Discretionary Trust (Malaysia)
DISCRETIONARY TRUST DEED
Trustee Act 1949 (Act 208) | Malaysia
THIS DISCRETIONARY TRUST DEED ("Trust Deed") is made on [Trust Date]
BY:
[Settlor Name] (MyKad: [Settlor IC]), of [Settlor Address] (the "Settlor");
IN FAVOUR OF:
[Trustee Name], of [Trustee Address] (the "Trustee").
This trust shall be known as the "[Trust Name]" (the "Trust").
1. TRUST FUND
1.1 The Settlor hereby settles on the Trustee the sum of [Initial Settled Sum] (the "Initial Settled Sum") and such further assets as are described in the Schedule to this Trust Deed, to hold on the trusts declared herein.
1.2 Schedule of trust assets: [Trust Asset Schedule]
1.3 Additional property may be added to the Trust Fund by the Settlor or any other person with the Trustee's consent by written declaration, and such additional property shall form part of the Trust Fund from the date of addition.
2. CLASS OF BENEFICIARIES
2.1 The potential beneficiaries of this Trust are: [Beneficiary Class] (the "Beneficiaries").
2.2 The following persons are expressly excluded from benefiting under this Trust: [Excluded Persons]
2.3 No Beneficiary has a vested or fixed interest in the Trust Fund until the Trustee exercises its discretion in that Beneficiary's favour. Each Beneficiary has only a hope or expectancy (spes) of receiving a distribution.
3. TRUSTEE'S DISCRETIONARY POWERS
3.1 Distribution discretion: [Distribution Discretion]
3.2 The Trustee shall, at such times and in such amounts as the Trustee in its absolute discretion thinks fit, pay or apply the whole or any part of the income and capital of the Trust Fund to or for the benefit of any one or more of the Beneficiaries to the exclusion of others.
3.3 The Trustee shall consider the exercise of its discretion at least annually and shall not fetter its discretion by committing in advance to make distributions of any particular amount or at any particular time.
3.4 The Trustee may accumulate income not distributed in any year, subject to the accumulation period permitted under Malaysian law.
4. VESTING DATE AND TERMINATION
4.1 This Trust shall terminate on the Vesting Date, being [Vesting Date].
4.2 On the Vesting Date, the Trustee shall distribute the remaining Trust Fund (after payment of all expenses and liabilities) to the Beneficiaries in such shares as the Trustee determines in the exercise of its absolute discretion, or equally among the Beneficiaries if the Trustee does not exercise such discretion before the Vesting Date.
5. TRUSTEE'S DUTIES AND POWERS
5.1 The Trustee shall hold, manage, and invest the Trust Fund in accordance with this Trust Deed and the Trustee Act 1949 (Act 208), acting in the best interests of the Beneficiaries as a class.
5.2 The Trustee shall keep proper accounts and provide annual statements to the Settlor (during the Settlor's lifetime) and, thereafter, to any Beneficiary who requests them.
5.3 The Trustee shall act impartially as between the classes of income and capital Beneficiaries.
6. GOVERNING LAW
6.1 This Trust Deed is governed by the laws of Malaysia, including the Trustee Act 1949 (Act 208), and disputes are subject to the jurisdiction of the High Court of Malaya.
Settlor
________________
Signature
Trustee (Acceptance)
________________
Signature
Witness
________________
Signature
What Is a Discretionary Trust (Malaysia)?
A Discretionary Trust in Malaysia establishes a trust and names the trustee, beneficiaries, and terms on which assets are held.
The High Court of Malaya has jurisdiction over disputes arising from discretionary trusts, applying both the Trustee Act 1949 and the equitable principles of trust law inherited from English common law. The landmark Malaysian case of Re Khoo Cheng Teow [1932] involved trust administration principles that continue to guide Malaysian courts. Trustees of a discretionary trust in Malaysia owe fiduciary duties to the class of beneficiaries as a whole, including the duty to consider distributions periodically, the duty not to fetter their discretion, and the duty to act in good faith and for proper purposes.
A Discretionary Trust must satisfy the three certainties of trust law as recognised by Malaysian courts: certainty of intention (the trust deed must clearly create binding obligations, not merely a precatory wish); certainty of subject matter (the trust assets must be identifiable); and certainty of objects (the class of beneficiaries must be defined with sufficient certainty to allow the trustee to determine whether any given person falls within the class — the test applied by English courts in McPhail v Doulton [1971] AC 424 and followed in Malaysian trust practice).
