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A trust is used to manage the assets of a person, called a settlor. The settlor creates the trust to ensure assets that are transferred into the trust are distributed and managed according to his wishes.
A private trust, for example, is a legal instrument that takes effect during the lifetime of the settlor. It contains the settlor’s instructions to the trustees on the distribution of assets that form part of the trust to the beneficiaries.
While the legal ownership of the asset rests with the trust i.e. the settlor no longer owns the assets once they are transferred into the trust, the settlor controls the assets by his instructions in the trust deed.
The settlors would want to ensure that their assets will be distributed to their beneficiaries of choice with total confidentiality and privacy when the terms of the trust deed are met. These terms could be death of the settlor, coming of age of a beneficiary, completion of housing loans etc.
Some of the benefits of trusts are:
> Assets in the trust are not frozen on the death of the settlor. The assets would be available for distribution per the terms of the trust deed.
> Ownership of shares can be redistributed to remaining shareholders per the trust deed, on the death of a shareholder.
> Confidentiality of beneficiaries – the trust deed is a confidential document whereby beneficiaries will not know who the other beneficiaries are. A trusted trustee keeps all information confidential, per the terms of the trust deed.
> Tax benefits, for example, assets are transferred from a high taxed settlor to a beneficiary that is taxed at a lower tax bracket. However, the tax benefits of settlement schemes that are regarded as being tax avoidance in nature would be negated by specific provisions of the Malaysian Income Tax Act, 1967.
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There are several types of trusts in Malaysia, for example:
> Family trusts.
> Business continuity trusts.
> Special-purpose trusts.
A family trust is set up to distribute assets to family members. Family feuds over assets or the squandering of inheritances can be avoided if there are trusts in place.
When young children receive large amounts of money, having a trust in place can protect them from unwanted influences by making sure the payouts are made in instalments.
Family trusts would include:
> Annuity trusts – These are used to distribute income from rental properties to beneficiaries. The unencumbered properties are owned by the trust and are governed by the trust deed.
> Declaration trust – This trust is a declaration of intent of asset distribution. On a particular event, for example, when the settlor goes missing, being disabled or on death, the assets enter into the ownership of the trustee and are governed by the trust deed.
> Insurance trust – A trust created to assign life insurance policies to a trustee to manage the insurance proceeds per the trust deed.
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