Can My Mother-In-Law Transfer Her Low-Cost Apartment to My Wife?

Q: So, here’s the scenario. My mother-in-law wants to transfer the title of her low-cost apartment to my wife, making it her second property. She’s thinking ahead, wanting to avoid the hassle of dealing with ownership issues if something were to happen to her. But here’s the twist: she also wants to make sure that all five of her children get a fair share of the property. How do my wife and I deal with this?

Now, this might seem straightforward on the surface, but a lot is going on beneath the surface regarding legal and financial implications. So, how do we handle this in a way that keeps everyone happy, avoids legal headaches, and ensures compliance with Malaysian law? If you’ve ever been in a situation where you’re dealing with low-cost property, inheritance issues, or family dynamics, you’ll know how tricky it can get.

Understanding the Legal Landscape: Low-Cost Apartments and Transfer Rules
Let’s start with the basics. In Malaysia, low-cost apartments (also known as “Rumah Kos Rendah“) come with specific guidelines. These properties are often subsidised by the government to help lower-income families acquire affordable housing. As a result, the owners of these properties need to adhere to certain restrictions when it comes to selling or transferring them. For instance, the property owner must usually be in the lower-income category at the time of purchase. Furthermore, these units often come with restrictions on resale to ensure they remain affordable to the target population.

Restrictions on Ownership Transfer
perfection of transfer-perfection-of-charge
When it comes to transferring the title of a low-cost property, it’s not as simple as signing the paperwork. Generally, there are strict guidelines put in place by local authorities, and in some cases, these properties are subject to a holding period during which they cannot be sold or transferred. This is usually between 5 to 10 years, depending on the state and specific circumstances. If your apartment falls under these restrictions, you need to check with the relevant housing authority to see if you can transfer the property at this stage.

When your mother-in-law bought this apartment, she was eligible under these terms. However, transferring the property to your wife now may introduce a potential issue, as your wife may already own another property. Transferring the ownership to someone who no longer qualifies as a low-income earner or someone who already owns multiple properties might conflict with the initial purpose of such housing. Local authorities may even restrict such transfers or revoke ownership if they find the new owner does not meet the qualifying criteria.

Gifting the Property: Legal, Financial Considerations and Tax Implications
Given your mother-in-law’s intention to transfer the property, we must also consider the transfer method. Is it a gift? Or would it be sold to your wife at market value?

If you gift the property to your wife, there are still legal and financial consequences to deal with. For instance, in Malaysia, property transfers are subject to stamp duty, even if the property is given as a gift. Stamp duty is calculated based on the market value of the property, although there are exemptions for family transfers (such as between parents and children).

Further, RPGT is a tax imposed on profits gained from the sale of property. It also applies to property transfers unless you’re exempt. In your case, the transfer from your mother-in-law to your wife could trigger RPGT unless they apply for an exemption under the exemption rule.

Ensuring Fairness Among All Siblings
Splitting the Property
One solution would be to transfer the property into joint ownership among all five siblings. This way, each child would own a percentage of the apartment, ensuring that everyone gets their fair share. Joint ownership can be structured in several ways, depending on how the family wants to divide the property. However, joint ownership comes with its own set of challenges. All five siblings would need to agree on any major decisions regarding the property, such as selling it in the future.

Inheritance Law
However, what happens if your mother-in-law decides not to transfer the property right now?

Here’s where the situation becomes even more nuanced. While your mother-in-law wants to transfer the title of the property to your wife, she also wants to ensure that all five of her children receive a fair share of her assets. This brings us to the broader issue of estate planning.

Malaysia’s inheritance laws are governed by different systems depending on the religion of the deceased. As a non-Muslim family, you would be following the Distribution Act 1958. Under this Act, if your mother-in-law were to pass away without a will, her estate would be distributed among her children and her spouse (if still alive). However, it might also lead to complications in managing and selling the apartment and/or any other properties your mother-in-law owns.

Here, it becomes crucial for my mother-in-law to prepare a will or set up other legal mechanisms to ensure her wishes are carried out in a fair and organized manner. Let’s explore a few options that you can consider:

Open Communication: The First Step to Fairness
Before diving into legal solutions, one thing has become crystal clear that is open communication which is the foundation of fairness in inheritance matters. In many families, disputes arise not because of intentional unfairness but because of a lack of clear communication. Family members may have different expectations, and without discussions, those expectations can clash, leading to conflict down the road. Transparency about your mother-in-law’s intentions is crucial.

Creating a Trust for the Property
Another option that you can explore is the creation of a trust. Setting up a trust is one of the more concrete ways we’re considering to ensure fairness. A trust is a legal arrangement where a trustee holds property on behalf of beneficiaries. In this case, the low-cost apartment could be placed into a family trust, with your wife and her siblings named as beneficiaries.

A trust would allow your mother-in-law to ensure that all of her children benefit from the property, without transferring full ownership to just one child. This would also allow your wife to manage or reside in the property while ensuring that the value of the property is shared among all the siblings when it is sold or rented out.

Trusts do come with legal costs and require careful planning. They are, however, an effective way to manage inheritance issues, especially in families where there are multiple heirs.

Including the Property in a Will
Another option is for your mother-in-law to create a comprehensive will. In the will, she could specify that the property be divided among all five children or that the property is transferred to your wife with compensation provided to the other siblings from other assets. A Will gives her the power to clearly state her intentions, which helps avoid disputes later amongst the siblings later.

Offering Financial Compensation for Fairness
Another route to fairness that you can consider is financial compensation. If your wife were to receive the apartment, the other siblings could be compensated with a larger share of other assets in the estate. This approach is commonly used in estate planning to balance the distribution of different types of assets.

For instance, if the apartment is worth RM300,000, and there’s an equivalent amount of cash or other assets in the estate, the siblings could receive a larger portion of those liquid assets. This way, they don’t feel shortchanged, and your wife gets the apartment, which she’s more interested in managing or living in.

Whether through trust, financial compensation, or detailed instructions in a will, there are multiple ways to ensure fairness without causing conflict or resentment among the siblings. The key, however, lies in thoughtful planning, open communication, and seeking professional advice to guide the process. Ultimately, fairness in inheritance goes beyond simply adhering to the law’s strict requirements. It’s about preserving family relationships, honouring the wishes of the older generation, and ensuring that everyone feels valued and respected in the process.