UEQ 3612 – EQUITY AND TRUST I

“Living trusts is a form of gift inter vivos created during the lifetime of the settlor and remains
active thereafter. It is completely constituted where the settlor appoints a trustee, or in
circumstances when the settlor declares himself as a trustee to hold the property on trust for the
beneficiary.”

Discuss the above statement in relation to the charitable and non-charitable trusts, and recent
development in Malaysia (if any).
BY

NAME ID
BONG HONGJIE, IVAN 1132701892
POH YEE LI 1132701773
HENG KAI LUN 1132700078
NEW JIUN KAI 1132700034
OOI ZIE YIONG 1131119272

ASSIGNMENT SUBMITTED IN FULFILMENT OF THE

REQUIREMENT FOR THE BACHELOR OF LAW

(UEQ 3612 – EQUITY AND TRUST I)
Mdm.YusnitaBintiMohdYusof

Faculty of Law

MULTIMEDIA UNIVERSITY
MALAYSIA

1
 ACKNOWLEDGEMENT

In performing our assignment, we had to take the help and guideline of some respected persons,
who deserve our greatest gratitude. The completion of this assignment gives us much Pleasure.
We would like to show our gratitude Mdm.YusnitaBintiMohdYusof for giving us a good guideline
for assignment through consultation. We would also like to expand our deepest gratitude to all
those who have directly and indirectly guided us in writing this assignment. Many people,
especially our classmates and team members itself, have made valuable comment suggestions on
this proposal which gave us an inspiration to improve our assignment. We thank all the people
for their help directly and indirectly to complete our assignment.

DECLARATION

This is our own work. We have not previously submitted this work, in whole or in part, for
assessment. This work complies with all the governing legal and ethical rules, including those
concerning plagiarism and copyright. We have not plagiarized and have also acknowledged all
sources which are not our own and have not merely “cut and paste” from elsewhere. We have
retained a copy of this assignment.

Each of us has contributed roughly equally to this assignment. If there are any complaints about
non-contribution, then we will abide by the Lecturer’s decision regarding the allocation of marks
for the assignment.

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 TABLE OF CONTENT

Title Pages

Cover Page 1

Acknowledgement & Declaration 2

Introduction 4

Living Trust 4-6

Completely Constituted Element For Trust 6-9

Charitable Trust 9 - 14

What is Intestacy and Distribution of Property under Intestacy Law 14 - 17

Comparing Inheritance Law and Its Developments 17 - 20

Conclusion 20

Bibliography 21 - 22

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INTRODUCTION

There are two types of trust, namely express trust which are created by the settler on purpose,
and implied trust which are imposed by courts when a trust fails or in the hand of wrong person.
Trust may be created for private purpose or charitable purposes. A charitable trust is a trust that
promotes charitable purpose and does not benefit any specific persons.A charitable trust is a
charity arrangement set out in a trust deed, where a settler would hand over certain property to a
group of persons(trustees) to administer the trust property for a charitable intention as set out in
the trust deed.1 On the other hand, living trusts, is in fact every single trust in the world with
slight probable differences, unless it is created by will, which would only take effect upon the
death of the settlor.

LIVING TRUST

Living trust is a written legal document that someone create it with his or her lawyer during the
lifetime which the assets are placed into trust and transferred to designated beneficiaries by the
trustee.2 The living trusts are simple documents that can save many people’s time and money.
Also, this living trust is simple to set up and it is easy and quick to transfer the property to the
trustee after the settlor’s death. Thus, it become a wise choice for those people who want an easy
and quick way to put their assets in trust while they’re still alive and remains active thereafter.

Living trust is an inter vivos trust and also a form of gift intervivos which created during the
lifetime of the settlor and the trust will be remains active upon the death of the settlor. 3 What it
meant by a form of gift inter vivos created during the lifetime of the settlor and remains active
thereafter is that the living trust allows the people to put their assets in trust while they’re still
alive. The living trust will become effective during their lifetime as opposed to upon his death.
The settlor may choose to fund it during his or her lifetime or leave it unfunded until his or her

1
'Charitable Trust' (Legal Information For Charities) <http://docs.lawsociety.org.sg/Legal-info-
charities/index.php/getting-started/types-of-legal-structures/charitable-trust> accessed 3 September 2016.
2
Michelle Fabio, ‘Top Three Benefits of a Living Trust’ (Nov 2015) <https://www.legalzoom.com/articles/top-
three-benefits-of-a-living-trust> accessed 11 September 2016
3
In Malaysia, there are only three ways in which an inter vivos gift may be legally made namely, by an outright
transfer of the property to the intended done or by a transfer of the property absolutely to trustees to hold on
trust for the donee or by the owner declaring himself as a trustee for the donee.

4
death.4 What is meant by fund it here is that the settlor can actually decide and choose whoever
to become the legal owner of his or her assets. If the settlor appoints a trustee, the trustee will
become the owner of the assets. The property will no longer belong to the settlor’s estate and it is
irrevocable if the settlor did not reserve the power of revocation when constituting his trust.5 The
trustee then can manage the assets during the lifetime or even once the settlor dies. However, if
the beneficiary pre-deceased the settlor, the trust property will result back to the settlor.

