Key takeaways
- In Malaysia, a non-Muslim who nominates a spouse or child, or a parent when there is no spouse or child, creates a trust under Schedule 10 of the Financial Services Act 2013, so the payout skips the estate and the owner's debts.
- A trust nomination decides who gets the money, not how it is spent: the insurer pays one lump sum to the trustee and is not bound to see how it is applied.
- If a child nominee is under 18 and no trustee was appointed, the child's other parent becomes the trustee, which matters most for divorced or separated parents.
- With no surviving parent, a payout above RM50,000 for a minor nominee goes to the Public Trustee (now Amanah Raya Berhad) or a trust company the policy owner nominated.
- A private insurance trust adds written rules, such as a monthly allowance, school and medical fees paid as they fall due, or a balance released at an age you choose, in return for trust company fees.
- Once a policy is a trust policy, changing the nominee, surrendering, assigning or pledging it needs the trustee's written consent, and Great Eastern accepts the form only with a wet-ink signature.
Nomination, trust policy or insurance trust: what is the difference?
When Malaysians talk about a "trust" for life insurance, they usually mean one of two different things, and mixing them up is where most of the confusion starts.
- A trust nomination, which turns the policy into a "trust policy", happens automatically. Under paragraph 5 of Schedule 10 of the Financial Services Act 2013, when a non-Muslim policy owner nominates a spouse or child, or a parent where no spouse or child is living at the time, the nomination creates a trust in the nominee's favour. No lawyer and no trust deed are involved: it is the insurer's nomination form, signed in front of a witness.
- A private insurance trust is a separate arrangement you set up with a trust company. A written trust deed tells the trustee how to manage the payout and when to release it.
Naming anyone else, such as a sibling, a grandchild or a friend, creates no trust at all: under paragraph 6 that nominee receives the money as an executor, it forms part of your estate and it is subject to your debts. My insurance nomination guide explains trust nominees, executor nominees and trustees in detail. This guide answers the next question: when is a trust nomination enough, and when is a private insurance trust worth setting up?
| Executor nomination | Trust nomination | Private insurance trust | |
|---|---|---|---|
| Who you can name | Anyone, for example a sibling, grandchild or friend | Spouse or child; a parent only if no spouse or child is living | The beneficiaries written into the trust deed |
| How it is set up | Insurer's nomination form, witnessed | The same form, plus a trustee if you appoint one | Trust deed with a trust company, then the policy is linked to it on the insurer's forms |
| Part of your estate, open to your debts? | Yes (paragraph 6) | No (paragraph 5(2)) | No: the trustee holds it for the beneficiaries under the deed |
| Who holds the money after a claim | The nominee, as executor, who distributes it under your will or the law | The trustee, as one lump sum | The trust company, following your written instructions |
| Can you set how and when it is paid? | No | No | Yes: allowances, fees paid directly, release ages |
| Cost | Only the insurer's form | Only the insurer's form | The trust company's set-up and administration fees |
What does a trust nomination already do, and what can it not do?
A trust nomination is stronger than most people expect. Under paragraph 5(2) of Schedule 10, the payout does not form part of your estate and is not subject to your debts, so your family does not wait for probate or letters of administration and your creditors cannot claim it. The one exception, in paragraph 5(6), is a policy taken out with intent to defraud a creditor: that creditor can recover a sum equal to the premiums paid. You may appoint any person other than yourself as trustee, and a will cannot undo the nomination, because paragraph 3(2) says a nomination is not revoked by a will or by any other act, event or means.
What a trust nomination does not do is say how the money is used. The insurer pays the policy money to the trustee, or to the nominee if they are an adult, and paragraph 11 says the insurer is not bound to see how it is applied. From that day on, everything depends on the person holding it. This is who that person is under paragraphs 5(3), 5(4) and 9:
| Situation | Who receives the payout as trustee |
|---|---|
| You appointed a trustee | That trustee |
| Adult nominee, no trustee appointed | The nominee |
| Several adult nominees, no trustee appointed | All of them jointly; every one must consent |
| Nominee under 18, no trustee appointed | The child's other parent (not you, the policy owner) |
| Nominee under 18, no trustee, no surviving parent, payout up to RM50,000 | A person who undertakes to the insurer to use it only for the child's maintenance and benefit |
| Nominee under 18, no trustee, no surviving parent, payout above RM50,000 | The Public Trustee or a trust company you nominated |
The same rules in paragraph 9 apply to a nominee certified by a doctor as being of unsound mind or unable to manage their own affairs. The Public Trustee's role passed to Amanah Raya Berhad: section 43(3) of the Public Trust Corporation Act 1995 says references to the Public Trustee in other laws are read as references to it.
When does a private insurance trust make sense?
I suggest people look at a private insurance trust only when one of the situations below fits their family. Rockwills Trustee Berhad (I am a Rockwills representative for wills) describes its insurance trust as a structured way to pay the proceeds for a minor child's education and medical needs, for ageing parents' maintenance and medical care, or for yourself if you become incapacitated, with the option to use part of the proceeds to settle debts.
| Your situation | Where a trust nomination falls short | What an insurance trust can add |
|---|---|---|
| Young children, and you are divorced or separated | With no trustee appointed, the child's other parent becomes the trustee | A trustee you choose, bound by written rules on spending |
| Both parents could die in the same accident | Above RM50,000, the payout for a minor goes to the Public Trustee or a trust company, without instructions from you | Your instructions: an allowance for the guardian, school and medical fees, a release age |
| A child with special needs | One lump sum has to last a lifetime, and someone must manage it well | Regular payments for care for as long as they are needed |
| Ageing parents who depend on you | Parents are trust nominees only if you have no spouse or child when you nominate | Maintenance and medical costs for parents alongside your spouse and children |
| A large payout and a family not used to managing money | The insurer pays one lump sum, which can attract scams or be spent quickly | Monthly payments or staged releases, as Rockwills describes in its Q&A on life insurance trusts |
| A second marriage or blended family | A spouse nominee owns the payout outright; nothing makes sure children of an earlier marriage benefit | Fixed shares and conditions for each family member |
A trust nomination is usually enough when your beneficiaries are adults who get along, the payout is modest, and you have a trustee you trust completely. Appointing that person on the nomination form, plus a will, often does the job without any trust company fees.
