Wayne needs to do to safeguard their interests in this property deal. They are as follows: 


1. Mike to Set Up a Property Trust 

After buying the property, Wayne can have Mike set up a property trust, where the legal rights to the property shall be transferred effectively to the trustee via a power of attorney (POA). Then, Wayne shall be elected as the trust’s effective controller and beneficiary. Also, Wayne could nominate his wife and children as his substitute beneficiaries of the trust so that they could inherit the property if Wayne passes on. 

As such, Wayne will retain control over the property if Mike is alive. If he passes on prematurely, Wayne will inherit the condominium unit. It addresses Wayne’s concern on having his property falling under Mike’s estate upon Mike’s passing. 


2. Wayne to Set Up an Insurance Trust 

Wayne could buy a life insurance policy, where the sum assured is equivalent to 60 months worth of mortgage installments or RM 120,000 in his case. Then, he is to assign it an insurance trust where upon death or becoming totally disabled in the future, the sum assured could be used to service 60 months worth of installment and hence, freeing Mike from the burden of needing to fulfil hefty monthly commitments while waiting to dispose of the property. 


As a Result: 

In any of the two cases, Wayne is able to protect his stake in the property. 

For instance, if Mike passes on, Wayne gets his property. 

However, if Wayne passes on, Mike is free from a load of financial burdens as they would be taken care off by the insurance policy. Then, the property could be sold off where Mike could also be entitled for 25% of any gains derived from its sale. The remaining 75% shall be distributed to Wayne’s beneficiaries. This is an added clause which could be included in Mike’s property trust. 


This is only possible if you set up a property trust and insurance trust between your proxy and yourself, as the investor. Personally, I believe your situation may be different and hence, needing ideas and assistance from a professional estate planner. If that is you, you could book yourself an appointment with our estate planning consultant by 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.

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