Although the living trust and wills both contain the inheritance instructions, however both can be
distinguished. First, unlike wills, the living trust can avoid probate. A living trust does not go
through probate since the trustee of the settlor’s living trust owns that property. Therefore, a
living trust is a faster distribution of assets to the beneficiary. The successor trustee will then pay
all the debts and distribute the assets according to the settlor’s instructions. Unless there is trustee
or beneficiary demands court approval of accounts, otherwise a living trust will remain private.
However, with a valid will, the settlor’s estate will go through probate. Court proceedings will be
held and the executor will ensure that the debts are paid before distribute the assets according to
the settlor’s wishes. Under the will, public document must be filed with the Probate Court at
death and it will become public record at the time of the settlor’s death. Also, if there is any
beneficiary challenges and creditor disputes, the courts have the power to intervene.

Besides that, a living trust is easy to create and change. In a living trust, it is not that hard for the
lawyer to create a living trust for simple estates. Also, the settlors do not have to go through the
formalities required when execute or changing a will. Witnesses or other legal voodoo are not
necessarily needed to execute or amend the living trust. However, it is a different case when
making a will.

Another difference between living trust and wills is the costs. The costs when prepare a will
would be less than a living trust. However, the cost to probate a will can be expensive. Therefore,
although preparing a living trust could cost more than preparing a will, but living trust does not
need to cover the costs to probate.

4
Attorney Paul T, ‘All You Need to Know About Living Trusts and Probate’ <http://www.czepigalaw.com/files/all
you need to know.pdf> accessed 13 September 2016
5
Mary George, Malaysia Trust Law, Selangor: Pelanduk Publication 1999, p 78; David J. Hayton, Underhill and
Hayton law relating to trust and trustees, 15th Edition, Butterworths, p 125.

5
A will does not cover property held in joint tenancy or in a trust. It only covers any property that
is only in the settlor’s name when he or she dies. A living trust, however, covers only property
that has been transferred to the trust. If the settlor wants the property to be included in the trust,
he or she must put the property in the name of the trust.6

A living trust may be “revocable” or “irrevocable”. The settlor must decide whether it is
revocable or irrevocable when he or she creates the living trust. A living trust is said revocable
when the settlor can revoke or make any changes at any time as long as the settlor is alive and
competent. If it is revocable trust, the assets may be return to the settlor. A revocable trust is
called as “living” because the settlor creates and fund the trust during his lifetime. Conversely,
an irrevocable trust cannot be revoke or change by the settlor. The right to make changes of the
trust will be permanently relinquishes by the settlor. This means tha the assets are no longer own
by the settlor and typically the settlor cannot make changes without the beneficiary’s consent.

COMPLETELY CONSTITUTED ELEMENT FOR TRUST

For a trust to be valid, trust property 7 must be vested in the trustee. This is the question of
whether the trust has been completely constituted. In trusts by declaration there is typically no
issue of completely constituted. If the trust is not completely constituted, it will fail. A valid
declaration of trust becomes “completely constituted” when legal title to the trust property is
transferred to the trustee(s). In most cases this is effected by the declaration itself but in others
certain formalities must have been complied with for a trust to be completely constituted. For
example, a declaration of a trust of land must comply with section 53(i)(b) of the Law of
Property Act 1925. An incompletely constituted trust will be void.

6
‘Understanding the Differences Between a Will and a Trust’ (28 January 2013)
<http://www.elderlawanswers.com/understanding-the-differences-between-a-will-and-a-trust-7888> accessed 13
September 2016

7
Completely constituted trust - oi', (31 August 2016)
<http://oxfordindex.oup.com/view/10.1093/oi/authority.20110803095629221> accessed 6 September 2016

6
Where a trust has been fully constituted, there is an effective 8 transfer of the trust property to
trustees and he beneficiaries are entitled to the equitable interest in the property. This can be seen
from the following case. Paul v Paul9 (1882) 20 Ch D 742, CA, where the separated husband
and wife applied to have the capital of the trust paid over to themselves, arguing that the only
other persons with any interest in it were the next of kin, who were volunteers. It was held that
although next of kin were volunteers, they enjoyed an immediate equitable interest in the capital
because the trust was fully constituted and they were beneficiaries under it. As such, the trust
could not be brought to an end without their consent. Turner L.J. outlined the two methods a trust
could be constituted ‘by actually transferring the property’ to the intended trustees or by
declaring he or she trustee ‘either in writing or by parole’.

For the first method, declaring himself or herself as a trustee had been laid down in the case of
Milroy v Lord where in order to complete transfers of property in equity, even where the
formalities might appear not to have been observed. Another example can be
Standing v. Bowring [1885] where the plaintiff had vested property in the defendant without
informing him. The court held that he could not be compelled to return it under a resulting trust
to the plaintiff, as he had assumed title to the property. While equity would not perfect an
imperfect gift, it could protect the recipient of a perfected gift from a donor’s subsequent change
of mind.

