Trusts come in many forms, far beyond the commonly known “Cash Trust” and “Insurance Trust”. They also include “Property Trusts”, “Private Trusts” and “Family Trusts”.
Many people tend to confuse a “Family Office” with a “Family Trust”, but there is a clear distinction between the two.
A Family Office consolidates a family’s assets under one structure, managed jointly by professional advisors and family members. For example, establishing a Family Office in Forest City, Johor, may qualify for tax incentives of up to ten years. A Family Trust, on the other hand, is relatively straightforward and typically covers cash, insurance and/or property, making it suitable for individuals or small and medium-sized families with asset planning needs.
In the Malaysian market, companies such as Octowill Trustees provide “Family Trust” services. Recently, we came across two prospective clients with such needs, and their cases are quite representative.
Client One is a 60-year-old professional, fluent in English, single and approaching retirement. He has approximately RM6 million in liquid assets, RM10 million worth of debt-free property, and RM1 million in insurance coverage. His main responsibility is supporting his younger brother, younger sister and their children, as both his siblings have limited income.
This type of client represents a typical high-quality prospective client because individuals with higher levels of education may be more receptive to the concept of having their assets professionally managed.
Client Two is around 50 years old and was recently diagnosed with cancer. He wants to ensure that his family will continue to receive a stable income in the event of his sudden passing. He currently holds several insurance policies with a total coverage of RM2 million.
These two cases are merely the tip of the iceberg. There are actually many people in the market with similar needs, but clients often do not know that services like these are available to address their financial and family concerns.
When conducting a case study, I always begin by understanding the client’s background, because their level of education and life experiences can influence their way of thinking. By understanding the client, we can tailor the solution to their needs and achieve better results.
For example, if you are speaking to a palm oil plantation owner living in Muar, explaining Family Trusts to them may be like “speaking to a brick wall”. They may have very little financial planning knowledge and simply believe that the safest option is to keep their money with a major bank.
Traditional asset distribution usually involves dividing assets equally among beneficiaries. As a result, each asset may end up having multiple owners, making it complicated to dispose of or manage the asset in the future. For example, if a RM10 million oil palm plantation is left to a wife and two children, the wife is a homemaker while the children are working and living in Kuala Lumpur and Singapore and already have their own families. Is this really the ideal arrangement? It can be even more problematic when the plantation is left to several children, with one of them responsible for managing it. Without proper records of the income and expenses, disagreements are almost inevitable.
The first client’s problem was successfully resolved. The simplest solution was to establish a RM5 million “Cash Trust”, generating approximately 0.8% per month in returns, equivalent to around RM40,000, which could be used to support his younger brother and sister and their families. The properties could also be included in the trust, with clear instructions on how they should be handled, such as allowing the siblings to live in the properties, having the trust company manage them, or selling them after a certain number of years and distributing the proceeds to the beneficiaries.
The Family Trust can be established for a flexible period of 30, 40, 50 or 60 years, with a minimum lock-in period of ten years. Two months before the end of each ten-year period, the client can decide whether to renew the arrangement, making it a relatively flexible solution.
If the arrangement is handled by a trust company that does not offer “Cash Trust” services, the costs can be relatively high. However, for some trusts, Cash Trust is an additional service with lower fees, and the returns generated from the Cash Trust can help offset the costs, creating a win-win situation.
The solution for the second client is much simpler. He only needs to ensure that his family has a fixed source of income. The insurance payout can be transferred to a trustee to establish an “Insurance Trust”, for example, through Empower Trustees, and this can be combined with a RM1 million or RM2 million PLT 1F10 “Cash Trust” to provide the family with sufficient financial support for their daily living expenses.
In conclusion, whether it involves complex family asset succession or a simple protection need, a Family Trust can provide a flexible and effective solution, helping clients achieve their objectives of preserving, growing and transferring their wealth in accordance with their wishes.
Source: Dato’ Chua Meng Min, OWL Quarterly Vol. 8
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