FINANCIAL

PLANNING
LECTURE 11
ESTATE
PLANNING –
PART 2
LEARNING OUTCOME

 Analyse the personal aspects of estate planning.

 Assess the legal aspects of estate planning.
 Appraise various types of trusts and estates.
 Discuss applications of nominations in Malaysia
 Discuss application of Power of Attorney in Malaysia
 TYPES OF OWNERSHIP OF ASSETS - JOINT

Joint tenancy Tenancy in Common Tenancy by Entirety

Number of owners More than one More than one Only between spouses
Share characteristic Each co-owner have an Each co-owner have an Equally
undivided share undivided share
What if a co-owner • Co-owners • Surviving co-owners ▪ Co-owner cannot
dies? automatically take do not automatically pass on his/her joint
over undivided inherit the undivided ownership to his
share of property share beneficiaries unless
• Right of survivorship • Deceased co-owner he/she is the sole
can pass his joint co-owner
ownership to his/her ▪ Either spouse
beneficiary and cannot transfer
surviving co-owners assets without
• No right of mutual consent of
survivorship the other
 Joint tenancy Tenancy in Common Tenancy by Entirety

Disadvantages • Exposed to • Tenants may not be

creditors of ALL the related
joint owners • Heirs may not be
interested in holding
on to
property/assets
• The remaining
tenants may object
to property being
sold

Source : CFP FPAM Module 2

https://ringgitplus.com/en/blog/Personal-Finance-News/Death-or-Divorce-What-will-happen-to-your-Joint-Account.html
 TYPES OF OWNERSHIP OF ASSETS - INDIVIDUAL
Outright Ownership
• Owned absolutely by an
individual
• Owner can sell, manage,
renovate and collect rental
from property
Life Interest Future Interest
▪ Right to property lasts only ▪ Right to property will arise
for the lifetime of the in the future
person
▪ Vested interest – right to
▪ No legal ownership use the property in the
future unconditionally
▪ Cannot pass the
ownership of this asset to ▪ Contingent interest -right
others to use the property in the
future with conditions
attached.
Source : CFP FPAM Module 2
Financial Planning
Lecture 11 – Part 2
Estate Trusts
ESTATE TRUSTS

 Legal arrangement through which a trustee holds

your assets for your benefit or that of your
beneficiaries
 Trustee may be an individual or an institution

 Benefits of Trusts:
 Avoid probate; transfer assets immediately
 Free you from managing assets
 Provide income for a surviving
spouse/beneficiary
 Ensures property serves desired purpose
after your death
 Reduce estate taxes
 WHAT IS A TRUST?

 Legal arrangement that enables the settlor to assign his assets to another
person (trustee) for the benefit of the beneficiaries.
 A trust can be created for estate planning, wealth protection and/or preservation
 Trust Deed – Details the role of trustee, trustee compensation and other matters
pertaining to the administration and management of the trust.
 Settlor - Person who gives up his assets (e.g. shares, cash, property, antiques,
jewelry etc) to the trust
 Trustee
o Person or firm (professional) appointed to hold legal ownership of the assets
for the beneficiaries as instructed by the settlor.
o Cannot be someone of unsound mind , cannot be a bankrupt and must be
above 18 years of age
o Limit up to four trustees at a time in Malaysia.
 CONCEPT OF A TRUST

TRUSTEE Trust Deed SETTLOR

o Receives legal ownership/title from the settlor
o New legal owner
o Acts for the benefit of the beneficiary
o Can be an individual (above 18) or licensed company
o Maximum 4 individuals
▪ Absolute owner of the trust property/assets
▪ Transfers legal ownership/title to the trustee
Appoints ▪ Transfer equitable (or beneficial) ownership/title
to the beneficiary
▪ Must be above the age of 18, have sound
mental capacity and not a declared bankrupt

Settles/Transfers
assets
TRUST

❖ Enjoys the benefits of the trust – i.e.

Beneficiary Beneficiary Beneficial Interest
 BENEFITS OF A TRUST

 Wealth protection of assets from claimants or creditors.