10
In Milroy v. Lord , the principles were further relaxed by the Privy Council
in Choithram v. Pagarani [2001].Lord Browne-Wilkinson’s speech asserts that the only possible
construction of a deed purporting to make a gift outright to a Foundation with ‘no legal existence
apart from the trust declared by the Foundation trust deed’, was that the gift was made to the
trustees of the Foundation, to be held on trust. This creates a new means by which a validly

8
Philip H Pettit, '6. Completely and incompletely constituted trusts - law trove' (20 July 2016)
<http://www.oxfordlawtrove.com/view/10.1093/he/9780199694952.001.0001/he-9780199694952-chapter-6>
accessed 6 September 2016
9
Brief, 'Enforcing a trust: Enforcing fully constituted trusts' (2010) <http://www.inbrief.co.uk/estate-law/enforcing-
a-trust/> accessed 6 September 2016
10
Carol, 'Is ‘a completely constituted trust’ a tautology, and an ‘incompletely constituted trust’ a contradiction in
terms? - ELSA Law review' (Essays, 26 June 2011) <http://elsareview.org/is-%E2%80%98a-completely-constituted-
trust%E2%80%99-a-tautology-and-an-%E2%80%98incompletely-constituted-trust%E2%80%99-a-contradiction-in-
terms/> accessed 6 September 2016

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constituted trust might arise, through a ‘declaration of self and others as trustees’ which would be
completed in equity.

The second method is transfer the property by intention11. Problems in the constitution of trusts
have arisen as a result of the procedures required to complete the transfer of legal and equitable
property. In Re Rose, a gift of property is valid as soon as the transferor has done everything in
his or her power to make it effective. However, Jill Martin suggests that Re Rosecreates a
number of theoretical difficulties’,as to how the property is held after the completion of all the
formalities on the transferor’s side. Evershed M.R.’s solution is that the settlor holds the property
on trust until the other parties have discharged the necessary procedures.The rule in Re
Rose represents a move away from the strict application of Milroy v. Lord, and suggests that a
trust may not conform to either of the two means of constitution put forward in that case and
nonetheless be valid.

Living trusts12 is a trust made to operate during your life time. A living trust also is one of the
means by which individuals can avoid the difficult process of probate. Living trusts are more
accurately termed ‘inter vivos’ trusts. Most simply, they can be seen as the legal opposite to
testamentary trusts, which are not fully constituted until after the death of the settlor. Thus, a
living trust is constituted during the lifetime of the settlor, and also comes into effect within this
period. Anyone can establish a living trust, as long as they have assets to transfer into it. It is
perfectly possible13 for the same person to be named settlor, beneficiary and trustee. In this case,
while the assets will be legally owned by the trust itself, the settlor not only derives the benefit
from them, they also have total control over their disbursement within the boundaries established
by the trust documents.

Since the living trust allow the settlor, beneficiary and trustees to be the same person, then it
could be a complete constituted trust. In complete constituted trust, there are 2 methods which
had been introduced in Milroy v Lord which are declare himself as a trustee or transfer the

11
Carol, 'Is ‘a completely constituted trust’ a tautology, and an ‘incompletely constituted trust’ a contradiction in
terms? - ELSA Law review' (Essays, 26 June 2011) <http://elsareview.org/is-%E2%80%98a-completely-constituted-
trust%E2%80%99-a-tautology-and-an-%E2%80%98incompletely-constituted-trust%E2%80%99-a-contradiction-in-
terms/> accessed 6 September 2016
12
2016, 'What is a living trust?' (2000) <http://www.estatesortrusts.co.uk/what-is-a-living-trust.html> accessed 6
September 2016
13
'What is a living trust?', <http://www.olaleslie.com/what-is-a-living-trust/> accessed 6 September 2016

8
property by intention. In my humble opinion, living trust had fulfil these 2 requirements. As for
the first method, since the settlor, beneficiary and beneficiary can be the same person in living
trust, the person also can appoint himself as trustee which can refer to the Milroy v Lord. For the
second method which has the intention to transfer the property. Living trust also had comply
with this requirement due to the testator had enter into the trust to transfer the property during his
lifetime and this trust will be enforced after the death of the testator. If the living trust fail, then it
will be resulted back to resulting trust.

CHARITABLE TRUST

Charitable trust can be created 'inter vivos' or by will, and it also subjected to the rules of
certainty of intention and subject matter. It can be as an 'inter vivostrust'(living trust) which
commences during the lifetime of the person creating the trust as distinguished from a trust
created by a will (testamentary trust) which comes into existence upon the death of the writer of
the will.14 Living trust can be created by declaration of trust or by deed of trust.

