Why Malaysians set up Trusts and where is the best place to do so

Wealth, legacy and protection
According to McKinsey analysis, between 2023 and 2030, ultra-high-net-worth (UHNW) families with personal financial assets more than USD50 million and high-net-worth (HNW) families with personal financial assets between USD1 million and USD50 million in the Asia–Pacific region are set to undergo an intergenerational wealth transfer estimated at USD5.8 trillion. UHNW families are expected to account for about 60% of the total wealth transfer.

The 2025 Wealth Report from Knight Frank puts the number of HNWIs in Malaysia with personal financial assets of more than USD10 million at 7,490, just behind Indonesia, Thailand and Singapore.

Effective succession planning is crucial for preserving wealth and ensuring a smooth transition of assets across generations. But legacy planning is more than just arranging your finances; it’s about safeguarding your family’s future, ensuring continuing prosperity and passing down your values alongside wealth.

For wealthy individuals seeking control over how their capital is used or protected for future generations, it is essential to instil some sense of values or purpose at the outset. Trusts are among the most powerful tools in legacy planning.

Trusts can provide a number of guardrails, both for investment professionals and future generations. The trustees must ensure that the assets are used according to the settlor’s wishes and must always act in the interest of the beneficiaries.

These protections can be further strengthened using a private trust company (PTC) that can serve as trustee of a single trust or a group of related trusts. Family members can participate in the management of the PTC and therefore in the decisions that need to be taken by the PTC as trustee, including decisions relating to the control and management of companies owned by the trustee.

In this guide, we explore why Malaysians set up trusts and the best jurisdictions for doing so.

Key reasons for Malaysians to use trusts

1. Estate planning without probate
   The probate process can result in lengthy delays, high administration costs and tax liabilities. The best alternative is to set up a trust during lifetime. Trusts offer confidential, efficient wealth transfer without court involvement or dependence on a will.
2. Asset protection
   If assets are transferred to a trust, they will no longer form part of the settlor’s estate and will be shielded from future creditors, lawsuits or divorce settlements. This could be especially useful for entrepreneurs and professionals with complex financial exposures.
3. Business continuity
   Holding family business shares in trust can prevent the unnecessary liquidation of a family company on the founder’s death and ensures stable management even if heirs are inexperienced or in disagreement.
4. Tax efficiency and futureproofing
   Although Malaysia does not currently impose estate duty or capital gains tax, placing assets into trust can protect them against future changes. Offshore trusts can offer may offer substantial global tax efficiencies.
5. Caring for vulnerable beneficiaries
   Trusts are a useful vehicle for people who want to provide independent support to those who are unable to manage their own affairs, such as infant children, the aged, the sick or disabled.
6. Confidentiality
   Proving a will is a public procedure. The only other legal form of transfer is via a trust, which remain private, keeping wealth and family matters confidential.

Where Malaysians set up trusts
The residence status of a trust is generally determined by that of its trustees. The taxation of trusts depends on a variety of factors, including the tax profile of the settlor and the beneficiaries and the tax profile of the trust itself.

An offshore trust may provide shelter from some taxation, but they can also offer the opportunity for the roll up of potentially tax-free capital gains and income, for reinvestment by the trustees. There can also be non-tax advantages, including asset protection, succession planning and more confidentiality as compared to a domestic trust.

1. Singapore – most popular choice
Singapore is a top trust jurisdiction for Malaysian families because it offers:

• Political and economic stability.
• Strong, familiar common law legal system.
• Modern trust legislation that includes a settlor’s ‘reserved power over investments.
• Access to leading international trust companies and banks.
• Proximity and ease of administration.
• Ability to hold Malaysian and global assets (via holding structures).

