Deed of Family Arrangement: How It Can Be Used to Avoid Estate Dispute

January 2, 2022

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Introduction

In this newsletter, we will be looking at the potential instrument that families can consider to avoid estate dispute. In the event where a will was left behind causing a lot of unhappiness amongst the beneficiaries on the testator’s demise rather than to bring it to court, if they can compromise and agree on a re-distribution, they can use the instrument called the Deed of Family Arrangement to resolve the issue.

There was a well-known case in 2021 where the patriarch of a large mega-rich family passed away unexpectedly in a traffic accident. His will, drafted many years ago, failed to cover much of the properties and wealth under his name. This led to a major dispute between the patriarch’s wife and children against his siblings and their children – all of whom worked in one of the many companies the patriarch had founded, and lived on property paid for by those companies.

For the avoidance of doubt and for clarity sake of this newsletter, it is important to note that when a person passes away, the distribution of his/her assets will follow his/her Will. If he/she does not have a Will, then the default position under the law governed by the Intestate Succession Act (ISA) would have to be applied.

Under the law, the Deed of Family Arrangement is a legal document which can be prepared to re-distribute the deceased’s estate in a new manner so long as all the beneficiaries of the estate are agreeable to the new manner of distribution. The purpose of this instrument is to avoid situations where the distribution seems unfair e.g., a member of the family has been left out or if the beneficiaries of the estate do not want to inherit the assets due to personal reasons.

 

An Example Of Deed Of Family Arrangement In The High Court Case Of [1994] 2 SLR 750

In this case, the deceased father passed away without a Will leaving behind his wife and his 13 children. 7 of the children were from the first marriage while 6 of the children were from the present marriage.

Under the ISA, the deceased’s wife was entitled to 50% of the estate while the deceased’s 13 children were entitled to the other 50% of the estate in equal shares.

However, before the deceased’s estate was administered completely, the deceased’s wife passed away and she had made a Will under which she gave all her estate to her 6 children.

As a result, this had a significant impact on the share that the 2 sets of siblings would inherit. After the deceased’s wife death, the deceased’s wife 6 children would receive about 3 times more than the deceased’s 7 children from the first marriage and this caused unhappiness within the family as the distribution is now unequal.

In order to avoid dispute, the 13 children came together to discuss upon which they had all decided to sign the Deed of Family Arrangement to distribute the deceased’s and the deceased’s wife estate in a different way. They have all decided and agreed that the deceased’s wife estate would be paid $510,000.00 in settlement of her share in the deceased’s estate and the balance of the deceased’s estate would be divided equally among each of the children. The Deed of Family Arrangement also provided that all 13 children would pay their inheritance into one of the family-owned companies resulting in each of the 13 children having an equal shareholding of the company.

Requirements Of Deed Of Family Arrangement

In order for the Deed of Family Arrangement to be valid and binding, the following requirements under the law have to be complied:

  1. The Deed of Family Arrangement is required to be evidenced in writing and to be executed formally as a deed.
  2. All the beneficiaries of the estate of the deceased must give their consent to re-distribute the assets in accordance with the terms and conditions of the deed.
  3. All the beneficiaries have to be at least 21 years old in order to give their consent.

Stamp Duty Implications

If the assets involved in the Deed of Family Arrangement are real properties or shares, parties would need to pay stamp duty to the Inland Revenue Authority of Singapore (IRAS).

For example, in a general family situation, the deceased husband owns a condominium in his sole name. He then passed away without a Will leaving behind his wife and 2 children. Under the ISA, the wife will inherit 50% of the condominium and the children will inherit 50% of the condominium in equal shares. Say in this case, the wife does not want her 50% share of the condominium and wishes to give her share to the 2 children, the Deed of Family Arrangement can be prepared to this effect.

As the distribution is not in accordance with the ISA, stamp duty is payable on the transfer of the wife’s 50% share to the 2 children based on the current market value of the property. The following documents and information would have to be submitted to IRAS for IRAS to determine the stamp duty payable:

  1. Copy of the executed Deed of Family Arrangement;
  2. copy of either the Will or Letters of Administration or Inheritance Certificate issued by the Syariah court;
  3. copy of Schedule of Assets in the estate;
  4. manner of distribution of assets amongst the beneficiaries;
  5. value of each asset (properties and shares) belonging to the estate. If parties are not sure on the value, parties can request for IRAS (at a fee) to conduct the valuation of the assets.

Conclusion

What is pertinent from this case is that unexpected accidents can befall any of us. While most would think of having a Will, most may overlook the possibility of losing mental capacity, whether by illness or by accident.

Planning out one’s legacy in advance, especially when one enters an advanced age, is highly encouraged. From this case, the Deed of Family Arrangement gives the beneficiaries the flexibility to re-distribute the estate of the deceased in a new manner with all the beneficiaries’ consent. It is after all a very useful legal document to avoid litigation and meant to be for the benefit of the family.

Here at Sim Mong Teck & Partners, we cannot emphasize this point enough. Should you feel that the time is ripe for you to work on your legacy planning, feel free to reach out and rest assured that we are here to assist and guide you through our established Wealth & Legacy Screening process.