The term 'charity' has not been statutory defined in the context of West Malaysia, the courts used
the Preamble to the Statute of Charitable Uses 1601 or sometimes referred as the Statute of
Elizabeth as what would amount to charity in law. For a modern definition of Charity could be
refer to the case of Re Abdul GunyAbdullasa, Deceased; Fatimah Beebee Amal v. Mohamed
Abubakar15, where Gordon Smith J adopted the definition laid down by Lord Macnaghten in the
case of Income Tax Special Commissioners v. Pemsel 16 , stated that although there is no
definition for ‘charity’ in its popular sense, yet under legal sense it comprise of trusts for relief or
poverty and advancement of education, religion together with other beneficial purposes to
community not failing any preceding heads.

Charitable trust in order to be valid, it need not comply with the strict requirement of three
certainties in the aspect of the object, where charitable trust need not have human beneficiaries.
Even if the terms for the object is vague or ambiguous, the court may order a benignant

14
'Inter Vivos' (The Free Dictionary By Farlex) <http://legal-dictionary.thefreedictionary.com/inter+vivos> accessed
3 September 2016.
15
[1936] MLJ 140
16
[1891] AC 531

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construction or 'cy-pres scheme', when a gift is made by will or trust for charitable or educational
purposes, and the named beneficiary does not exist or no longer conducts the activity for which
the gift is made, then the estate or trustee must make the gift to an organization which comes
closest to fulfilling the purpose of the gift.17 In the case of Re Koeppler's Will Trust 18, Slade LJ
in his opinion held that similar to those arose in the McGovern case, the trust is entitled to what
is sometimes called ‘benignant construction’, that the court is entitled to presume that trustees
will act only in a lawful and proper manner appropriate to the trustees of a charity.19

Besides that, all registered charitable trust which set up under the Societies Act, Companies Act
or Trust Companies Act can apply for tax exemption. 20 However, all registered charitable
institutions or charitable trust must comply with the condition set by the Income Tax Department
in order to qualify for tax exemption, providing that income of a building fund approved 21 of
religious institutions not operated primarily for profit established in Malaysia exclusively for
purposes of religious worship or the advancement of religion 22 , or by discretion of State
Authority23. The rationale behind granting tax exemption to charities is that there is tremendous
benefit to the public or a section of it if the charity were to continue its activities.

ELEMENTS OF CHARITABLE TRUST

1. Public Benefit

For a property to be charitable in law, it must be for public benefit of the whole community or
some section of it. In the case of Nai Seng Hiang&Ors v. The Trustees Of The Presbyterian
Church In Singapore Registered &Ors 24 , where plaintiff who is the present trustee of the
disputed land seek the court's intention whether the trust declared by the deceased(settler) under

17
'Cy-Pres Doctrine' (The Free Dictionary By Farlex) <http://legal-
dictionary.thefreedictionary.com/cy+pres+doctrine> accessed 4 September 2016.
18
[1986] Ch 423
19
'Re Koeppler's Will Trusts' (Swarb.co.uk, 2015) <http://swarb.co.uk/in-re-koepplers-will-trusts-re-barclays-bank-
trust-co-plc-v-slack-and-others-ca-1986/> accessed 4 September 2016.
20
Part IX of the Income Tax Act 1961(ITA). S.127 of ITA
21
S.44(6) of ITA
22
S.13(1)(b) of ITA
23
S.134 of the Local Government Act
24
[1988] 3 MLJ 311

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clause 2 is a valid charitable trust. Lai Kew Chai J ordering a 'cy-pres scheme' to fulfil the
exclusive charitable intention created by the trust, held that:

“Having regard to all the factual matrix and the provisions of the declaration of
trust, the court is of the opinion that the donor had clearly and unequivocably
evinced a general charitable intention that Christian works and evangelistic
pursuits were the exclusive purposes with the other purposes 'social or otherwise'
as mere adjectives describing one aspect of them because these words were not
free standing as to import separate objects.”

2. Public Policy Consideration

Besides that, the charitable trust not only created for public benefit, it also must comply with the
public policy. In the case of Canada Trust Co. v. Ontario Human Rights Commission25, the
settler established the Leonard Foundation Trust to provide scholarships at eligible institutions
for students meeting the following qualifications 'the student was to be “needy”, white, of British
parentage or nationality and Protestant'. The issue in this case was whether provisions of the
charitable trust contravene public policy. Tarnopolsky J.A. held that the trust was void on the
ground of public policy to the extent that it discriminated on grounds of race, religion and sex. A
charitable trust which fails can be applied cy-pres if the settlor had a general charitable intention.
Settlor's paramount intention was charitable and the discriminatory scheme he chose were
merely machinery for carrying out his general charitable intention. Provisions of trust confining
management, judicial advice and benefit on discriminatory grounds should be deleted from the
trust instrument.26

3. Exclusively Charitable

To be a valid charitable trust in law, the entrusted charitable property must be exclusively for
charitable purposes as laid down in Nai Seng Hiang's case. Recent case regarding this principle
could be seen in the case of Commissioner of Taxation of the Commonwealth of Australia v

25
(1990) 69 DLR (4th) 321
26
'Canadatrust Co. V. Ontario Human Rights Commission (C.A.), 1990 Canlii 6849 (ON CA)' (The Canadian Legal
Information Institute)
<https://www.canlii.org/en/on/onca/doc/1990/1990canlii6849/1990canlii6849.html?resultIndex=1> accessed 4
September 2016.

