Loss of Wealth to Other Families through Marriage: Will A Stranger Be Your Successor?
The death of former Playboy playmate, Anna Nicole Smith, in early February 2007 and the events following her demise made world headlines. Apart from her celebrity status, she has been in the media limelight in recent years because she was a potential heir to a substantial part of her late husband’s business empire.
In 1994, a 26-year-old Smith and a 89 year-old billionaire, J. Howard Marshall were married after they met in the adult entertainment club where Smith performed. J Howard Marshall died within a year of their marriage. Soon after, Smith became embroiled in a legal suit with her late husband’s son, E. Pierce Marshall, for half of her late husband’s $1.6 billion estate.
In May 2006, justices of the Supreme Court unanimously decided in favor of Smith affirming her right to pursue a share of her husband’s estate in federal court. In June 2006, E. Pierce Marshall died and his widow now represents his estate. The case remains unresolved and is still being fought in the courts. The New York Times reported that in view of the death of Anna Nicole Smith, the case over the Marshall fortune “is likely to continue in the name of Ms. Smith’s infant daughter.”
A scenario similar to the legal battle between Anna Nicole Smith and her 69-yead old stepson can happen not only in America. In Malaysia, under the law where a non- Muslim person passes away intestate (i.e. without a valid Will), the persons who will benefit from his estate are his spouse, parents and issue (i.e. children and their descendants). There is a real possibility that some of the wealth they inherit may subsequently be passed on to persons, not of their choice. For example:
- What the deceased’s parents inherit may after their demise be passed on to the deceased’s siblings, and thereafter to their children (i.e. deceased’s nephews and nieces), and
- What the deceased’s spouse inherit may upon his or her departure, be inherited by their new spouse and their children through that marriage.
In the case of Anna Nicole Smith, her infant daughter Danielynn Stern, who is reportedly of no blood relation to the late billionaire Marshall and born years after his death, may inherit a substantial part of his estate. The baby’s birth certificate names Howard Stern, Smith’s lawyer, as the father. Therefore, having a will is important because it allows you to choose your heirs.
However, careful thought must be given when preparing your will so that your concerns are addressed. A commonly asked question is if you make a gift of your property to another person, can you attach any conditions to ownership. For example, “I give the shares in my company XYZ to my wife upon condition that it is not to be sold but be left to my children.” The answer is ‘No’. So long as they have the legal ownership they are in the position to sell or transfer in their absolute discretion.
Many people would want the wealth accumulated during their lifetime including their business to be passed to their children and descendants. However, your beneficiary has full discretion to will to whomever he or she chooses including in respect of the properties inherited from you. If it is your wish that your spouse will be a beneficiary or one of the beneficiaries but whatever benefit she would receive would only be during her lifetime, then the answer lies in a trust.
By creating a trust instead of making outright gifts under the Will, your parents and spouse will not receive legal ownership of the assets. A trust however, allows your parents and spouse to benefit during their lifetime without the necessity of giving them legal ownership or full control. As the trustee rather than your parents or spouse is the legal owner, they will not be able to sell or transfer the shares in the business and upon their demise it will not form part of their estate. As such, they will not be able to pass on the assets to beneficiaries under of their estate, which in the case of the spouse may include the new spouse, children from another marriage or the parents.
In the case of a business for example, a trust can be created over some or all of your shares in the business so that the income or dividend may be distributed to say, your spouse or your parents during their lifetime. Upon their demise, the shares in the business which are held on trust will go to your children.
In Malaysia do take note that whilst a Will can remain valid, under the Inheritance (Family Provision) Act 1971 your spouse can apply to the court for an order that reasonable provision for maintenance to be made to him or her. This provision applies unless your spouse is entitled to not less than two-thirds of the income of the net estate. Be advised that if you wish to exclude your spouse from your Will, you should state your reasons for doing so, preferably in your Will. Therefore, be sure to have a beneficiary exclusion clause. Knowledge of this is also helpful if you happened to be excluded from your spouse’s Will.
Reference: Can Wealth Last Three Generations? Succession Planning for Business Owners. Business insurance: Million Dollar Concept. Estate Planning MFPC.