2. Labuan – Onshore legitimacy, offshore benefits
Labuan International Business and Financial Centre (IBFC), Malaysia’s domestic offshore financial hub, is increasingly popular for HNWI Malaysians because it offers:

• Trusts governed by common law that can be applied in an Islamic manner if they subscribe to Shariah principles.
• Malaysian residents can place international assets into a Labuan trust. Malaysian property requires the approval of the regulator, Labuan FSA.
• A Labuan Special Trust (LST) can be used to hold shares in a Labuan holding company, which in turn may own assets. This creates a separation between the custodian role of the trustees and the management of the company which is the responsibility of the directors only. The LST can be used for succession planning, commercial purposes and matrimonial settlement.
• The rate of tax is 3% of audited net profits. Distributions made by a Labuan trust to the beneficiaries are tax-exempt.
• Greater privacy than domestic Malaysian structures

3. International options – Hong Kong, Guernsey and Gibraltar
The residence status of a trust is generally determined by that of its trustees. For clients with global investments and multi-jurisdictional assets, international wealth structuring requires careful legal planning, including the use of offshore trusts in international financial centres:

• Hong Kong’s trust regime was comprehensively modernised by the Trust Law (Amendment) Ordinance 2013, which introduced new provisions to enhance protection for beneficiaries and to provide settlors with reserved powers in respect of investment or asset management functions. Further changes provided statutory protection from foreign laws of inheritance – such as forced heirship rules – and abolished the previous rules against perpetuities and excessive accumulations of income to encourage settlors to establish perpetual trusts.
• Guernsey is at the forefront of best practice development in trusts and was one of the first jurisdictions to introduce the regulation and supervision of trust companies. If all beneficiaries are resident outside of Guernsey, a trust will be exempt from both Guernsey income tax on income arising outside Guernsey and income on bank deposit interest arising from within Guernsey. A trustee can therefore make distributions out of a trust fund established in Guernsey without any withholding or deduction of Guernsey income tax. There are no inheritance, wealth, gift or capital gains taxes levied in Guernsey. Guernsey trusts provide statutory protection from foreign laws of inheritance – such as forced heirship rules.
• Known for its robust regulatory framework and attractive tax environment, Gibraltar is a leading destination for individuals and corporations seeking to protect and grow their wealth. A Gibraltar trust that has non-resident beneficiaries is not subject to tax in Gibraltar, and all its non-Gibraltar source income can be accumulated free of tax in Gibraltar. Asset protection trusts have been given statutory recognition and protection, and the Trusts (Private International Law) Act 2015 introduced ‘firewall’ legislation restricting the application of foreign laws and judgments, particularly on forced heirship.

How do Singapore Trusts work with Shariah law?
Muslim Malaysians face additional complexity due to ‘faraid’, the Islamic inheritance framework, which prescribes fixed proportions for heirs. Trusts can offer the following key advantages:

• Irrevocable lifetime (inter vivos) trusts – transfer ownership while alive to avoid probate and faraid.
• Insurance-linked trusts – may be treated differently under Islamic principles.
• Trusts for non-Malaysian assets – may be less susceptible to local legal challenges.

Risks:

• Revocable trusts may be seen as estate planning loopholes and can be contested.
• Malaysian courts may assert jurisdiction over Malaysian-domiciled individuals and assets.
• Heirs can challenge trusts that sidestep faraid distribution.

Best practice:

• Use cross-border legal experts familiar with Malaysian Shariah law and Singapore trust law.
• Consider Shariah-compliant trust structures for religious harmony and legal resilience.

Plan ahead, structure carefully
Malaysian HNWIs use trusts to control, protect and pass on their wealth, adapting to religious, legal and global realities. Whether it’s a Singapore trust for global assets, a Labuan foundation for tax neutrality, or an offshore structure (Hong Kong, Guernsey or Gibraltar) for multinational planning, the right set up will depend on your unique situation.

Sovereign advises on cross-border estate planning and will balance legal, tax and governance considerations to achieve compliance with diverse legal frameworks and ensure that succession strategies minimise disputes while securing financial stability for future generations.

Our expertise covers structuring offshore trusts, private investment companies and family holding structures to facilitate seamless wealth transfer across borders. For family-owned businesses, we also provide tailored succession strategies to facilitate transitions and ensure business continuity.

Effective succession planning is crucial for preserving wealth and ensuring a smooth transition of assets across generations. Start to plan early so that the legacy you have built can continue to shape the freedom and security of generations to come.