A trust deed in Malaysia is an important part of estate planning. This article explains what a trust deed is, its benefits, and the steps to create one.
Understanding Trust Deed in Malaysia
A trust deed in Malaysia is a legal document where the settlor entrusts his property or ‘trust property’ to another, called the 'trustee', to hold and manage according to his instructions for the benefits of the beneficiaries.
Trust deed in Malay means 'surat ikatan amanah’ which is an important part of estate planning in Malaysia. Under the trust deeds, the trustee manages the trust property, including the trust income from the property to benefit the beneficiaries. The parties in a deed of trust can be individuals or corporations.
The legal requirements to constitute a trust include:
Clear intention: The settlor, the one creating the trust must express clear intention on how he wants the properties to be managed by the trustee.
Trust property: There should also be a trust property entrusted by the settlor to the trustee.
Beneficiaries: There should be identifiable trust beneficiaries who will benefit from this arrangement.
Benefits of Deed of Trust
The benefits of having a trust deed Malaysia include:
Asset protection
When the assets are kept in trust, they are usually not considered part of the settlor's personal property. This means creditors or other third parties can't claim that property in legal disputes which offers asset protection by a thorough trust agreement.
Flexibility in the management of assets
A deed of trust in Malaysia gives flexibility to an individual on how they want their beneficiaries to benefit from their assets. For example, they can state that the trust income is to be released to the beneficiaries when they reach a certain age, etc: 18 years old.
Smooth Distribution of Estate
By having this legal document, one can transfer his assets to benefit his beneficiaries even before he passes on. This is different from writing a will in Malaysia, whereby after the death, the executor will have to obtain a grant of probate to administer the deceased’s estate.
This grant then allows the executor to manage the estate including distributing the assets to the intended beneficiaries. In some of the countries which have an inheritance tax, trusts help to reduce the tax as the trust property has been transferred to the beneficiaries before the death.
Types of Trust Deeds
There are several types of trusts depending on the objectives which the common ones are:
Testamentary trust
A testamentary trust is created when a person in a will appoints someone as a trustee to hold and manage the trust assets until the beneficiaries reach a milestone, such as achieving 18 years old.
Special purpose trust
Some examples include family trusts, simple insurance trusts, and charitable trusts.
Property trusts
An example is the real estate investment trust where the trustee holds the properties for the beneficiaries/shareholders and manages them by renting to others. The income, that is the property trust fund is then distributed to the beneficiaries through dividend payout.
Depending on the trusts needs, different types of trusts can be created and most of them are of discretionary trusts type, as it gives discretion to the trustee in managing the trust property.
Creating a Trust Deed
The process of setting up a trust deed in Malaysia involves several steps as explained below:
Step 1: Understand the Purpose of the Trust
Before creating a trust, one should know the objectives. Depending on his estate planning goals, specific particular trust vehicles can be created. Common objectives include:
Providing financial stability for the family including leaving an inheritance for minor children
Protecting assets from creditors
Supporting specific charitable causes.
Step 2: Identify Trustees, Beneficiaries, Trust Property
Here, the settlor should identify:
Trustee
Choosing competent trustees is important as they are responsible for the management of trust assets including its income. He should be trustworthy and reliable. One can choose one of the family members.
Alternatively, the settlor can appoint a trust institution that provides trustee services. It is a professional trustee that is regulated under the Trust Companies Act 1949. Apart from the trust deed, trustees are also regulated under the Trustee Act 1949 in carrying out their duties.
Beneficiary
One should identify the beneficiaries, those who will benefit from the trust. This can include family members, friends, or charities.
Trust property
This is the valuable property that has been or will be transferred from the settlor to the trustee for the management.
Step 3: Write the Trust Deed
Next will be preparing the trust deed. The common terms to include in a trust document are:
Purpose of the trust
Names and identification details of the settlor, trustee, and beneficiaries
The details of the trust property and whether it has been transferred by the settlor to the trustee
Instructions from the settlor on managing the properties, including distribution of income, payment of expenses, and transfer to the beneficiaries (if any)
Any restriction on the management of the property
Revocability of the trust deed
Step 4: Transfer of Property and Registration (if required)
If the property involves transfer to the trustee, then the following steps will follow:
Obtain a property valuation
This is to ascertain the market valuation of the property for the payment of stamp duty and real property gain tax (if any- for real property transfer) later on.
Transfer of the property to the trustee
This requires the preparation of the transfer documents such as a memorandum of transfer (MOT) for real estate, and other transfer forms and the signing of the documents by the settlor and trustee (if required).
Payment of stamp duty, registration fees, and real property gain tax
After the transfer document is submitted for adjudication, the parties can pay the required stamp duty, registration and other fees.
Registration of transfer and documents
After the execution of documents and payment of fees, then the parties can register the transfer with the related authority. When it involves land, then it is with the appropriate Land Office.
And the trust deed involving land should be lodged with the related registry, according to the National Land Code (Revised 2020)
Step 5: The Trustee manages the property
Once the arrangement is set up, the trustee is responsible for the management of the trust assets following the trust deed. This can be renting and managing the properties, and distributing the income to the beneficiaries at a certain time.
The trustee should keep property records and related documents such as bills, income, and tenancy agreements.
After the trust deed has been created, the settlor should:
Review the deed: This is to ensure that the document meets his objectives and the trustee has been performing the duties diligently
Update: If required, the settlor can revoke the document. Revocation of a trust deed in Malaysia is usually allowed when there is a clause on revocation and parties follow the conditions for that.
Hiring a Lawyer and Fees
We recommend hiring an experienced lawyer to assist you in setting up a trust. They can help you to prepare the document and with the registration of the property and document.
As for the fees, it usually depends on the complexity of the matters and whether any real estate is involved. Typically, it is made up of:
Legal fees
Disbursements incurred for transfer of the property such as stamp duty and registration fees.
You can contact us to get a quote for the preparation.
Conclusion
A trust deed in Malaysia is an important legal document for achieving different estate planning goals. If you need any assistance with this, do contact us and we will assist you.
Frequently Asked Questions
1. How does trust deed work in Malaysia?
A trust deed is a legal document whereby the trustee holds the property in trust and manages it according to the instructions of the settlor. It is for the benefit of the beneficiaries; usually through income distribution.
2. How does trust work in Malaysia?
In Malaysia, a trust works by a settlor transferring the property to a trustee. The trustee then manages it according to the settlor’s instruction to benefit the beneficiaries.
3. What is in a trust deed?
A trust deed should usually contain the following:
The identity of the settlor, trustee, and beneficiaries with names and identification details
The details of the trust property
Instructions by the settlor on how the trustee should manage the trust properties to benefit the beneficiaries.
4. What is the meaning of deed of trust?
A deed of trust is a written document that states how a trustee holds and manages the trust property according to the settlor's instructions. It is for the benefit of the beneficiaries which may receive periodic income.
