Secret Trusts in Malaysia

A hidden side of the law of trusts is the doctrine of secret trusts. Secret trusts are used when the testator wants to keep the identity of the recipient of the property a secret.

The purpose of a secret trust is because, in some instances, a will becomes a public document once probate is granted, and can be inspected by paying appropriate fees. While illegitimate children and mistresses come to mind, there are many other types of recipients, to whom testators may have personal reasons for quietly bequeathing.  

The Malaysian Courts have expressly recognised the doctrine of secret trusts, as can be seen in the Federal Court case of Chin Jhin Thien & Anor v Chin Huat Yean @ Chin Chun Yean & Anor [2020] 1 LNS 662.

In Chin Jhin Thien, the Federal Court held that the law of secret trust is not contradictory to the Malaysian Wills Act 1959, nor is it against public policy. The Federal Court even goes as far as to say that the concept of secret trust is ‘consistent with the fundamental human right of privacy’ and emphasizes the testamentary freedom afforded to testators. The following are some instructive excerpts:

“[86] The argument most pressed and relied upon by the plaintiffs is that the doctrine of secret trust is against public policy because it is used to assist the testator’s purported ‘sins’ or ‘skeletons in the cupboard’ to benefit his “genes or acquaintance”.

[87] With respect, the submission is misconceived. The overriding purpose behind secret trusts is to enable property to be left in a will without explicitly naming who the property is being left to, by a bequest to a person who has previously promised to hold that property as trustee for the intended recipient. As wills are, by nature, public documents open to scrutiny, the concealment of identity that a secret trust provides is vital for those desiring a degree of privacy in the final disposal of their estate. In one sense, it would indeed not be in ‘good conscience’ to deny a testator the ability to distribute their estate as they see fit. 

…

[102] What can be distilled from the above discussion is that a secret trust, as a creature of common law, operates outside the formalities of the Wills Act 1959. Nevertheless, a secret trust is a form of an inter vivos express trust in which the testator and trustee mutually agree to form a trust relationship for the lifetime of the testator. Once this is understood, one can also understand that secret trusts are enforced to promote the main policy principle behind the Wills Act 1959: to protect the testamentary freedom of testators.”

In the lower Courts, the law of trusts in Malaysia has been underdeveloped and largely follows that of English law. Hence, the general rules that apply to trusts in English law is also applied in Malaysian law in relation to trusts and wills.

There are two types of secret trusts: fully secret trusts and half-secret trusts.

Fully secret trust

Essentially, a fully secret trust is when the testator appears to hand over a property to the legatee, but secretly asks him to hold the property for the benefit of another person. The existence of the trust is only revealed by extrinsic evidence.

Like a regular trust, there are 3 formalities required for a fully secret trust, according to the case of Ottaway v Norman [1972] 2 WLR 50, by Brightman J. These are: intention, communication, and acceptance. This means that the testator needs to:

• have the intention for the named beneficiary to hold the property on trust for another person;
• communicate this intention to the named beneficiary that he intends for the property to go to another person; and
• has willing acceptance of the named beneficiary to carry out this task.

In a fully secret trust, this must be done before the testator’s death.

Interestingly, a sealed envelope to be opened upon the testator’s death qualifies as an acceptable form of communication (Re Keen [1937] 1 Ch. 236).

An example of a fully secret trust would be:

Ahmad leaves RM10,000 to Bella in his will but had previously communicated to her that when he dies, he wants her to give the money to one specific charity organization.

He tells Bella that he did not want his family to know about his decision, because they do not support the cause of the charity organization.

On the face of it, it looks as if Ahmad intended Bella to receive RM10,000 for herself. However, provided that certain formalities of the trust were met, a secret trust has been created and Bella, therefore, holds the money as a trustee for the charity organization.

Half secret trust

The requirements of intention and acceptance for half secret trusts are the same as fully secret trusts. The main difference is when communicating the testator’s intention, it must be done before or at the time of the execution of the will.

An example of a half secret trust would be:

On 1 January, Charlie executed a will which contained a legacy of RM 1 million to his brother, Daniel. In this will, Charlie directed Daniel to hold his legacy ‘as a matter of trust for such person as I have communicated to him’.

On 17 March, Charlie told Daniel that he wished Daniel to pay his legacy to his illegitimate daughter, Samantha. He would like to keep this a secret, so not to allow his wife to find out about his relationship with Samantha’s mother. 

After Charlie’s death, Samantha brought an action against Daniel, claiming entitlement to the legacy of RM 1 million.

As the law stands, in respect of half secret trusts, an important consideration is the time of the communication of the objects to the trustee.

In this case, the communication to the trustee was made after the execution of the will. The will was executed on 1 January by Charlie, then communication to Daniel on 17 March. Therefore, if the object is communicated to the trustee after the execution of the will, the English decisions appear to deny that there has been a valid communication and acceptance of a half secret trust. 

Therefore Samantha will not be entitled to the monies under the half secret trust argument, as the trust has failed.

Communication made after the execution of the will, although before the death of the testator is makes it invalid.

After the Federal Court case of Chin Jhin Thien, it is hoped that the law of trusts can be developed over time in order to create greater nuance on the subject matter.