Guarantors beware!

One of the perils of dying intestate – that is, when a person dies without writing a Will – is that during the application for a Letter of Administration, the judge may suddenly require the would-be Administrator to produce two guarantors.

The guarantors will have to deposit an amount with the High Court equivalent to the deceased’s estate so that if the administration process goes awry and there is no money in the estate to distribute to the beneficiaries, the guarantors will have to come up with the money.

It is known to happen that the Administrator may misuse the money that’s rightfully the beneficiaries. Trust is a heavy responsibility and not many people can shoulder it well. There are people who you think can be trusted but in the end, the trust simply breaks down.

What are the beneficiaries to do in such a case? If everything fails in recovering the money from the Administrator of the estate, the beneficiaries may have to turn to the court to claim against the guarantors.

This is a typical reason why few people would want to become a guarantor, whether as a guarantor when someone applies for a Letter of Administration or as a guarantor when someone applies for a loan from a bank or anywhere.

As a young man, my father used to warn me never to stand as a guarantor for other persons. He was a staff of the old Mercantile Bank and he had seen enough cases of bankruptcies brought by the bank against people who had stood sureties for bank loans. It was an advice that I have always heeded. When you become a guarantor, there is always a risk that you may end up holding the monkey.

If the borrower cannot repay the loan (or in my example above, if the Administrator cannot pay out from the estate) or cannot be located, the guarantor becomes legally liable to pay the amount owed. This includes the original amount, interest and other charges.

Anyone above the age of 18 can be a guarantor but the person must first be of sound mind to understand fully the terms and consequences. The person must also not be a bankrupt and must not have been forced to enter into the agreement.

Should a person (borrower or Administrator) default, a letter of demand will be sent to him and also his guarantor. It’s only when the money cannot be recovered through all available means that the lender or beneficiaries will then initiate legal action against the guarantor.

This is why in cases involving the application of a Letter of Administration, the judge would ask for two guarantors. This is not an absolute requisite because the court may waive it if there are good enough reasons to do so. But you can see why it is important to safeguard the interests of the beneficiaries.

In normal cases, if a guarantor cannot pay, he will be declared a bankrupt. According to figures from the National Insolvency Department, guarantors make up 21 per cent of the 153,676 bankruptcy cases on their records.

As a footnote, I should also add that even when a Will is written, the choice of an Executor is very important. Executors can either be an individual or a corporate body (for example, a Trust corporation).

Individuals as executors can also go missing with the estate’s money, so it is not fool-proof either. The best solution is to appoint a Trust corporation – such as Rockwills Trustee Berhad – to do this job.

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