 Protect assets and/or properties from being squandered by
beneficiaries
 Trustees will manage assets/properties to ensure wealth
accumulation continues.
 No need for probate application – assets are not frozen on death of
settlor and beneficiaries can continue to receive income from the
trust.
 More confidentiality – no probate so identities of beneficiaries
protected
 EXAMPLES OF THE USAGE OF TRUST
• To hold and manage assets on behalf of minors until the beneficiary attains the
desired age that is determined by the settlor
• To avoid the assets from being frozen by probate
• Enabling property to be managed in such a way that ensures the benefits are
enjoyed by successive generations
• To enable charitable projects – e.g. scholarships to poor students, donations to the
needy, etc.
• To avoid spendthrift beneficiaries from wasting the assets of the trusts
• To designate funds for a specific purpose e.g. retirement or medical or sustenance
needs of children or dependents
• Trusts are more private compared to wills – can provide financially for beneficiaries
(illegitimate children or de-facto partners) without the knowledge of the settlor’s
spouse/family members
• To protect the settlor’s estate from claims of unscrupulous third parties
• Protect assets from claims of creditors of his estate or upon the settlor’s bankruptcy
• To distribute the trust assets of a Muslim according to his wishes (rather than in
accordance with Faraid law)
Source : Adapted from FPAM (2015)
 TAX EXEMPTIONS FOR CHARITABLE TRUSTS IN MALAYSIA
(SUBJECT TO APPROVAL FROM INLAND REVENUE BOARD)

▪ Charitable trusts may be exempted from income taxes, stamp duty

and other taxes/duties of trusts (subject to approval)
General principles of charitable trusts:
▪ Relief of poverty – Must be exclusively for the poor
▪ Advancement of education
▪ Includes dissemination of knowledge (element of instruction and
supervision) and research
▪ Mere acquisition of knowledge without dissemination or
advancement of knowledge- not considered “charitable” for tax
purpose
▪ Advancement of religion
▪ Other purpose beneficial to the community
 TYPES OF TRUSTS

 Revocable trust
 Settlor has the right to end the trust or change its terms during
your lifetime
 May avoid the lengthy probate process
 Does not provide shelter from federal or state estate taxes

 Irrevocable trust
 Settlor cannot change the terms once instituted
 Used to reduce estate taxes
 Avoids probate
TRUSTS AND BANKRUPTCY
(SUBJECT TO MALAYSIAN BANKRUPTCY ACT 1967)

Revocable Trust Irrevocable Trust

o Subject to Section 55 of the  Subject to Section 52 of the Bankruptcy
Bankruptcy Act 1967 Act 1967
 2 years or 5 years rule

The Director General of Insolvency

(DGI) has the right to : Trust assets Voidable Void
transferred more
• Identify the bankrupt’s assets than 5 years ago

• Dispose the bankrupt’s assets

• Determine the claim amount for each
creditor 5 years 2 years Bankruptcy
date
• Distribute the bankrupt’s assets or  Exceptions
proceeds of sale among creditors  Settlement made before marriage and in
consideration for marriage
 Transaction was made in favour of purchaser
or incumbrancer in good faith and for valuable
consideration
 TYPES OF TRUSTS
 Credit-shelter trust (USA)
 Enables surviving spouse to avoid federal
taxes on a certain amount of assets

 Disclaimer trust (USA)

 For couples without enough assets to
warrant a credit-shelter trust but may in
the future
 Surviving spouse receives everything but
may “disclaim” or deny some assets
 Anything disclaimed goes into a
credit-shelter trust
 Protects wealth from estate taxes

There are NO estate taxes in Malaysia.

 TYPES OF TRUSTS
 Living trust
 “Inter vivos trust”; in effect while you are alive
 Property management arrangement
 Highly recommended to be written in Malaysia
 Advantages:
 Provides privacy as assets in the trust avoids probate.
 Allows review of trustee performance
 Relieves you of management responsibilities
 Less likely to create arguments among heirs
 Can guide family and doctors if you are unable to make decisions

 Testamentary trust
 Established by your will
 Subject to probate
 Must be written
 For Muslims, can only will 1/3 to non-Faraid heirs.
 TYPES OF TRUST

▪ Fixed versus Discretionary trusts

▪ Trust deed specifies fixed sums to be paid by the trustee to the
beneficiaries
▪ Discretionary trusts – Trustee has the right to determine the
amounts to be paid to each of the named beneficiary. Useful
for cases of spendthrift or financially immature beneficiaries.

▪ Statutory Trusts – Created by law in some cases – refer to

nominations.
 TAXATION OF TRUSTS IN MALAYSIA

▪ Generally, transfer of property/shares from (i) settlor→ trust and (ii) trust →
beneficiaries are subject to stamp duties:
▪ Computed based of higher of consideration or market value
▪ Stamp duty on property in Malaysia

▪ Stamp duty on shares → 0.3% on the execution of the instrument of

transfer
 TAXATION OF TRUSTS IN MALAYSIA
(CONTINUED…)

▪ Transfer of real property from trust → beneficiary are NOT subject to Real
Property Gains Tax (RPGT) as there is no changes in beneficial ownership.
▪ However, disposal of property from trust to third parties will be subject to RPGT.

