Labuan Special Trust
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In 2010, amendments were made to the Labuan Trusts Act 1996 which allowed for the introduction of a new type of trust called the Labuan Special Trust (“LST”), which to a large extend modeled itself against the Virgin Islands Special Trust Act (VISTA) in the British Virgin Islands. A significant advantage in a LST is that it can be used to hold and retain shares indefinitely in a company, which in turn may be used to own assets such as cash, real estate, art securities, businesses, insurance policies etc. In this context, “company” refers to either a Labuan company or a partnership interest in a Labuan limited liability partnership established under the Labuan Limited Partnerships and Limited Liability Partnerships Act 2010.

Contrary to conventional approach, it allows management of the company to be carried out by its directors without any power of intervention being exercised by the trustee (other than those prescribed under the legislation). Therefore, a trustee appointed under a LST shall have no fiduciary responsibility or duty of care in respect of the property of, or the conduct of the affairs of, the company, except when acting, or required to act, on an intervention call ie. made by an interested person whom may have a complaint concerning the conduct of the company’s affairs.

Kensington Trust Labuan Limited is licensed appropriately to act as trustee for a LST.

Key Features Of Labuan Special Trust

Settlor – person setting up the trust Malaysian resident or non-resident
Trustee
  • One trustee must always be a licensed Labuan Trust Company
  • More trustee(s) can be appointed if required

However, a trustee shall not be a director of the company where shares are held by the said trustee.

Enforcer / Protector
  • Additional parties such as Enforcers / Protectors could be appointed to oversee / supervise trust administration
  • These parties can also act on advisory / consultancy basis
Assets of the Trust
  • May encompass Malaysian assets – however consent from the Labuan Financial Services Authority (“Labuan FSA”) needs to be obtained if Malaysian assets are to be injected into Trust
  • No consent of Labuan FSA is required for injection of non-Malaysian assets
Duration of Trust No perpetuity period
Shares held
  • Trustee owns shares in an underlying asset holding vehicle (Labuan Company) on an “own and retain” basis
  • Trustee will not get involved in the day-to-day running of the underlying company
  • Allows for the separation of the custodianship of the assets from the investment of the assets
Letter of Wishes
Settlor can also use Letter of Wishes to provide guidance to the Trustee in matters affecting trust (particularly distribution) for situations that may arise post his / her demise
Advantages
  • Trustee does not interfere in the management or conduct of any business of the company, and in particular, it shall leave the conduct of every such business and all decisions as to the declaration of dividends, to the directors of the company.
  • Trustee shall not instigate or support any action by the company against any of its directors for breach of duty to the company or procure the appointment or removal of any of the directors.
  • There ares provisions for unenforceable claims; a two- year claw-back period and requirements for legal procedures should a creditor attempt to prove a trust is fraudulent.
  • Meets the contemporary needs of High Net Worth Individuals or families who recognise that members of the next, younger and better educated generation may wish to attempt more sophisticated investment options; yet by separating the roles indicated above, the founders of wealth (the older generation) can still keep the original legacy intact. This feature is one of the most sought after in Trust Law.
  • Existence of the trust in perpetuity.
  • Option not to register the trust to protect privacy.
  • No exchange control in Labuan.
  • Double Taxation Treaty Access.

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The information in this document is not advice of any kind but general information only and should not be relied on as legal advice. Kensington Trust Group recommends seeking professional advice on legal or tax issues affecting you before relying on it. While Kensington Trust Group tries to ensure that the content of this document is accurate, adequate or complete, it does not represent or warrant, express or implied, its accuracy, correctness, completeness or use of any of the information. Kensington Trust Group does not assume legal liability for any loss suffered as a result of or in relation to the use of this document. To the extent permitted by law, Kensington Trust Group excludes any liability for negligence, for any loss, including indirect or consequential damages arising from or in relation to the use of this document.