Amanah Raya Berhad (ARB), the government trust corporation under the Amanah Raya Berhad Act 1995, offers discretionary trust administration services and is frequently appointed as trustee by Malaysian settlors for family discretionary trusts. The Inland Revenue Board of Malaysia (LHDN) taxes discretionary trusts as a separate taxable entity under the Income Tax Act 1967, and trust income distributed to beneficiaries in their hands may be taxed at the individual beneficiary's rate.
The legal framework governing the Discretionary Trust (Malaysia) in Malaysia draws on several key statutes and regulatory bodies. Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Parties executing a Discretionary Trust (Malaysia) in Malaysia should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Wills Act 1959 (Act 346) sets the foundational requirements.
When Do You Need a Discretionary Trust (Malaysia)?
A Discretionary Trust in Malaysia is needed when a settlor wishes to provide long-term financial protection for a class of beneficiaries without locking in fixed entitlements that may not suit changing circumstances.
A Discretionary Trust is needed when a wealthy parent wishes to provide for multiple children of different ages and financial needs, giving the trustee flexibility to distribute more to a child who faces financial hardship, illness, or education expenses, while withholding distributions from a beneficiary who manages wealth poorly or is in a troubled marriage that may involve matrimonial asset claims.
A Discretionary Trust is required when a settlor has a beneficiary with a disability or special needs who requires ongoing financial support but whose needs and circumstances are difficult to predict and define in a fixed formula. The trustee's discretion allows tailored distributions for care, therapy, and housing without the beneficiary losing means-tested government benefits.
A Discretionary Trust is needed for asset protection in family businesses. By placing shares of a Sdn Bhd company registered under the Companies Act 2016 into a discretionary trust, the settlor can confirm business continuity and protect the business from potential creditor claims or matrimonial asset division proceedings against individual family members.
A Discretionary Trust is required when a settlor wishes to benefit grandchildren or remoter descendants who are not yet born or identified at the time the trust is established, as the class of objects can be defined by description (e.g., 'all grandchildren of the settlor') rather than by name.
A Discretionary Trust is needed when a testator includes a discretionary trust clause in their will (a testamentary discretionary trust) and supports it with a Letter of Wishes to guide Amanah Raya Berhad or individual trustees in exercising their discretion after the testator's death.
What to Include in Your Discretionary Trust (Malaysia)
A valid Discretionary Trust in Malaysia must satisfy the three certainties of trust law and contain the following essential elements.
Class of Beneficiaries: The trust deed must define the class of potential beneficiaries with sufficient certainty — using the 'is or is not' test from McPhail v Doulton [1971] — so that the trustee can determine whether any given person falls within the class. The class may be defined by reference to family relationship (e.g., 'the children and grandchildren of the settlor'), employment status, or any other objective criterion.
Trustee's Discretionary Powers: The trust deed must clearly grant the trustee discretionary power over the distribution of income and capital. The deed should specify: whether the power is to be exercised annually or at any time; whether income may be accumulated; the maximum accumulation period (limited to 21 years under Malaysian common law unless extended by statute); and whether the trustee may appoint or exclude beneficiaries from the class.
Trust Fund Description: The assets forming the trust fund must be described with sufficient precision. For real property under the National Land Code 1965, title details must be stated. For financial assets, account numbers and financial institution names must be included.
Trustee Appointment and Succession: The deed must name the initial trustee(s) and provide for the appointment of successor trustees to confirm continuity of administration. Amanah Raya Berhad under the Public Trust Corporation Act 1995 is commonly appointed as corporate trustee to avoid disruption caused by the death or incapacity of individual trustees.
Trustee's Duties and Investment Powers: The trust deed must specify the trustee's investment powers — whether limited to authorised investments under Section 4 of the Trustee Act 1949 or expanded — and the trustee's duties to act impartially between income and capital beneficiaries, keep accounts, and consider distributions at reasonable intervals.
Termination: The trust deed must specify the vesting date (the date on which the trust terminates and the fund is distributed). Under the rule against perpetuities applicable in Malaysia, the trust must vest within the perpetuity period (life in being plus 21 years under common law, or a fixed period not exceeding 80 years under any applicable statutory provision).
Governing Law: The deed must state that it is governed by the laws of Malaysia, including the Trustee Act 1949, and that disputes are subject to the jurisdiction of the High Court of Malaya.
