What to Know About Estate Planning to Distribute Your Assets in Indonesia

When it comes to estate planning in Indonesia, you and I both know it’s not just about dividing assets. It’s about ensuring your loved ones are cared for and your wishes are respected. Estate planning might sound complicated, but with the right knowledge, you can make informed decisions that align with your values and legal requirements. 

Let’s dive into the essentials of estate planning in Indonesia, focusing on the legal framework and practical steps you can take.

Why Estate Planning Matters

Estate planning is the process of deciding how your assets, like property, savings, and investments, will be distributed after your passing. 

Without a clear plan, disputes may arise among your heirs, and your assets might not be distributed the way you intended. 

By creating a solid plan, you can minimize conflicts, protect your family’s future, and ensure your legacy is honored.

Legal Framework for Estate Planning in Indonesia

Indonesia’s legal system provides several laws that govern estate planning and inheritance. These include the Civil Code, the 1974 Marriage Law, and the Islamic Compilation Law (for Muslims). 

Let’s break these down so you can understand how they apply to your situation.

1. The Civil Code

The Civil Code (Kitab Undang-Undang Hukum Perdata or KUHPer) is the primary legal reference for inheritance matters for non-Muslims in Indonesia. It outlines the rules for creating a last will and testament (wasiat) and distributing assets.

1. Last Will and Testament (Wasiat). Article 875 of the Civil Code states that a will is a legal document where you can specify how your assets should be distributed. You have the freedom to allocate your assets to anyone, but there are restrictions if you have legal heirs.
2. Reserved Portion (Legitieme Portie). Under Articles 913–932, legal heirs (such as children, spouse, and parents) are entitled to a reserved portion of your estate. This means you cannot completely disinherit them unless there are valid legal grounds.

2. The 1974 Marriage Law

The 1974 Marriage Law (Undang-Undang No. 1 Tahun 1974) plays a significant role in estate planning, especially for married couples. It defines the concept of marital property and how it should be divided.

1. Joint Property (Harta Bersama).  Article 35 states that assets acquired during marriage are considered joint property unless stated otherwise in a prenuptial agreement. Upon the death of one spouse, the surviving spouse is entitled to half of the joint property, while the other half is distributed to the heirs.
2. Separate Property (Harta Pribadi).  Assets acquired before marriage or received as gifts or inheritance during marriage are considered separate property. These assets are distributed according to the deceased’s will or inheritance laws.

3. Islamic Compilation Law

For Muslims, the Islamic Compilation Law (Kompilasi Hukum Islam or KHI) provides specific rules on inheritance based on Islamic principles.

1. Faraid (Islamic Inheritance Law).  Under the KHI, inheritance is distributed according to faraid, which specifies fixed shares for heirs such as children, spouse, and parents. For example, male heirs typically receive twice the share of female heirs.
2. Wasiat (Will). Muslims can allocate up to one-third of their estate to non-heirs through a will, as long as it doesn’t violate the rights of the legal heirs.
3. Hibah (Gift). The KHI also allows you to distribute assets during your lifetime through hibah. This can be a useful tool to ensure your intentions are carried out.

Key Steps in Estate Planning

Now that we’ve covered the legal framework, let’s talk about how you can create an effective estate plan. Here’s a step-by-step guide to help you get started:

1. Take Inventory of Your Assets. The first step is to list all your assets, including real estate, bank accounts, investments, and personal belongings. Don’t forget to include liabilities like loans or mortgages. This will give you a clear picture of what you have to distribute.

2. Identify Your Heirs. Next, identify who your legal heirs are. Under Indonesian law, heirs typically include your spouse, children, and parents. If you’re a Muslim, the KHI will determine the specific shares for each heir.

3. Decide How to Distribute Your Assets. Think about how you want your assets to be divided. Do you want to follow the default inheritance laws, or do you have specific wishes? If you want to leave assets to non-heirs (like friends or charities), you’ll need to include this in your will.

4. Create a Last Will and Testament. A will is a critical part of your estate plan. Work with a lawyer like Wijaya & Co. to draft a legally binding will that reflects your wishes. Make sure it complies with the Civil Code or KHI, depending on your religion.

5. Consider a Prenuptial Agreement. If you’re married, a prenuptial agreement can help clarify the division of assets between joint and separate property. This is especially important if you or your spouse have significant assets before marriage.

6. Use Lifetime Gifts (Hibah). If you want to distribute some of your assets while you’re still alive, consider using hibah. This can help avoid disputes and ensure your intentions are carried out.

7. Appoint an Executor. An executor is someone you trust to carry out your will after your passing. Choose someone responsible and reliable, as they’ll play a key role in ensuring your wishes are respected.

8. Review and Update Your Plan. Life changes, and so should your estate plan. Review your plan regularly, especially after major life events like marriage, divorce, or the birth of a child. Update your will and other documents as needed.

Common Challenges in Estate Planning

Estate planning isn’t always straightforward. Here are some common challenges you might face and how to address them:

1. Family Disputes. Disagreements among heirs can lead to legal battles. To minimize this risk, communicate your intentions clearly and involve your family in the planning process.
2. Complex Family Structures. If you have stepchildren, multiple marriages, or other complex family dynamics, estate planning can get tricky. Seek legal advice from a legal expert at Wijaya & Co to navigate these situations.
3. Tax Implications. Inheritance in Indonesia may be subject to taxes, depending on the value of the assets. Our tax advisor at Wijaya & Co can help you understand your obligations and plan accordingly.
4. Unclear Documentation.  Missing or incomplete documents can delay the distribution of assets. Keep all your legal documents organized and up to date.

Why You Should Start Now

You might think estate planning is something you can put off, but the truth is, it’s never too early to start. Life is unpredictable, and having a plan in place gives you peace of mind knowing your loved ones will be taken care of. Plus, starting early gives you more time to make thoughtful decisions and address any legal or financial complexities.

Final Thoughts

Estate planning in Indonesia involves navigating a mix of legal, cultural, and personal considerations. Whether you’re guided by the Civil Code, the 1974 Marriage Law, or the Islamic Compilation Law, the key is to create a plan that reflects your wishes and protects your family’s future.

You and I both know that planning for the inevitable isn’t always easy, but it’s one of the most important things you can do for your loved ones. So, take the first step today: start organizing your assets, consult a legal expert like Wijaya & Co, and create a plan that ensures your legacy lives on.

My name is Asep Wijaya, writing for Wijaya & Co. We orchestrate to assist you navigate. Thank you for reading my posts.