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Word Investments Ltd 27 , Word Investments Ltd(Word) was founded by members closely
associated with Wycliffe(Christian missionary organisation which engaged in various religious
activities), with the intention of using Word to raise money within Australia through various
business ventures, and give that profits to Wycliffe and other similar Christian organisations, to
enable them to perform religious activities. The Australian Taxation Office(ATO) refused to
approve Word as an Income Tax Exempt Charity because Word's commercial enterprise entities
are not charities, irrespective of whether the enterprise gives its income to charitable institutions.
High Court of Australia ruled in favour of Word and held that business activities did not
disqualify a charity from income exemption status. The majority said that the principal issue in
deciding whether an institution was charitable was its purposes and not just its income raising
activities.28

COMPARISON BETWEEN TESTAMENTARY & LIVING CHARITABLE TRUST29

Testamentary Trust Living Trust

Creation Created within the will Created outside of the will

Effective Takes effect after Probate granted & Takes effect immediately
Period clearance of debts and liabilities

Trustee Task Apply for Tax Exemption Licence from Inland Revenue Board of
Malaysia(IRB)

After Probate granted (delay) After execution of the Trust

(immediate)

27
(2008) 251 ALR 206
28
Peter P Gell and Janice Sacco, 'Australia: Commissioner Of Taxation V Word Investments Limited' (Mondaq, 2008)
<http://www.mondaq.com/australia/x/71370/Charities+Non-
Profits/Commissioner+Of+Taxation+V+Word+Investments+Limited> accessed 4 September 2016.
29
KC Lau, 'How To Set Up A Charity Foundation In Malaysia' (Kclau.com, 2013) <http://kclau.com/estate-
planning/charity-foundation/> accessed 4 September 2016.

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The most relevant difference between testamentary charitable trust and living charitable trust is
that the testamentary charitable trust is revocable during the live time of the settler while for the
living charitable trust it is not revocable by the settler once it is created. In testamentary trust,
settler can change the terms and conditions upon the trust, like who is the beneficiaries or how
the property will be managed and invested while settler is still alive. trust. In fact, settler of
testamentary trust doesn’t give up any rights to his property when transfer it to a revocable living
trust, he still treated as the owner of the property for tax purposes. However, for living charitable
trust to enjoy the fiscal advantage, the trust must be irrevocable so that the settler would not
misuse of the living charitable trust to avoid taxes from the government which is always the case
(charitable trust must be for public benefit and exclusively charitable). Transferring property to
an irrevocable trust is the equivalent of making a complete gift of the property, settler don't have
any right to get the property back or to alter or affect its use in any way once the transfer is made,
the property is not subject to government tax because the settler no longer owns it.30

NON-CHARITABLE PURPOSE TRUST

Same as being a purpose trust, the main dispute is that a trust must be directed to benefit an
individual and not the purpose of trust creation itself, thus mostly struck down by courts as non-
charitable purpose trust, no individual is directly benefits from it or no ascertainable beneficiaries
are able to enforce the trust.

There are a few elements that explains why non-charitable purpose trust is not valid. First of all,
it is unenforceable as the obligation of trust cannot be put onto trustee unless there is correlative
right to someone else enforce it, an identifiable beneficiary. And unlike charitable ones where
Attorney General is in charge with enforcement duty, this trust does not follow the principles
general principle as it has no beneficiaries, rendering it totally void.31 In the case of Morice v
Bishop of Durham32, every trust must have a definite object. There must be somebody in whose
favor the court can decree performance, and the trust is void unless there are human beneficiaries

30
'Types Of Trusts' (Livingtrustnetwork.com, 2016) <https://www.livingtrustnetwork.com/estate-planning-
center/revocable-living-trust/types-of-trusts.html#livingvstestamentary> accessed 15 September 2016.
31
'Non charitable purpose trust - law resource', (2005) <https://www.tutorhunt.com/resource/2719/> accessed 18
September 2016
32
(1840) VES Jr 399

13
capable of enforcing the trust, as in this case no one had standing to enforce the trustee’s duty, so
trustee is uncountable in administration of trust fund.33

Another Issue is uncertainty, generally using the previous case and Re Astor’ Settlement Trusts34
as an explanation, where in charitable trust it can be as vague as possible and an implement of
scheme of distribution can be made by the courts. However, with a private purpose trust that has
nothing to do with charity, there is no ability to render precise vague terms by means of scheme.
This means that the trust would be inoperable as trustee would not know how to deal with the
money or objectives received. Consequently, even if the absence of beneficiaries to enforce the
trust did not result in invalidity, the purpose must also be prescribed with a sufficient degree of
certainty, where surrendering trustees discretion to court would result in court having to
administer the trust.35 Leading to the next problem which is excessive delegation testamentary
power, where judicial statements had led the effect that purpose trust created by will are void
because trustees are left to determine the application of property in will.

