You Don’t Have To Say You Trust Me
In February, 2019 I think the world witnessed one of the most severe weather known as “ Polar Vortex” that hits the United States. Its a phenomenon of extreme cold caused by fatal wind blowing from the Artic with a temperature of -31 ̊ Celcius and It was a frozen hell. Whereas, Malaysians in Malaysia are now experiencing one of the most severe heat waves with temperatures as high as 37 ̊ Celcius caused by the El Nino weather phenomenon. I would say it is as hot as hell. It is an indication on how mother nature is seriously ill caused by humans. Most would agree with me that it’s a reminder for each and everyone of us to have a moral obligation and responsibility to take care of mother nature’s state of health .
While observing such opposite extreme in the weather, it reminds me of a person’s estate distribution without proper planning after they have passed away. Similarly to the weather, when a person passes away with or without a will, their entire estate with regards to their assets will be frozen and if they do not have a will, then the heat will be on the family for extracting the assets of the deceased. That means the estate of the deceased has to distribute their assets according to the Malaysian Distribution Act, 1958 (Amended in 1997) and it can be problematic if the family of the deceased is in disharmony because the appointment of Administrator as the first step before submitting the application for Letter of Administration (L.A) which requires the consent of the lawful beneficiaries such as the spouse, parents and children whom are entitled to ¼, ¼ and ½ share of the estate respectively.
Therefore, to avoid the problem of leaving the decisions of appointment of an administrator in the hands of the beneficiaries, it would be wise for you to consider having your will drawn up so that you can decide on the matters such as your choice of Executors/Trustee , guardian for minor children and the structure of distribution of your entire estate to your beneficiaries. However, one of the assets in an estate which caught my attention and can caused problems to succession planning is the shares in a one person company.
With the implementation of Companies Act, 2016 which replaces Companies Act, 1965 , a person is allowed to incorporate a private limited Company or known here in Malaysia as a “Sdn. Bhd. Company’ with one Director and one Shareholder. As such, what worries me most is that what will happen to the Company when this sole director passes away ? Now, under Companies Act, 2016 the Company Secretary shall as soon as practicable call for a meeting with the next of kin to appoint a new director to replace the deceased director. If the appointment of a new director fails within the six months of the death of the last Director, then the Companies Commission of Malaysia (CCM or SSM) may direct the Company to be struck off. So, my question is, what is the solution if the Company Secretary could not locate the next of kin or if they are located but could not agree on the appointment of the new director ?
One of the solution which you may say is to draw up a will stating the choice of successor . But the question to all the business owners is whether you have done so ? Alternatively, one can say that the sole Director could deposit with the Company Secretary the list of Successor (s) during their lifetime in which case brings to the same question on whether you have done so ? Both are workable provided you have done such a planning.
Nevertheless, another angle or option in which a business owner could seriously consider is setting up a “Declaration of Trust” for the Company Shares so that the shares can be transferred to the new successor quickly in the event of death. If this can be done, then the new shareholder can quickly appoint a new director.
When the Shareholder who is also the Director of the company sets up a “Declaration Of Trust” , they will be called the “ Settlor” . In addition, they are also the “Main Trustee” for this Trust because these shares will be held by them during their lifetime. Upon their death, these shares will be transferred to a “Trustee Company” being the substitute Trustee without having to wait for the Grant of Probate (With a Will) or L.A. (Without a Will). The only documents required to execute this transfer is the death certificate together with an irrevocable “Power Of Attorney”. Thereafter , the Trustee Company shall transfer the shares to the beneficiaries according to the conditions mentioned in a document called the “Trust Deed”.
However, one may asked why not transfer the shares directly to the beneficiaries instead of the “Trustee Company”. Some of the practical reasons which I could think of for choosing a “Trustee Company” is that it has perpectual existence , experience, knowledge and professionalism especially when they are holding these shares for beneficiaries who are still minors.
By planning and preparing a “Declaration of Trust”, business owners can at least have a peace of mind that their shares will be tranferred quickly to their loved ones upon their death without any hassle . With such planning, I think they can safely tell their family “You don’t have to say you Trust me.”