In our first article, “What is a Trust in Malaysia? A Simple Introduction”, we saw that a trust is essentially a legal arrangement where assets are managed by one party for another’s benefit, following set instructions. It’s a common tool under Malaysian civil law for managing assets and planning ahead.
But who are the key players making this arrangement work? Understanding the three main roles – the Settlor, the Trustee, and the Beneficiary – is vital. Each has distinct responsibilities and rights. Let’s look at each one.
1. The Settlor: The Founder of the Trust
The Settlor is where it all begins – the person who creates the trust.
- Who are they? The Settlor is the original owner of the assets who decides to place them into a trust structure.
- What’s their role?
- They initiate the trust, deciding its purpose (like funding education or supporting family).
- They appoint the Trustee(s) – choosing who will manage the trust. This is a critical decision.
- They name the Beneficiary(ies) – identifying who will ultimately benefit.
- They set the rules for the trust, usually detailed in a legal document called the Trust Deed. This document is the Trustee’s instruction manual.
- They transfer the assets to the Trustee, moving legal ownership to them.
- Legal Requirement: A Settlor needs the legal ability (capacity) to create a trust – typically being of sound mind and legal age (18 years old and older), as laid out in Section 11 of the Contracts Act 1950 (Act 136).
Once the trust is validly created (we’ll cover how in our next article on “Creating a Valid Trust: The 3 Certainties”), the Settlor usually takes a backseat, unless they’ve specifically reserved powers in the Trust Deed (common in certain types of trusts like Revocable Living Trusts – see “Exploring Different Types of Trusts in Malaysia”). Their initial instructions, however, remain paramount.
2. The Trustee: The Trust’s Manager
The Trustee has the most hands-on role in managing the trust day-to-day.
- Who are they? A Trustee can be an individual (like a trusted family member or a professional) or a licensed trust company.
- (Confused about Trust Companies vs. the trust itself? See our clarification article: “Trusts, Trust Companies, and Business Trusts in Malaysia: Clearing the Confusion”).
- What do they do?
- They hold legal title to the trust assets – meaning they are the legal owner, but only for the Beneficiaries’ benefit.
- They manage the assets based on the Trust Deed and Malaysian law, particularly the Trustee Act 1949. This involves safeguarding assets, potentially investing them, managing property, etc. We detail these obligations in “What Does a Trustee Do? Key Duties and Responsibilities in Malaysia”.
- They must strictly adhere to their Fiduciary Duty – the legal obligation to act honestly, carefully, and solely in the Beneficiaries’ best interests.
- They make distributions (payments of income or assets) to the Beneficiaries as the Trust Deed directs.
- They maintain accurate accounts and records, keeping track of everything.
- The Serious Part: Being a Trustee isn’t just administrative; it carries significant legal weight. If a Trustee fails to perform their duties correctly – known as a Breach of Trust – they can be held personally responsible for any resulting losses. (Learn more in our article: “Breach of Trust in Malaysia: What It Means and What Happens Next”).
3. The Beneficiary: The Recipient of the Benefit
The Beneficiary is the central focus of the trust – the person or entity it’s designed to help.
- Who are they? Beneficiaries are clearly identified in the Trust Deed by the Settlor. They can be specific people (“my son, Ali”), a defined group (“my grandchildren”), or even a charity (in a Charitable Trust – see “Exploring Different Types of Trusts in Malaysia”).
- What’s their position?
- They hold the beneficial interest – the right to enjoy the benefits of the trust assets.
- They are entitled to receive distributions as specified in the Trust Deed.
- They generally have rights to information from the Trustee about how the trust is being managed.
- Crucially, they have the right to hold the Trustee accountable. If a Beneficiary suspects the Trustee is mismanaging the trust or breaching their duties, they have legal avenues to enforce the trust. Learn more about “Understanding Your Rights as a Trust Beneficiary in Malaysia”.
Putting It All Together
Imagine the Settlor drawing a map (the Trust Deed), giving it and the resources (assets) to the Trustee. The Trustee then navigates according to the map to deliver the resources to the destination (the Beneficiary). Each role is distinct but interconnected.
Understanding who the Settlor, Trustee, and Beneficiary are, and their basic functions, provides a clear picture of the trust structure.
Next Up: Making Sure It’s Legal
Knowing the players is step one. But how do you ensure the trust itself is legally sound from the start? What are the absolute essential legal ingredients?
Read our next article here: “Creating a Valid Trust in Malaysia: The 3 Certainties You MUST Know”
Disclaimer: This article gives general information only and isn’t legal advice (civil or Syariah). Trust law can be tricky, and how it applies depends on your specific situation. Always talk to a qualified lawyer about your own needs before making decisions about trusts.
Need Help with Civil Trusts? If you’d like to know if a civil law trust could work for you, need help setting one up, or have questions about a trust under the Trustee Act 1949, feel free to contact us. We can set up a consultation to discuss your situation.