Additional compliance elements for a Discretionary Trust (Malaysia) used in Malaysia include: Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Forms-legal.com provides this template as a starting point for Malaysia-compliant documentation.
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Reference this free template in an article, syllabus, or research note:
Forms Legal. (2026). Discretionary Trust (Malaysia) (Malaysia) [Legal document template]. Forms Legal. https://forms-legal.com/malaysia/estate-planning/trusts/discretionary-trust-malaysia
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year = {2026},
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note = {Free legal document template. Based on Wills Act 1959 (Act 346)}
}Frequently Asked Questions
In Malaysia, a fixed trust is a trust where each beneficiary's entitlement to income and capital is predetermined by the trust deed — for example, 'income to be paid equally to A and B, capital to pass to their children on A and B's death'. A beneficiary under a fixed trust has a vested or contingent proprietary interest in the trust fund. A discretionary trust, by contrast, gives the trustee full discretion over which members of a defined class of potential beneficiaries receive distributions, in what amounts, and when. No beneficiary under a discretionary trust has a fixed interest; each has only a hope or expectancy (spes) until the trustee exercises discretion in their favour. The Trustee Act 1949 (Act 208) governs both types of trust, and the High Court of Malaya applies the three certainties of trust law to both, with the certainty of objects test applied less strictly to discretionary trusts following McPhail v Doulton [1971].
A discretionary trust in Malaysia is treated as a separate taxable entity under the Income Tax Act 1967 (Act 53). The trustee is assessed to income tax on trust income that is retained and not distributed to beneficiaries, at the applicable trust tax rate. Where income is distributed to Malaysian resident beneficiaries, the beneficiaries are assessed on the distributed amount at their individual income tax rates, and a credit is available for tax already paid by the trust. The Inland Revenue Board of Malaysia (Lembaga Hasil Dalam Negeri, LHDN) requires the trustee to file an annual tax return (Form T) for the trust. Capital gains on the disposal of real property held in trust may attract Real Property Gains Tax (RPGT) under the Real Property Gains Tax Act 1976, assessed on the trustee as the legal owner of the property.
A discretionary trust may be challenged before the High Court of Malaya on several grounds. Challenges to validity include: failure to satisfy the three certainties of trust law (particularly certainty of objects under the McPhail v Doulton test); the trust being created to defraud creditors under the Bankruptcy Act 1967 (Act 360) or the Companies Act 2016; the trust being set up to defeat a spouse's matrimonial asset claims under the Law Reform (Marriage and Divorce) Act 1976 (Act 164); the settlor lacking capacity; or the trust being created under duress or undue influence. Challenges to trustee conduct include breach of fiduciary duty, failure to consider distributions, unauthorised investment, self-dealing, or conflict of interest. Beneficiaries may apply to the High Court for an account, for the removal of a trustee under Section 46 of the Trustee Act 1949, or for approval of a variation of trust under the court's inherent equitable jurisdiction.
The duration of a discretionary trust in Malaysia is limited by the rule against perpetuities, which requires that the trust's beneficial interests vest within the perpetuity period. Under Malaysian common law, the perpetuity period is a life in being at the time the trust is created, plus 21 years. In practice, most Malaysian discretionary trusts are structured to vest within 80 years (a period commonly used in trust drafting by reference to the maximum period permitted under English law's Perpetuities and Accumulations Act 1964, which Malaysian courts have considered persuasive). The accumulation of trust income is also limited — under Malaysian common law, income may be accumulated for a maximum of 21 years from the date of the trust's creation. The trust deed should expressly state the vesting date to avoid any uncertainty about the trust's duration.
A trustee of a discretionary trust in Malaysia may be an individual or a corporate trustee. Up to four individual trustees may be appointed under Section 32 of the Trustee Act 1949 (Act 208). Individual trustees must be adult natural persons of sound mind and not undischarged bankrupts. Amanah Raya Berhad (ARB), established under the Amanah Raya Berhad Act 1995, is the government-endorsed professional trustee and offers discretionary trust administration services across Malaysia. Private licensed trust companies regulated by the Securities Commission Malaysia under the Trust Companies Act 1949 (revised 1973) are also available. Professional corporate trustees are generally preferred for long-term discretionary trusts because they provide continuity, professional expertise, regulatory oversight, and indemnity insurance — individual trustees may die, become incapacitated, or have conflicts of interest.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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