Question: 

Hi, my name is Mei Fang. I’m a divorcee and currently, I’m residing with Mei Yin, my sister and James, my 8-year old son in my apartment at Ampang Jaya. I wish to leave all of my belongings, which include my life insurance policies, EPF, cash, and apartment to James. But, he is still a minor.

As such, my question is: ‘Should I nominate Mei Yin to be the sole beneficiary of my belongings so that she could use them to take care of my son while he is still a minor and subsequently, could pass them onto James when he reaches adulthood?’ 


Answer: 

There are two parts to answer this question. 


Part 1: Life Insurance Policies

First, Mei Fang can nominate Mei Yin as the sole beneficiary of all her insurance policies. Upon Mei Fang’s passing, her life insurer or insurers would pay out the sum assured to Mei Yin. However, Mei Yin is not permitted by law to collect this amount and use it freely as a beneficiary despite Mei Fang’s nomination. 

Why? This is because Mei Fang’s life insurance policies are non-trust policies. In her case, the lawful beneficiary of these policies shall be James, Mei Fang’s son. Mei Yin would collect the sum assured from the insurer not as a beneficiary but as an executor to the money received. 

Thus, if James is an adult, Mei Yin shall transfer the money received to James in full. But, if James is still a minor, Mei Yin is required to transfer the money to his guardian and he could be James’s father or Mei Fang’s ex-husband. In the event where Mei Yin chooses not to relinquish the sum collected, Mei Fang’s husband could pursue the matter legally by taking Mei Yin to court. 

As a result, Mei Fang’s nomination of her sister to be the sole beneficiary of her life insurance policies is a futile effort as her ex-husband could stake his claim in the sum assured as James’s guardian. 


Part 2: EPF, Cash, and Real Estate 

Second, let’s talk about EPF. If Mei Fang nominates James as the beneficiary, he shall receive the EPF monies upon Mei Fang’s passing if he hits 18 and above. If James is a minor, the sum shall be held by Amanah Raya Bhd and subsequently, will be transferred to him in full when he attains 18 years old. It means the sum could not be used to fund James’s living expenses while he remains a minor. 

If Mei Fang names Mei Yin as her beneficiary of her EPF monies, Mei Yin will be able to collect the sum and has the freedom to use it as she pleases. This would include using the money collected to take care of James, her nephew. 

Third, in regards to Mei Fang’s cash and her apartment, she is able to nominate Mei Yin to be the beneficiary in her will. Upon Mei Fang’s passing, Mei Yin shall inherit Mei Fang’s estate, after netting off Mei Fang’s outstanding tax payments and debts, and Mei Yin could use it according to her wishes. 


Is Nominating Mei Yin the Best Solution for James? 

Of course, if Mei Yin is malicious and chooses to use the money bequeathed for her own pleasure, then, James would be quite pitiful for it is possible for him to not inherit a single cent from his mother’s estate. 

But, what if Mei Yin is sincere in her desire to care for James, her nephew? 

Would it solve the problem? 

Yes, it is helpful to James, if Mei Yin is sincere. But, this solution is not complete for it has several flaws. For example, 


a. Mei Yin could unintentionally mismanage the funds entrusted to her. To name a few, this could arise from failures in investments (stocks or real estate or other assets), failures in business ventures, or worse, being victimised by swindlers. 

b. Mei Yin needs to be alive and well. If she becomes permanently disabled or is comatose, James may not have access to the estate as they are all placed under
his aunt’s accounts. 

c. If Mei Yin passes on, Mei Fang’s estate that was bequeathed to her shall form part of Mei Yin’s estate. So, if Mei Yin is married when she passes on, the estate will be distributed according to her testacy status. However, if Mei Yin has written a will, then, the estate shall be distributed to her beneficiaries and it is possible for James to not be a beneficiary of Mei Yin in her will. Meanwhile, if Mei Yin has no will, the estate shall be distributed to her family members namely, her spouse, issue and parents according to the Distribution Act 1958. In this case, James would inherit his mother’s estate only if his relatives (his uncle, cousins and grandparents) are kind enough to relinquish them to him. 


Hence, I believe it is impractical for Mei Fang to bequeath her estate to Mei Yin. 


So, What Should Mei Fang Do? 

There are two things Mei Fang can do to bequeath her estate to James: 


a.  Mei Fang could set up an Insurance Trust. Then, she can assign her insurance policies to her Insurance Trust and appoint Mei Yin as James’ guardian. It is also possible for Mei Fang to set instructions as to how the sum is to be managed or distributed by the Trustee. So, upon Mei Fang’s passing, the money shall first be paid to the Trust Company. The Trustee shall distribute the money to Mei Yin as instructed. Mei Yin shall then use the money to take care of James. With it, this ensures the sum assured prepared is protected from Mei Fang’s ex-husband and shall solely be used to take care of James’s livelihood. 

b. Mei Fang could write a will and add a Testamentary Trust, which allows her to set instructions to how the estate is to be managed and distributed. With it, she can appoint Mei Yin as the guardian to collect the money on behalf of James. As for her EPF and apartment, the Trustee shall hold onto them and shall distribute them based on the instructions or requirements set by Mei Fang herself. Hence, this ensures that Mei Fang’s estate would only be bequeathed to James and not fall to Mei Yin, thus, effectively protecting her son’s interest.  


Conclusion: 

In short, nominating a sibling or siblings to inherit your estates so that they can use them to take care of your minor children is impractical and a flawed idea. It may not be helpful to them as they are in the mercy of their relatives. 

I believe the best is to use a combination of tools such as life insurance policies, Will and Trust to offer your minor children a comprehensive financial safety net so that their welfare shall be well taken cared off if you pass on prematurely. 

Perhaps, your situation is a little different from what has been written above. If that is you, you may require assistance from a qualified estate planner. You may book yourself an appointment with our consultant 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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