Example: the same RM600,000 payout under three set-ups
This is an example with stated assumptions, not a real client. Assumptions: a non-Muslim parent, divorced, with two children aged 6 and 9 who live with them; one life policy pays RM600,000 on death; both children are named as nominees in equal shares, so it is a trust policy.
| Set-up | Who receives the RM600,000 | Rules on how it is used |
|---|---|---|
| A. Children nominated, no trustee appointed | The children's other parent, as trustee (paragraphs 5(3)(b) and 9(a)) | None in writing; the insurer is not bound to see how it is applied |
| B. Children nominated, your sister appointed as trustee | Your sister, as trustee for the children | None in writing; it depends on her judgment and her own circumstances |
| C. Children nominated, a trust company appointed as trustee under an insurance trust deed | The trust company | Your deed, for example a monthly allowance for the guardian, school and medical fees paid as they fall due and the balance released at an age you choose, less the trust company's fees |
In all three set-ups the money stays out of the estate. The difference is control. Set-up A is what happens by default, and it is the one that surprises divorced parents most. Set-up B costs nothing extra and works well with a reliable sibling. Set-up C costs fees but leaves the least to chance.
Money is only half of it. Under section 7 of the Guardianship of Infants Act 1961, a parent can appoint a guardian for a child by deed or by will, and that guardian acts jointly with any surviving parent. If you set up a trust for young children, write the will at the same time, so the guardian who raises the children and the trustee who pays for them are planned together.
How do I put my policy into an insurance trust? Step by step
- Write down who should benefit and on what terms. What the money is for (school fees, medical bills, a monthly allowance, a parent's care) and at what age any balance should be released.
- Choose the trustee. On a trust nomination you can appoint any person other than yourself. If you want a company, Great Eastern's Legal Arrangement Declaration form (PSF50) states that a legal entity appointed as trustee must be a trust company, for example one registered under the Trust Companies Act 1949.
- Sign the trust deed with the trust company. It sets out the beneficiaries, the payment rules and the fees.
- Link the policy to the trust. Depending on how the trust is structured, the trust company is appointed as trustee in Part 2 of the insurer's nomination form, or the policy is assigned to it. Great Eastern's nomination form notes that its assignment form is available on request. The trust company tells you which route its deed uses.
- Prepare the insurer's paperwork. When the trustee is a trust company, Great Eastern's guide to the nomination form asks for the form signed by you and the trust company's authorised representative with the company stamp, the company's registration forms, an authorisation letter or board resolution, a questionnaire on beneficial owners, identity card copies, tax residency self-certification forms and, where applicable, a FATCA form. The PSF50 adds a copy of the trust deed and the trust company's registration certificate.
- Sign in wet ink. Great Eastern rejects nomination forms with a digital or electronic signature, because the Electronic Commerce Act 2006 does not allow a trust to be created without a wet signature.
- Tell your family where the papers are, and review the set-up when your family changes: a marriage, a birth, a divorce or a child turning 18.
If you only want a trusted relative as trustee, there is no deed and no company paperwork: you fill in Part 2 of the nomination form, the trustee signs, and a witness aged 18 or above who is not you, a nominee or the trustee signs too.
What do you give up when a policy becomes a trust policy?
- Control. Under paragraph 5(5), you cannot revoke the nomination, add a nominee who is not your spouse, child or parent, vary or surrender the policy, or assign or pledge it as security without the trustee's written consent. If the trustee is a trust company, that consent comes from the company.
- Loans come off first. On Great Eastern's nomination form you authorise the insurer to deduct outstanding policy loans, automatic premium loans, overdue interest and premiums due from the claim proceeds. Under paragraph 7, anyone holding the policy as an assignee or as security is paid before the nominee.
- Fees. A trust company charges to set up and to run a trust. Ask for the full fee schedule and weigh it against the size of the payout.
- Muslim policy owners. A nomination by a Muslim policy owner does not create a trust: the nominee receives the money as an executor and it is distributed under Islamic law, and Great Eastern's form says a Muslim policy owner should not appoint a trustee. Ask about the options that apply to you before signing anything.
This is general information, not legal advice. Before you sign a trust deed, read it with the trust company and, for a complex family or business situation, a lawyer.
How I can help you decide
I am a Great Eastern Life Planning Advisor and a Rockwills representative for wills, serving Kuala Lumpur and Selangor. This is my own independent guide, not a Great Eastern or Rockwills website. When you WhatsApp me about nominations or trusts, I start with what you already have:
- which of your policies are already trust policies, and who the trustee is today, including policies you bought elsewhere;
- whether a trustee on the nomination form is enough for your family, or whether a private insurance trust is worth its fees;
- the Great Eastern forms, filled in, witnessed and submitted with wet-ink signatures;
- a will with Rockwills, so the guardian, the trustee and your nominations line up as part of your wider legacy plan.
I advise in Mandarin, English and Cantonese, and meet families around Seri Kembangan, Serdang, Puchong, Cheras and the rest of the Klang Valley. No hard selling: if a trustee on your nomination form already covers what you want, I will tell you so.