What is the Purpose of a Family Trust?

Planning for your family’s future is a big responsibility. In Malaysia, where family values and financial security are deeply important, many people are turning to family trusts to protect their wealth and ensure their loved ones are cared for. But what is a family trust, and why should you consider one? In this guide, we’ll explain the purpose of a family trust in simple terms, explore why families in Malaysia set them up, highlight their key objectives, and answer whether money inherited from a family trust is taxable. By the end, you’ll understand how a family trust can help you secure your family’s future.

At CNB Amanah, we specialize in helping Malaysians plan their finances wisely. Whether you’re a business owner in Kuala Lumpur, a retiree in Penang, or a parent in Johor Bahru, this article will show you how a family trust can work for you.

Why Would a Family Have a Trust?

A family trust is a legal tool that lets you set aside money, property, or other assets for your loved ones. You (the settlor) transfer these assets to the trust, which is managed by a trustee (a person or company you choose) for the benefit of your beneficiaries (like your children or spouse). The trust follows rules you set in a document called a trust deed.

In Malaysia, families set up trusts for many reasons. Here are the top reasons why a family trust might be right for you:

1. Protect Your Wealth

Life can be unpredictable. A family trust keeps your assets safe from risks like lawsuits, creditors, or financial mistakes. For example, if you own a small business in Malaysia and face a legal claim, a trust can protect your family’s home or savings from being taken. This is especially helpful for entrepreneurs or professionals like doctors and lawyers who face higher risks.

Example: Ahmad, a restaurant owner in Petaling Jaya, sets up a family trust to hold his savings and a rental property. If his business faces a lawsuit, those assets are protected because they’re in the trust, not in his personal name.

2. Plan for Your Family’s Future

A family trust ensures your wealth goes to the right people at the right time. Instead of leaving assets directly through a will, which can be delayed by Malaysia’s probate process, a trust distributes assets quickly and privately. This is helpful if you want to support your children’s education or provide for your spouse after you’re gone.

Example: Mei Ling, a mother in Penang, creates a trust to pay for her children’s university fees. The trustee releases funds when her kids enroll at Universiti Malaya, ensuring the money is used as she planned.

3. Avoid Probate Hassles

In Malaysia, when someone passes away, their estate often goes through probate, a court process to distribute assets. This can take months or even years, especially if the will is contested. A family trust skips probate, saving time and legal fees. It also keeps your financial matters private, unlike a will, which becomes public during probate.

4. Support Loved Ones with Special Needs

If you have a family member with special needs, a trust can provide for them without affecting their eligibility for government aid. For instance, you can set up a trust to cover medical costs or daily expenses for a disabled child, ensuring they’re cared for long-term.

5. Keep Family Harmony

Family disputes over inheritance are common in Malaysia, especially when assets like property or businesses are involved. A trust sets clear rules for how assets are shared, reducing arguments. For example, you can decide how much each child gets and when, preventing conflicts after you’re gone.

Why It Matters in Malaysia: With rising property prices in cities like Kuala Lumpur and Johor Bahru, families often have valuable assets like homes or land. A trust ensures these stay in the family and are used as you intend, whether it’s keeping the family home or funding your grandchildren’s future.

What Are the Objectives of a Family Trust?

The main purpose of a family trust is to protect and manage your wealth for your family’s benefit. But the objectives go beyond just holding assets. Here are the key goals of a family trust, tailored to Malaysian families:

1. Asset Protection

A family trust shields your wealth from risks. In Malaysia, where business ventures and investments are common, this is a big reason to set up a trust. For example, if you invest in property or stocks, a trust can protect those assets from creditors or legal claims. It also safeguards your family’s future if you face financial challenges.

2. Tax Efficiency

While Malaysia doesn’t have an inheritance tax (as of 2025), other taxes like stamp duty or real property gains tax (RPGT) can apply when transferring assets. A family trust can help reduce these costs by transferring assets during your lifetime, avoiding hefty taxes later. Plus, trusts can be structured to minimize income tax on trust earnings, depending on the setup.

Pro Tip: Work with a Malaysian trust company like CNB Amanah to structure your trust for maximum tax benefits, as tax laws can be complex.

3. Smooth Wealth Transfer

A trust ensures your assets go to your chosen beneficiaries without delays. In Malaysia, probate can take 6–12 months or more, especially for large estates. A trust bypasses this, letting your family access funds or property quickly. This is crucial if your family relies on your income or assets.

4. Control Over Assets

With a family trust, you decide how and when your assets are used. For example, you can set rules to release funds only when your child turns 21 or graduates from university. This prevents young beneficiaries from mismanaging money and ensures your wealth is used wisely.

Example: Raj, a father in Ipoh, sets up a trust to give his daughter RM10,000 monthly only after she completes her degree at Universiti Sains Malaysia. This encourages her to focus on her studies.

5. Privacy

In Malaysia, wills go through probate, which is a public process. Anyone can access details of your estate. A family trust keeps your financial affairs private, which is important for high-profile individuals or families who value discretion.

6. Support for Long-Term Goals

A trust can fund big family goals, like education, healthcare, or even starting a business. In Malaysia, where education costs are rising (e.g., private university fees can exceed RM100,000), a trust can cover these expenses for your children or grandchildren.

Local Example: A trust could pay for a child’s medical degree at Monash University Malaysia, ensuring they don’t face financial stress.

7. Legacy Building

Some Malaysian families want to create a lasting legacy, like funding a family business or supporting community projects. A trust can hold assets for generations, ensuring your values and wealth endure.