▪ Income Tax
▪ Trust body is treated as a separate person for tax purpose.
▪ Rate of tax for trusts is 24% for both resident and non-resident trusts
▪ Witholding tax on income may apply for non-resident trusts.
▪ Beneficiaries of trust income are entitled to a tax credit on the tax chargeable
on the chargeable income received from the trust body.
 TAXATION OF TRUSTS IN MALAYSIA
(CONTINUED…)

▪ Generally, a trust body shall be regarded as resident for the basis year for a year of
assessment if the trustee is a Malaysian resident.

▪ However, a trust body shall NOT be regarded as resident in Malaysia for that basis year if:
o The trust was created outside Malaysia by a person or persons who were not
citizens;
o The income for that trust body for that basis year is wholly derived from outside
Malaysia;
o The trust is administered for the whole of that basis year outside Malaysia;
and
o At least one-half of the number of the member trustees are not residents of Malaysia
for that basis year.
 TAXATION OF TRUSTS IN MALAYSIA
(CONTINUED…)

Source : Ernst and Young, Malaysia (2017)

https://www.step.org/sites/default/files/Events/2017/Malaysia/Introduction_to_the_taxation_of_tr
usts_in_Malaysia_090317.pdf
 ANTI AVOIDANCE TAX PROVISION
TRUST SETTLEMENTS (SECTION 65 ITA 1967)

Any income which will or may become paid in the Beginning of Year of Assessment to:

▪ Only amounts from an irrevocable trust is deemed income of the relative.

▪ Revocable trusts distributions → Income deemed to be that of the settlor
▪ Beneficiaries (relative) who is/are unmarried or below the age of 21 → The income is
deemed to be the settlor’s → The settlor will be responsible to pay the income tax.
▪ If the relative is above the age of 21 and unmarried → Income deemed to be the relative.
▪ Relative is defined as:
▪ A child of the settlor (including stepchild and child under custody of the settlor)
▪ A child that has been legally adopted by the settlor (or the husband or the wife).
▪ Wife, grandchild, brother, sister, uncle, aunt, nephew, niece or cousin of the settlor.

https://www.accaglobal.com/gb/en/student/exam-support-resources/professional-exams-study-resources/p6/technical-articles/anti-avoidance.html
 Financial Planning
Lecture 11 – Part 3
Power of Attorney (POA)
Nominations
 POWER OF ATTORNEY(POA)

▪ In Malaysia, governed by Power of Attorney Act, 1949

▪ Legal document that authorizes someone to act on your behalf.
▪ The person who gives the POA is known as the Donor, Grantor or Principal
▪ The person who receives the POA is known as the Donee, Grantee, Agent or Attorney in
fact
▪ Donee must be trustworthy, sound mind, above the age of 18 and not a bankrupt.
▪ POA is based on the Principal- Agent relationship
▪ POA does not confer the transfer of ownership of assets to the Donee.
▪ Donee has duty of obedience, care, to inform, to keep accounts, confidentiality, fiduciary
duty, not to profit and not to engage in self dealing (i.e. cannot take advantage of the POA
position)
▪ Examples of POA:
▪ Transactions that involve real estate, investments, banking, insurance, claims and
litigation, taxation, personal relationships and affairs
POA documents are required to be
filed (either my the Donor or Donee)
with the Attorney Registration Office,
High Court of Malaya, Kuala Lumpur
or at any Registration Office of the
High Court of Malaya in West
Malaysia. In West Malaysia, the
signature of the Donor must be
witnessed by either a Magistrate,
Justice of Peace, a Notary public,
Commissioner of Oath, an advocate
or solicitor or an officer of a bank.

http://www.agc.gov.my/agcportal/uploads/files/Publications/LOM/EN/
Act%20424%20-%20Powers%20of%20Attorney%20Act%201949.pdf
http://www.agc.gov.my/agcportal/uploads/files/Publications/LOM/EN/Act%20424%20-
%20Powers%20of%20Attorney%20Act%201949.pdf
SECTION 5 OF THE POWER OF
ATTORNEY ACT 1949

POA CAN BE INVALIDATED BY :

 Revocation by Donor
 Renunciation by the Donee
 Death of Donor or Donee
 Donor becomes of unsound mind
(exception Section 6 & 7)
 Donor becomes bankrupt
This will also apply for POA given for a fixed time whether for valuable consideration or not
(Section 7 Power of Attorney Act,1949).
DIFFERENCES BETWEEN A POWER OF ATTORNEY AND WILL
IN ESTATE PLANNING IN MALAYSIA.

