Secret Trust in Malaysia

In any given will, there will be beneficiaries to the testator/testatrix’s estate.

In most cases, each beneficiary in the will is the intended final recipient of the property bequeathed to him or her by the testator/testatrix.

However, in some cases, the testator/testatrix intends for the beneficiary in the will to hold the property on trust for another person. This is where the mechanism known as “secret trust” comes into play.

Essentially, “… the testator will ask a trusted confidant to agree to an arrangement whereby the confidant will receive the gift under the will ostensibly for her own benefit but which is in fact to be held on trust by that person for that third person who cannot be named in the will.”[1]

In the past, the beneficiaries of a secret trust have included mistresses,[2] illegitimate children,[3] and chauffeurs.[4]

Secret trusts allow for “shy testators to make ‘private’ bequests and so avoid embarrassment to many parties.”[5]

Following the decision of the Federal Court in Chin Jhin Thien & Anor v Chin Huat Yean @ Chin Chun Yean & Anor [2020] 4 MLJ 581 (“Chin Jhin Thien”), the concept of secret trust has been expressly recognised in Malaysia.

The first question of law considered in Chin Jhin Thien was:

“Whether the concept of secret trust is applicable to Malaysia as there is no decision regarding the applicability of secret trust?”[6]

The Federal Court answered the question of law in the affirmative[7] and held that “the concept of secret trust, which is part of the law of trust and is governed by the rules of equity and the common law of England, is applicable in Malaysia subject to the proviso to s 3(1) of the Civil Law Act 1956 unless there is an explicit abrogation, variation, restriction or modification by written law.”[8]

A secret trust will only be valid if[9]:

i. the intention of the testator/testatrix was to subject the trustee to an obligation to hold the property on behalf of another;

ii. there was communication of such an intention by the testator/testatrix to the trustee; and

iii. there was acceptance of the obligation by the trustee.

In the event the secret trust fails, the Federal Court in Chin Jhin Thien remarked that, “the trustee will be entitled to the trust property absolutely with no obligation to the beneficiary.”[10]