Non-charitable purpose trust has certain exceptions to render it valid, a few example is the care
and maintenance of specific animals, non-charitable gift to unincorporated association or fox
hunting 36 . However, on matter of perpetuity, one exception greatly interacts with it is trust
intended for tombs and monuments. In case of Musset v Bingle 37 , There was a contested
disposition for purpose of constructing and maintenance of a memorial. It was held that
constructing a memorial can be seen as an exception to non-charitable purpose trust to the rule,
and the maintenance is void as no time was stated, thus rendering it under uncertainty. Another
famous case is Re Hooper 38 , where the court accepted the trust as valid with limitations in
perpetuity, for trustee to take care the cemetery graves and monuments, and his family’s vault
remains. In can also be seen in McCaig v University of Glasgow39, as by Lord Kyllachy stated
that if purpose were to lay waste an estate, or turn it into money for monthly or annual funeral

33
Oxbridge Notes (2010) <https://www.oxbridgenotes.co.uk/revision_notes/law-trusts-and-equity/samples/the-
beneficiary-principle-and-non-charitable-purpose-trusts> accessed 18 September 2016
34
(1952) Ch 534
35
Graham Virgo, The principles of equity and trusts (OUP Oxford. Copyright. 2012)
36
<http://gdlguru.com/onewebmedia/Trusts%20Non%20Charitable%20.pdf> accessed 18 September 2016
37
[1876] WN 170
38
(1932) 1 Ch 38
39
(1907) SC 231

14
service, then such trust for the tomb or monuments serves no such purpose, he opined, and would
have been inconsistent with public policy, rendering it unfit for such exception.40

Besides that, there is also the issue of perpetuity rule. Property is vested in an individual within a
limited period of time after it is left on trust for beneficiaries. If time period is exceeded, interest
of property is void. However, this rule is managed differently for purpose trust, as property will
never vest in an ascertainable beneficiary. Therefore, S.15 41 shows that 125 years’ perpetuity
does not apply to purpose trust. Under Common Law, the time duration would be 21 years, or
extension of period as to duration of an identified person’s life is given only when expressly
specified.42

The exception to above statement is on testamentary trusts on imperfect obligation for non-
charitable trust is acceptable as valid. As summarized43, if properly established within relevant
exceptions where the trust by its nature is in an imperfect obligation state, the trustee is prima
facie unable to perform the same as there is no one in whose favor the court can decree
performance. Conversely, the trustee cannot be prevented from performing the trust and will be
able to make unimpeachable use of the money to apply it for a more acceptable purpose.
Imperfect obligation is also recognized in Trimmer v Danby44 on matter to erect a monument,
they judge observed, upholding the trust as valid that supposedly there would not be anyone who
could compel the executors to carry out this bequest and raise the monument; but if the residuary
legatees or trustees insist upon the trust being executed, the Court may be bound to see it carried
out, where sum is set apart for the purpose.”

This is interpreted as a trust of imperfect obligation that falls under any exception category of
non-charitable purpose trust, the trust may still be valid and comply with perpetuity rule to
ensure the property is not bound for non-charitable purpose trust indefinitely. And thus, the trust

40
Monuments In The Law of Trusts by Paul Kearns
41
Perpetuities and Accumulations Act 2009
42
Charlotte Burmby, 'Trusts: The beneficiary principle and perpetuity' (Civil Law, 29 November 2013)
<http://thestudentlawyer.com/2013/11/29/trusts-the-beneficiary-principle-and-perpetuity/> accessed 18
September 2016
43
‘What are We to Do with Testamentary Trust of Imperfect Obligation?’ [2007] Conv 148, 157.
44
(1856) Lj Ch 424

15
shall last for within the period of time given as explained previously, which is 21 years to
identify the person this will was for, or else extended period will render it void45.

Non-charitable purpose trust’s difference with living trust is a lot more general than charitable
trust. Like previously shown, it lacks the fundamental element of having a beneficiary, making
uncertainty to be a big issue. Unlike the living trust, it is filled with gap of who the trust is
intended to or how to manage it. As a living trust has could have anything as a gift and anyone
being a beneficiary as long as it is not against the law, where non-charitable purpose trust may
only be valid with specific exceptions given as mentioned above, and must be with limitations of
perpetuity rule for a reasonable time to avoid indefinite trusts. Thus, this type of trust is between
whether it is a charitable trust where it could have the possibility of a same element with a living
trust, or may only be on its own category of specific exceptions given.

DEVELOPMENT OF TRUSTS LAW

As we know that the legislation that are governing law regarding trust is the Trustee Act 1949
which then has been adopted from United Kingdom’s Trustee Act which means that Malaysia
have almost similar law when it comes to trusts. However, the judges in court still applies
principles and the precedent sets down by the court in United Kingdom despites our country’s
own legislation. This can be seen in the case of Liew Choy Hung v Fork Kian Seng46 which is a
Malaysian case which the judge not only referred to cases such as Springette v Defoe47or Pettit v
Pettit48 but also the Halsbury’s Law of England. It is evident that the Malaysian judges still rely
on English Law when it comes to trust laws as the English Law is vaster and well segregated in
dealing with matters related to trusts.