Power of Attorney Will

Governing act Power of Attorney Act 1949 Wills Act 1959
Application During the lifetime of the donor only After the death of the testator
Purpose Donee acts on behalf of the Donor for Wills are prepared by the testator to:
cases where Donor is not able to ▪ Appoint the executor of the estate
execute the transaction him/herself e.g. ▪ Appoint the guardian for minors
▪ Donor is overseas or ▪ Appointment of trustees (for
▪ If the donor becomes temporary or testamentary trust, if applicable)
permanently ill and is unable to
manage his/her personal and/or
company affairs.
▪ Donor lacks the technical
knowledge and/or expertise on the
transaction.
DIFFERENCES BETWEEN A POWER OF ATTORNEY
AND WILL IN ESTATE PLANNING IN MALAYSIA(CONT/…)
Power of Attorney
Scope of duties Donees duties involve
▪ Specific purpose or series of
transactions in real estate, investments,
banking, insurance, claims and litigation,
taxation, personal relationships and
affairs.
▪ Duties of the donee ceases upon the
death of the donor.
Other ▪ Donor can issue more than one POA ▪
issues to different persons for different
purposes/transactions
▪ All POA must be registered with Attorney ▪
Registration Office, High Court of
Malaya, Kuala Lumpur or at any
Registration Office of the High Court of
Malaya in West Malaysia.
Will
Executors have the duties to
• Make funeral arrangements
• Prepare the list of the testator’s assets
• Apply for the Grant of Probate
• Collecting any money due and paying
off debts (including income tax and
creditors)
• Prepare a final Statement of Account
• Distributing the assets of the testator
according to the will
Only one will allowed at any one time
in Malaysia
▪ A new will revoke the older one.
Wills need not be registered by law .
 NOMINATIONS IN MALAYSIA
❖ Applicable for Life Insurance, Employee Provident Fund and Unit Trust investments.
❖ Nominations may create a statutory trust that will avoid probate.
❖ For Life Insurance (non-Muslim):
❖ A person can make nomination if he/she is above 16 years (Financial Services
Act 2013)
❖ Trust nominees – Spouse or child. Parents will only be trust nominees if there is
no living spouse or child.
❖ Non-trust nominees – Siblings or parents if there are spouse or child
❖ If there is no nomination before policyholder’s death:
❖ Insurance company will pay proceeds to the bearer of the Grant of
Probate or Letter of Administration
❖ Insurance company has some discretion if the policy does not exceed
RM100,000. Persons to be distributed in the hierarchy of spouse, children
or parents (is there is no spouse or child) → However, these recipients
would be deemed executors rather than merely beneficiary of the estate.
❖ For Muslims, the appropriate nominee is the executor of the estate. No statutory
trust is created.
CONDITIONAL HIBAH
TAKAFUL CONTRACTS

Under conditional hibah, the

participant/policyholder has a choice to
nominate others to receive takaful
benefits in the event he/she is no longer
around either:
- As an executor (wasi) OR
- As a beneficiary

https://www.bnm.gov.my/-/sac-165th-meeting
 NOMINATIONS IN MALAYSIA

❖ For Employees Provident Fund (non-Muslims)

❖ Members can nominate anyone who is 18 years and above, a Malaysian,
Permanent Resident or Non-Malaysian ( registered before 1998)
❖ EPF will pay proceeds directly to the nominee.
❖ Death benefit (lump sum) of RM2,500 payable to widow(er), children, parents,
siblings, administrator of the estate upon application.
❖ Can name Amanah Raya Berhad as nominee (100% of savings)
❖ If no nomination : https://www.kwsp.gov.my/member/withdrawals/full/death
❖ For Muslims – Appropriate nominee would be the Wasi or Amanah Raya
Berhad. [No statutory trusts is created]
WITHOUT NOMINATION- EPF

https://www.kwsp.gov.my/member/withdrawals/full/death
 NOMINATIONS IN MALAYSIA

❖ For Unit Trust (non-Muslims)

❖ Statutory trust created for non-Muslim nominations only
❖ Hibah/Amanah Schemes
❖ Declaration of Hibah/Amanah and allows investors to nominate their
respective beneficiaries and expedite the distribution of monies upon the
death of the donor (unitholder or Pemberi Hibah).
❖ The beneficiaries can be both Muslims and non-Muslims
❖ There may be fees for these services.