Want to learn how to set up a trust for your family’s future?Contact CNB Amanah for a consultation with our trust experts.

Is Money Inherited from a Family Trust Taxable?

One of the most common questions Malaysians ask is whether money from a family trust is taxable. The good news? Malaysia does not have an inheritance tax or estate duty as of October 2025, unlike some countries. This makes family trusts even more attractive for passing wealth to your loved ones. However, there are a few tax considerations to keep in mind:

1. No Inheritance Tax

If your children or spouse inherit money, property, or other assets from a family trust, they won’t pay inheritance tax in Malaysia. This applies whether the trust distributes funds during your lifetime or after you pass away.

Example: Sarah in Malacca sets up a trust to give her son RM500,000 for a home purchase. Since Malaysia has no inheritance tax, her son receives the full amount without tax deductions.

2. Income Tax on Trust Earnings

While the inheritance itself is tax-free, any income generated by the trust (e.g., rental income from a property or dividends from stocks) may be subject to income tax. In Malaysia, the trustee is responsible for paying tax on this income, based on the trust’s structure. For example:

– If the trust earns RM50,000 in rental income annually, the trustee reports this to the Inland Revenue Board (LHDN) and pays tax at the corporate or individual rate, depending on the trustee type.

– Beneficiaries may also pay income tax if they receive taxable income from the trust, like dividends.

Pro Tip: A professional trustee, like those at CNB Amanah, can help structure the trust to minimize income tax legally.

3. Real Property Gains Tax (RPGT)

If the trust holds property and sells it, RPGT may apply. In Malaysia, RPGT rates depend on how long the property was held and who owns it. For example, selling a property within 5 years of purchase may incur a 30% tax for Malaysian citizens. A trust can help delay or avoid RPGT by keeping the property in the trust instead of transferring it to beneficiaries.

4. Stamp Duty

When transferring assets into a trust (e.g., a house or land), stamp duty may apply in Malaysia. For instance, transferring a property worth RM500,000 could incur stamp duty of about RM9,000–RM15,000, depending on the transaction. Planning ahead with a trust expert can reduce these costs.

5. Seek Expert Advice

Tax rules in Malaysia can be tricky, and they change over time. To ensure your family trust is tax-efficient, consult a financial planner or trust company. At CNB Amanah, we work with Malaysia’s top tax advisors to help you save money while securing your family’s future.

Key Takeaway: Money inherited from a family trust is generally not taxable in Malaysia due to the lack of inheritance tax. However, income from trust assets (like rent or dividends) may be taxed, and property transfers could involve RPGT or stamp duty. Always consult a professional to optimize your trust’s tax strategy.

How to Set Up a Family Trust in Malaysia

Now that you know the purpose and benefits of a family trust, here’s a simple guide to setting one up in Malaysia:

1. Define Your Goals: Decide why you want a trust (e.g., protect assets, fund education, or avoid probate).  
2. Choose a Trustee: Pick a reliable trustee, like a family member, friend, or professional trust company. In Malaysia, companies like CNB Amanah offer expert trustee services.  
3. List Beneficiaries: Identify who will benefit, such as your spouse, children, or grandchildren.  
4. Select Assets: Decide which assets to put in the trust, like cash, property, or investments.  
5. Create a Trust Deed: Work with a lawyer to draft a trust deed that outlines your rules and wishes.  
6. Transfer Assets: Legally move assets into the trust, which may involve stamp duty or other fees.  
7. Manage the Trust: The trustee will follow your instructions to manage and distribute assets.

Local Tip: In Malaysia, trust laws are governed by the Trustees Act 1949 and other regulations. Working with a Malaysian trust company ensures your trust complies with local laws.

Why Choose CNB Amanah for Your Family Trust?

At CNB Amanah, we understand the needs of Malaysian families. Whether you’re in Kuala Lumpur, Penang, or Sabah, our team of financial experts and trustees can help you:

– Set up a family trust tailored to your goals.

– Minimize taxes and legal fees.

– Protect your wealth for generations.

We’ve helped families across Malaysia secure their futures with trusts. For example, we assisted a family in Johor Bahru to create a trust that funds their children’s education while protecting their rental properties from business risks.

Ready to Start? Contact CNB Amanah to book a consultation session. Let us help you build a secure future for your family.

FAQs About Family Trusts in Malaysia

1. What is a family trust?  

A family trust is a legal tool that holds assets for your family’s benefit, managed by a trustee according to your instructions.

2. How much does it cost to set up a trust in Malaysia?  

Costs vary based on the trust’s complexity and assets. Expect legal fees, stamp duty, and trustee fees. Contact CNB Amanah for a personalized quote.

3. Can I change a family trust later?  

Yes, if it’s a revocable trust, you can modify it. An irrevocable trust is harder to change but offers stronger asset protection.

4. Who can be a trustee?  

A trustee can be a trusted family member, friend, or professional trust company. In Malaysia, professional trustees ensure legal compliance.

5. Are family trusts only for the wealthy?  

No! Families of all income levels in Malaysia use trusts to protect assets, plan for education, or avoid probate.

 Conclusion

A family trust is a powerful tool for Malaysian families who want to protect their wealth, plan for the future, and ensure their loved ones are cared for. Whether you’re safeguarding your business, funding your children’s education, or avoiding probate delays, a trust offers peace of mind. Plus, with no inheritance tax in Malaysia, it’s a tax-smart way to pass on wealth.

At CNB Amanah, we’re here to guide you every step of the way. Ready to explore how a family trust can work for you? Reach out to our team today for expert advice tailored to your needs. Let’s secure your family’s future together.