Is a bankrupt entitled to inherit assets?
Everyone is entitled to inherit assets of a deceased person either by a will created by the deceased or if the deceased has died intestate, the inheritance will be made according to Section 6 of the Distribution Act 1958.
Even if your beneficiary has been adjudged as bankrupt, he/she is still entitled to inherit money, property or any other assets from you, after your death, either under the will you have drafted or the Distribution Act 1958. However, under Section 38 (ba) of the Insolvency Act 1967, a bankrupt shall immediately report to the Director General of Insolvency the received of any moneys or property in any form from property the value of which exceeds RM500.00. Therefore, the inherited assets will be vested in the Director General of Insolvency as part of your beneficiary estate for the benefit of creditors and your beneficiary will not be able to enjoy it.
The power of Director General of Insolvency further extends by Section 60 (e) of the Insolvency Act 1967 which empower the Director General of Insolvency to deal with any property to which the bankrupt so entitled when he/she was adjudged bankruptcy after his/her discharge and even after his/her death. Hence, in the event a testator dies when the bankruptcy order was made against the beneficiary but the deceased’s asset only distributed to the bankrupt beneficiary after the beneficiary is discharged, the inheritance assets will still vest with the Director General of Insolvency by the operation of Section 60 (e) of the Insolvency Act 1967.
Hence, if you already have your will in place, it is advisable to restructure your estate planning if any of your beneficiaries is adjudged bankrupt to prevent any undesired consequences.