However, the trust laws in Malaysia are slowly evolving and some changes can be seen in the
certain types of trust like living trust (also known as ‘inter vivos trust’) or charitable trust. This
two types of trust will be the main discussion in this part of the assignment.

45
Paul S. Davies, Equity and trusts: Text, cases, and materials (Oxford University Press 2016)
46
[2001] 1 CLJ 369. In this case, both parties are claiming for the house which both of them claimed that they have
made contributions during their relationship.
47
[1992] 2 FLR 388
48
[1970] AC 777

16
As mention in the front part of the assignment and above, living trust also known as the inter
vivos trust which is commonly used by the testator to transfer properties or money to the
beneficiaries during his lifetime which then it will be put into a trust and then only executed
during the death of testator. Example of a living trust is where life insurance policy usually
comes with naming of the beneficiaries during the signing of the policy which then after the
death of the insured, the money will be transferred on to the beneficiaries which means that after
naming the beneficiaries of the insurance policy, it becomes a living trust as the benefits was
conferred during the lifetime of the testator.

The issue that are currently surrounding this type of trust is whether the trust that was created
under Section 2349 and para 5 of Schedule 1050 is applicable to Muslim in the circumstances the
insured was to convert during his lifetime. It has been reaffirmed in the case of Re Man bin
Mihat, decd51 that the trust that are created under Section 23 of the Civil Law Act is actually a
living (inter vivos) trust and not applicable to Muslims. One of the main reasons why the type of
trust that is created under the Civil Law Act and Financial Services Act is not applicable for
muslims because inheritance falls under Syariah Law which the jurisdiction falls under the
Syariah Court and also it is the State Autonomy 52 to regulate laws regarding Islamic Law
matters. It can be concluded that the conversion of the insured to Muslim during his lifetime will
not affect the living trust that was created as it is protected by the statutory provisions provided
by the legislative53.

The second type of trusts that have recently shown a development is charitable trust. Charitable
trust is usually set up for transferring and donating some of the fortune for charity purposes upon
the testator death and it is usually done through a trustee. However the law governing charitable
trust in Malaysia is very loose and to be compared with United Kingdom, we are lacking behind.
Unlike in United Kingdom, they have a legislative governing charities that are ongoing in the
country and there is a Charity Commissioner regulating all the activities. In Malaysia, the
autonomy of regulating charitable bodies are conferred under List I of the Ninth Schedule of the

49
Civil Law Act 1956
50
Financial Services Act 2013
51
[1965] 2 MLJ 1
52
Ninth Schedule of the Federal Constitution of Malaysia under State List where one of the matters listed is Islamic
Law.
53
'Statutory Insurance Trust Policy: A Trust Inter Vivos For Non-Muslims' (2016) 1 Malayan Law Journal.

17
Federal Constitution of Malaysia which the section is Section 15 (c) 54 where is it stated that the
Federal Government has the autonomy to regulate charities and charitable institutions or trusts
which then excludes Wakafs55 or Hindu Endowments.

As the Trustee Act 1956 only regulates law concerning trustee and not charitable trust, the courts
are applies more English Law and principles to any cases that are in Malaysia which then we
would discuss the jurisdiction regarding the Syariah Court and Civil Court in handling wakafs
land. We are all aware that our Malaysian Judiciary system are made out of civil courts and also
a special court that have a special jurisdiction on Syariah Law matter which is the Syariah Court.
As prescribed under Article 121 (1A)56 which gives exclusive jurisdiction to the Syariah Court to
deal matters concerning Islamic Law only and Civil Courts like the High Court or the Session
Court cannot interfere with any of their proceedings.

Before the amendment of the Article 121 (1A)57, any proceedings that doesn’t give the results
that the parties want can be appealed to the civil court which then usually the rulings given by
the Syariah Court will be overturned. As the civil courts are more well versed in laws like
common laws and legislations that are adopted from countries like United Kingdom or Australia,
some of the legal principles are not compliant with the Islamic Law. In the case of Ainan bin
Mahmud v Syed Abubakar58, the ruling that was made by the Civil Court was based on common
law legal principles and not based on Islamic Law legal principles even though they were well
aware that the case was involving the wakaf land. The common law legal principles were applied
to determine the legitimacy of the child which has different standards compared to the Islamic
Law. Due to the constant interference of the Civil Court with the Syariah Court, the amendment
of Article 121 (1A) of the Federal Constitution then gives an exclusive jurisdiction to the Syariah
Court to deal with any matters which includes the charitable trust such as Waqf.

