"I signed a Deed of Trust. Why is the property still in my name?"

A father signs a Deed of Trust for the benefit of his two children.

The schedule to the deed lists a rental property, a bank account and shares in a family company. His brother is named as the trustee.

The father assumes that the assets are now held under the trust and will not need to be administered as part of his estate when he dies.

Several years later, the family discovers that the property remains registered in the father’s name. The bank account is still his personal account, and no transfer of the company shares was ever completed.

The Deed of Trust exists.

But were the assets actually placed in the trust?

1. Signing a trust deed and transferring assets into a trust are not necessarily the same thing

A trust generally separates legal ownership from beneficial entitlement.

The trustee holds or controls the trust property in accordance with the trust deed. The beneficiaries are entitled to the benefits provided under the deed, whether immediately or upon reaching a particular age or satisfying another condition.

The principal parties may include:-

• The settlor, who establishes the trust or contributes the assets.

• The trustee, who holds and administers the trust property.

• The beneficiaries, for whose benefit the trust is administered.

• A protector, if appointed, who may be given specified supervisory or consent powers.

• Professional advisers or investment managers appointed under the deed.

However, identifying these parties and listing assets in a schedule does not always complete the transfer of those assets.

The required steps depend on how the trust is structured and the nature of each asset.

2. How is the trust intended to be constituted?

There are different ways in which a trust arrangement may be established.

The owner may transfer an asset to another person or a trust company to hold as trustee. Alternatively, the owner may make an effective declaration that he holds an asset as trustee for the beneficiaries.

These structures should not be treated as interchangeable.

If a third party is intended to become the trustee, the relevant asset may need to be legally transferred, assigned or otherwise vested in that trustee.

If the owner declares himself to be the trustee, the legal title may remain in his name. The deed must nevertheless clearly identify the trust property, the beneficiaries and the obligations undertaken by him as trustee.

A person should not assume that an incomplete transfer will automatically be treated as a valid declaration of trust. The documents and surrounding conduct must support the particular structure that was intended.

3. An asset schedule is important, but it may not complete the transfer

A trust deed may contain a schedule describing the property intended to form the trust fund.

The schedule provides evidence of intention and identifies the relevant assets. Nevertheless, further documentation may still be required.

Depending on the asset, this could include:-

• A registrable instrument of transfer.

• A deed or notice of assignment.

• Bank or investment account documentation.

• A transfer of shares and an update to the company’s register of members.

• Consent from a financier, landlord, contractual counterparty or public authority.

• Delivery or re-registration of the asset.

• Payment or adjudication of applicable stamp duty.

• Tax filings or notifications.

If these steps are not completed, the settlor may continue to appear as the legal owner and may continue dealing with the asset inconsistently with the trust.

That can create uncertainty when the settlor dies, loses mental capacity, becomes insolvent or becomes involved in a family dispute.

4. What happens when land or a house is placed in trust?

Land requires particular attention because ownership and dealings are governed by the applicable land registration system.

If the property is to be transferred to a new trustee, the parties may need to consider:-

• Whether the title is individual, strata or still held under a master title.

• Whether the property is charged to a bank.

• Whether there is a restriction in interest.

• Whether State Authority, developer or other consent is required.

• The instrument required to complete the transfer.

• Registration, valuation, stamp duty and tax implications.

• How the trustee’s capacity should be documented.

• Whether any existing tenancy, insurance or maintenance account must be updated.

A bank that holds a charge over the property is not automatically bound by the family’s trust arrangement. Its consent may be required, and the financing documents may restrict transfers or changes in beneficial ownership.

If the settlor remains the registered proprietor because he has declared himself trustee, the deed should address who can manage the property, receive rental income, pay the loan and expenses, and become the replacement trustee upon his death or incapacity.

A trust involving land should therefore be coordinated with the title documents, financing arrangements and succession provisions rather than treated as an isolated document.

5. Bank accounts and investments do not move merely because they are mentioned in the deed

A personal bank account normally remains subject to the bank’s mandate and records.

The bank may require a dedicated trust account, a change of account designation or additional documentation before it recognises the trustee’s authority.

Similar issues arise with investment accounts, unit trusts and brokerage portfolios. The financial institution may have its own requirements concerning trustees, authorised signatories and beneficial ownership information.

Money should also be kept and recorded consistently with the trust. Mixing trust money with the trustee’s personal funds can create accounting problems and disputes over ownership.

The trust records should show:-

• The amount initially settled.

• Subsequent contributions.

• Income received.

• Expenses paid.

• Distributions made to beneficiaries.

• Investments acquired or disposed of.

• The balance held for each purpose or beneficiary, where applicable.

6. Company shares require corporate steps to be completed

If shares are intended to form part of the trust fund, the company’s constitution, shareholders’ agreement and statutory records should be reviewed.

A transfer may be subject to pre-emption rights, directors’ approval or other restrictions.

The parties must also decide who will exercise the voting rights, receive dividends and respond to corporate actions. If the trustee becomes the registered shareholder, the trustee will generally exercise the legal rights attached to the shares subject to the trust deed and applicable company documents.

