by Ester Ng Weng Shen (18 October 2021)
In Malaysia, if someone passes away without leaving a will, the deceased’s estate would be distributed according to the Distribution Act 1958 (“the DA1958”) instead of distribution according to the deceased’s family members’ wishes or needs.
However, it is quite common that the deceased’s family members would have their own agreed arrangement as to the distribution of the deceased’s estate where more often than not one or more beneficiaries would opt to renounce their rights or interests over some or all of the assets left behind by the deceased. A deed of family arrangement or similar document is often a mechanism used by the beneficiary(ies) to renounce their entitlements under the Distribution Act 1958.
This was what happened in the case of LEE KOY ENG V PEMUNGUT DUTI SETEM (AND ANOTHER APPEAL)  7 MLJ 481 where the High Court held that the true nature of the instruments of transfer (i.e. Form 14A) was solely to give effect to the renunciation of entitlements (under the DA 1958) to other beneficiary(ies) of a person who died intestate, and is NOT a gift of the interest. As such, the instrument of transfer should attract nominal stamp duty only.
The Deceased died intestate leaving three beneficiaries being his wife and two children (“the Beneficiaries”). The estate, inter alia, consisted of the Deceased’s interest over five pieces of lands (“the Deceased’s Estate”). The Beneficiaries had then executed a deed of family arrangement (“the Deed of Family Arrangement”) wherein the two children renounced their respective entitlements to the Deceased’s Estate under section 6(1)(e) of the DA 1958 and agreed to distribute all the Deceased’s Estate to the Deceased’s wife.
Premised on the Deed of Family Arrangement, the High Court issued an order to vest the Deceased’s Estate solely to the Deceased’s wife (“the Vesting Order”). Subsequently, the co-administrators of the Deceased’s Estate executed five Forms 14A to transfer the Deceased’s Estate in favour of the Deceased’s wife (“the Executed Forms”). The only issue here was whether the Executed Forms in this case should attract ad valorem stamp duty under item 66(c) of the First Schedule of the Stamp Act 1949 (“the SA 1949”) (release or renunciation of property by way of a gift) as imposed by the Collector or a fixed amount of stamp duty of RM10 pursuant to item 32(i) of the First Schedule of the SA 1949 (conveyance or transfer which is not specifically charged with stamp duty)
Wong Kian Kheong J (“His Lordship”), in arriving at a decision, interpreted three items of the First Schedule of the SA 1949, namely items 32(i), 46 and 66. His Lordship held that the true nature of the Executed Forms was solely to give effect to the renunciation (entitlements under the DA 1958) by the Deceased’s children and cannot be a gift of the entitlement by the Deceased’s children to the Deceased’s wife. His Lordship reasoned as follows:
- the entitlement of the Deceased’s children to the Deceased’s Estate only arises by virtue of operation of law, namely Section 6(1)(e) of the DA 1958
- the Deceased’s children and wife had entered into the Deed of Family Arrangement which provides for, among others, the renunciation of the children’s entitlements under the DA 1958 and subsequently obtained the Vesting Order to effect the same
- an entitlement to an estate is not equivalent to a beneficial and legal right or interest in the estate which can be given absolutely as a gift. Accordingly, when the Deceased’s children renounce or disclaim their entitlement to the Deceased’s Estate cannot constitute a gift of the entitlement by the Deceased’s children to the Deceased’s wife; and
- it is clear from the Federal Court’s judgment delivered by Mohd Dzaiddin FCJ (as he then was) in Chor Phaik Har v Farlim Properties Sdn Bhd  3 MLJ 188, at pp 195–196, that a beneficiary of a deceased’s estate has no right or interest in the estate until the administration of the estate is complete in the sense that the estate has been distributed in accordance with the law of distribution of the estate and the right or interest in the estate has been vested in the beneficiary. The Deceased’s children’s entitlement had not been vested in Deceased’s children at the time of the execution of the Executed Forms because of the renunciation (entitlements under the DA 1958). As such, there cannot be any gift in the form of the entitlement by the Deceased’s children to the Deceased’s wife
Based on the reasons above, the Court held that item 32(i) of the First Schedule of the SA 1949 shall apply and the Executed Forms attract nominal stamp duty of RM10 only.
An important to note is that timing plays an important role in such matters. If the entitlement under the DA 1958 has been converted into a proprietary interest, the Inland Revenue Board will likely impose ad valorem stamp duty for the renunciation of beneficiary(ies)’ interest in the deceased’s estate. The beneficiaries are therefore encouraged to enter into a deed of family arrangement before applying for the letter of administration to enable a cost-effective administration of the deceased’s estate (in the absence of a will).
Note: This article does not constitute and should not be relied on or treated as legal advice on or with respect to any particular case. The facts and circumstances of each and every case will differ and therefore will require specific legal advice. Feel free to contact us for complimentary legal consultation.