54
Ninth Schedule of the Federal Constitution of Malaysia
55
Wakafs fall under the jurisdiction of Islamic Law which then is under the autonomy of the State which is
conferred under List II of Ninth Schedule of the Federal Constitution of Malaysia. Wakafs is defined as endowment
which is given or put into a trust for charitable purpose like for education or religious purposes.
56
Article 121 (1A) of Federal Constitution of Malaysia.
57
Federal Constitution of Malaysia
58
[1939] MLJ 209

18
CONCLUSION

Constant research has been done regarding the development of laws regulating trust funds such
as living trusts, charitable trust and so on but not much development can be seen in the civil
court as the civil court usually adopts from United Kingdom but challenged by influence of
Islamic Law. The constant development of trust may one day further define the difference of all
with living trust and the elaboration of non-charitable purpose trust towards testamentary, living
trust or even wills.

19
BIBLIOGRAPHY

Books, Online Articles and Journals

 Attorney Paul T, ‘All You Need to Know About Living Trusts and Probate
 Brief, 'Enforcing a trust: Enforcing fully constituted trusts' (2010)
 'Charitable Trust' (Legal Information For Charities)
 Carol, 'Is ‘a completely constituted trust’ a tautology, and an ‘incompletely constituted
trust’ a contradiction in terms? - ELSA Law review' (Essays, 26 June 2011)
 Charlotte Burmby, 'Trusts: The beneficiary principle and perpetuity' (Civil Law, 29
November 2013
 'Completely constituted trust', (31 August 2016)
 'Cy-Pres Doctrine' (The Free Dictionary By Farlex
 Graham Virgo, The principles of equity and trusts (OUP Oxford. Copyright. 2012)
 'Inter Vivos' (The Free Dictionary By Farlex)
 KC Lau, 'How To Set Up A Charity Foundation In Malaysia' (Kclau.com, 2013)
 Michelle Fabio, ‘Top Three Benefits of a Living Trust’ (Nov 2015)
 Monuments In The Law of Trusts by Paul Kearns
 Mary George, Malaysia Trust Law, Selangor: Pelanduk Publication 1999, p 78; David J.
Hayton, Underhill and Hayton law relating to trust and trustees, 15th Edition,
Butterworths, p 125.
 Oxbridge Notes (2010)
 Peter P Gell and Janice Sacco, 'Australia: Commissioner Of Taxation V Word
Investments Limited' (Mondaq, 2008).
 Paul S. Davies, Equity and trusts: Text, cases, and materials (Oxford University Press
2016)
 'Statutory Insurance Trust Policy: A Trust Inter Vivos For Non-Muslims' (2016) 1
Malayan Law Journal.
 'Types Of Trusts' (Livingtrustnetwork.com, 2016)'Non charitable purpose trust - law
resource', (2005)
 ‘Understanding the Differences Between a Will and a Trust’ (28 January 2013)

20
  Philip H Pettit, '6. Completely and incompletely constituted trusts - law trove' (20 July
2016)
 'What is a living trust?', <http://www.olaleslie.com/what-is-a-living-trust/> accessed 6
September 2016
 ‘What are We to Do with Testamentary Trust of Imperfect Obligation?’ [2007] Conv 148,
157.

Cases
 Ainan bin Mahmud v Syed Abubakar[1939] MLJ 209
 Canada Trust Co. v. Ontario Human Rights Commission(1990) 69 DLR (4th) 321
 'Canadatrust Co. V. Ontario Human Rights Commission (C.A.), 1990 Canlii 6849 (ON
CA)' (The Canadian Legal Information Institute)
 Commissioner of Taxation of the Commonwealth of Australia v Word Investments
Ltd(2008) 251 ALR 206
 Income Tax Special Commissioners v. Pemsel[1891] AC 531
 Liew Choy Hung v Fork Kian Seng [2001] 1 CLJ 369
 Morice v Bishop of Durham(1840) VES Jr 399
 Musset v Bingle[1876] WN 170
 McCaig v University of Glasgow(1907) SC 231
 Nai Seng Hiang & Ors v. The Trustees Of The Presbyterian Church In Singapore
Registered & Ors[1988] 3 MLJ 311
 Pettit v Pettit[1970] AC 777
 Re Abdul Guny Abdullasa, Deceased; Fatimah Beebee Amal v. Mohamed
Abubakar[1936] MLJ 140
 Re Man bin Mihat, decd[1965] 2 MLJ 1
 Re Koeppler's Will Trust [1986] Ch 423
 Re Astor’ Settlement Trusts(1952) Ch 534
 Re Hooper(1932) 1 Ch 38
 Springette v Defoe[1992] 2 FLR 388
 Trimmer v Danby(1856) Lj Ch 424

21
Legislations
 Civil Law Act 1956
 Income Tax Act 1961(ITA)
o S.13(1)(b) of ITA
o S.44(6) of ITA
o S.127 of ITA
o Part IX
 Financial Services Act 2013
 Federal Constitution of Malaysia
o Ninth Schedule of the Federal Constitution of Malaysia under State List
o Article 121 (1A) of Federal Constitution of Malaysia.
 Local Government Act
o S.134
 Perpetuities and Accumulations Act 2009

22