The myths of trust planning

THE idea of a trust has a long history. In the 12th century, knights leaving for the Crusades entrusted the management of their land to someone who would hold it for their families if they did not return – that person became the trustee, and the concept remains the same today.

Say the word “trust” to many Malaysians and reactions are mixed: some see it as a legacy tool only for the ultra-wealthy, others mistake it for a commercial arrangement promising attractive cash returns.

Neither view is correct.

A conventional trust is a planning and governance arrangement. A donor transfers specified assets to a trustee, who holds, administers and distributes them to named beneficiaries – creating clarity and continuity for assets to be passed on according to the donor’s terms.

Creating a trust begins with three questions: why create one, which assets should go into it and who should benefit. Yet, misconceptions still keep families from having these conversations.

Myth 1: Trusts are only for the ultra-wealthy.

The relevant question is not how much a person owns, but what happens if they can no longer manage it.

If both parents die unexpectedly, assets generally cannot be dealt with until a court grant is obtained – a process that can take months, sometimes longer.

Assets properly settled into a trust during the donor’s lifetime can be administered under its terms without waiting for probate, giving continuity and timely support to beneficiaries.

A trust can also anticipate what a will cannot, such as releasing funds for urgent medical treatment.

Myth 2: Trusts are a way to hide wealth.

This is a damaging misconception. A properly constituted trust is a documented legal arrangement, created by a written deed, and cannot be used to defeat the legitimate claims of creditors.

Confidentiality within a family is not concealment – not every relative needs to know the terms of a distribution.

In my experience, premature disclosure often leads to prolonged disputes over money not yet received.

Myth 3: A will is enough on its own. A will is essential, but it is not a complete plan. It takes effect only upon death, still requires probate and does not address loss of mental capacity during the donor’s lifetime.

An inter vivos trust takes effect immediately and can allow a co-trustee to manage assets if the donor no longer can.

A will and a trust work together, not as alternatives.

Myth 4: Setting up a trust means losing control.

In fact, a trust lets the donor set clear terms – who benefits, when and on what conditions – which the trustee must then follow. That is what ensures the donor’s wishes are honoured after death or incapacity.

This is why terms must be drafted carefully. A parent may specify that a child inherits only upon graduating from university; if that child instead takes a vocational route and builds a successful career, a trustee bound by that single word may have limited scope to help.

Do not impose today’s assumptions on a life to be lived decades from now.

Myth 5: A trust is a financial product.

A conventional trust exists for succession, legacy and stewardship of assets for named beneficiaries, not to generate returns.

A regulated investment vehicle, such as a unit trust run by a licensed fund manager, is an entirely different arrangement.

Any scheme built around a fixed maturity period, projected periodic payouts or fees linked to portfolio performance, is doing something materially different from the purpose of a conventional trust.

Coca-Cola and Rolex did not collapse when their founders died, because structures were already in place. No one had been promised a return – the structure simply held.

Myth 6: Planning can wait.

Families often try to put arrangements in place during a crisis, and decisions made under pressure are rarely the best ones.

A retiree, for instance, may direct that a fixed monthly sum be paid to them for life before any distribution reaches the children. That is not distrust; it is prudent planning within a framework understood by all parties.

Before entering into a trust arrangement, ask: What is its purpose? Who are the donor, trustee and beneficiaries? Which assets are involved? What are the trustee’s duties? On what terms will distributions be made? What fees apply? And can the governing documents be reviewed in full?

Take stock of what you own, review any arrangements already in place, and have the conversation with your family about what happens next. If a provider cannot answer these questions clearly and in writing, that itself is useful information.

A trust is a structure for preserving what you have built and passing it on responsibly. Like most forms of planning, it works best when it is not left too late.