For a family business, the trust should also be coordinated with succession arrangements at management level. Holding shares in trust does not, by itself, appoint a new director or ensure that the business can continue operating after the founder’s death.

7. Who controls the assets after the trust is created?

This is one of the most important questions to settle before signing.

Some settlors expect to retain complete control while also claiming that the assets belong entirely to the trust. Those expectations may conflict.

The deed should state clearly:-

• Whether the trust is revocable or irrevocable.

• Whether the settlor may add or remove beneficiaries.

• Who may direct or approve investments.

• Whether the trustee may sell, lease or charge an asset.

• Who decides when income or capital is distributed.

• Whether the settlor may continue living in or using the property.

• Whether a protector’s consent is required for major decisions.

• How trustees and protectors may be appointed or removed.

• When and how the trust may be terminated.

Powers reserved to the settlor must be drafted carefully. Retaining extensive control can affect the practical operation of the trust and may become relevant in disputes concerning ownership, creditors, taxation or succession.

Calling an arrangement “irrevocable” does not cure an arrangement that was never properly implemented.

8. The trustee is assuming legal responsibilities, not accepting an honorary title

A trustee must administer the trust property according to the deed and the applicable law.

The trustee may be required to safeguard the assets, maintain proper records, consider the interests of the beneficiaries, avoid unauthorised conflicts and exercise powers for proper purposes.

The Trustee Act 1949 also addresses various powers and aspects of trust administration in Malaysia. Its application must be considered together with the terms of the particular trust and other applicable laws.

Before accepting the appointment, a proposed trustee should understand:-

• The nature and value of the trust property.

• Existing loans, charges and liabilities.

• The duration of the trust.

• The needs and circumstances of the beneficiaries.

• Reporting and accounting obligations.

• The extent of any investment or distribution discretion.

• Potential personal liability.

• The procedure for retirement or replacement.

• Whether professional assistance and remuneration are permitted.

A family member may be trusted personally but may not have the time, expertise or independence required to administer a long-term trust.

9. What happens if the trustee dies or becomes incapable?

The trust should contain a workable succession mechanism.

If an individual trustee dies, resigns, loses mental capacity or refuses to act, someone must have the power to appoint a replacement. Further documentation may then be required to vest or register the trust assets in the new trustee.

Without clear provisions, the beneficiaries may face delays, expense and court proceedings before the assets can be administered effectively.

A professional or corporate trustee may offer institutional continuity, but its fees, powers and appointment terms should be understood from the outset.

Where individual trustees are appointed, the settlor should consider whether more than one trustee is appropriate and how disagreements between them will be resolved.

10. Does placing property in trust avoid estate administration?

A properly constituted lifetime trust may continue after the settlor’s death.

However, only assets validly held under the trust will be administered according to its terms. Assets that remain personally owned by the deceased may still form part of the estate and require a grant of probate or letters of administration before they can be dealt with.

Even where a trust exists, practical steps may still be necessary following a death, including:-

• Proving the appointment of the continuing or replacement trustee.

• Updating land, company and financial institution records.

• Settling liabilities connected with the trust assets.

• Accounting for income and expenses.

• Identifying and communicating with beneficiaries.

• Reviewing applicable tax and reporting obligations.

A trust may assist with continuity, but it is not a promise that no documentation or administration will ever be required.

11. Stamp duty and tax consequences must be examined before transferring assets

The transfer or assignment of an asset into trust may have stamp duty, Real Property Gains Tax, income tax or other consequences depending on the property, parties and structure involved.

Malaysia’s stamp duty framework generally imposes duty on instruments, including instruments transferring property by sale or gift and instruments creating certain interests in property.

For Real Property Gains Tax purposes, the statutory concept of a disposal can include a transfer, assignment, settlement or other giving up of property or an interest in property. The disposer may include a trustee.

A family relationship or absence of cash consideration does not automatically make every transfer exempt.

The tax position and available reliefs should be confirmed before the documents are executed or submitted for registration.

12. A trust should be coordinated with the rest of the estate plan

A Deed of Trust should not be prepared in isolation.

It should be reviewed together with the settlor’s:-

• Will.

• Existing trusts and family arrangements.

• Property titles and financing documents.

• Company constitution and shareholders’ agreement.

• Insurance policies and nominations.

• Retirement fund nominations.

• Powers of attorney.

• Matrimonial and family circumstances.

• Tax and financial plan.

A will should also address assets that were never transferred into the trust and assets acquired after it was created.

If the settlor is Muslim, the proposed arrangement should additionally be reviewed from the applicable Syariah perspective. Its effect cannot be determined merely by labelling the document a trust, gift or nomination.

A Deed of Trust can be a valuable estate and wealth-planning instrument.

Its effectiveness, however, depends on more than the signature page.

The intended assets must be identified, the trust must be properly constituted, the necessary transfers must be completed and the arrangement must continue to be administered consistently with its terms.