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The New Labuan Trusts Act Compared to Provisions In Other Leading Jurisdictions

The jurisdiction of Labuan, Malaysia's International Business and Financial Centre, has set its sights on becoming a leading wealth management centre for Asian investors. To serve the burgeoning needs of the private banking sectors in Asia Pacific, Labuan has re-drafted its trust laws which were enacted on 11 February 2010.

In this article, Mark Lea (Partner of Lea & White and Managing Director of Lea & White International Advisers Limited) provides some highlights on the new Labuan trust laws, which were drafted with the assistance of Lea & White, a leading trust law specialist in the region.

Control of the trust

Retention of control by a Settlor or Protector is one of the most sought after features in Trust Law, particularly in Asia. The Labuan Trusts Act (LTA) offers reserved powers to a Settlor, similar to Jersey.

Also, similar to the British Virgin Islands Special Trusts Act (VISTA), LTA includes the "Labuan Special Trust" (LST) to "enable a trust of company shares" to be established under which (a) the shares may be retained indefinitely (b) the management of the company may be carried out without power of intervention by the trustees.

Compared to VISTA, LST is more contemporary as the trustee is not liable for losses from speculative or imprudent activities of the company, and despite the trust to retain the designated shares, the trustee has power to sell them as well as protection when exercising the power.

Duration of the trust

Another sought after feature is for the trust to exist in perpetuity. Bermuda, Guernsey, Jersey, Dubai and now Labuan allows perpetual trusts as a default provision. There is flexibility for a fixed term trust to be converted to a perpetual trust and vice versa; shorten or extend the duration; and making this retrospective for existing trusts.

Unenforceable foreign claim

Protection against a foreign law claim or enforcement of a foreign law judgement is provided for in Labuan, which compares favourably with Dubai, Bahamas, Bermuda, BVI, Guernsey and Jersey and to a limited extent, Singapore.

Types of trusts

Labuan has introduced Purpose Trusts thus comparing favourably with Cayman's STAR Trusts, Guernsey, Dubai, BVI, Jersey, Bermuda and Mauritius. It has included the promotion of art, science, religion and unique to Labuan, "the advancement of human rights and fundamental freedom".

Trustees' powers and duties

In place of the "statutory duty of care", Labuan has the common law standard of "the prudent man" test. It has also introduced specific provisions relating to trustees' powers in investment, delegation and insurance while Labuan's modern statement of Trustees' duties compares well with Dubai.

Confidentiality

Labuan has provision ensuring confidentiality balanced against provisions requiring trustees to provide information.

Protectors and beneficiaries

Good modern trust law provides for a Protector as a watchdog for the Beneficiaries and Labuan covers these matters. Labuan compares favourably with Guernsey and Dubai with its provisions identifying Beneficiaries; powers of addition and removal or exclusion of Beneficiaries; disclaimer by a Beneficiary of his interest in whole or part; class closing rules; and determining the nature of a Beneficiary's interest and whether or not the Beneficiary can deal with that interest.

Right to information

Labuan's guidelines covering the right for Beneficiaries, a Settlor, Protector, enforcer and for the Court to receive information, position Labuan at the same level as Dubai and Mauritius.

Nature and existence of a Labuan trust

LTA describes the Settlor as either a "qualified person" (a non- Malaysian resident) at the time the trust is created, or "resident" at that time provided the trust property does not include any Malaysian property. Beneficiaries have to be "qualified persons" at the time the trust is created or at a time they become entitled to be beneficiaries. Unlike Guernsey which permits trusts to be created orally or by conduct, a Labuan Trust must be in writing and can be by unilateral Declaration of Trust which need not name the Settlor. Thus, Labuan provides the clearest and most user friendly provisions in trust laws.

The proper law of a Labuan trust

The law governing a Labuan trust is that chosen by the Settlor or implied in the trust. In this respect, Labuan compares suitably with Dubai, the Cayman Islands, Bermuda, Guernsey, Isle of Man and Jersey.

Migration of a Labuan trust

Labuan, like Dubai, has provided for the redomiciling of trusts into and from the original territory with a consequent change of proper law.

Letter of wishes

An unusual provision that puts Labuan in a positive light concerns the letters or memoranda of wishes given by the Settlor, a Beneficiary or a member of a class of Beneficiaries.


About Author

mark lea

Mark Lea is Partner at Lea & White, and Managing Director at Lea & White International Advisers Limited.

Born in 1944, Mark Lea was educated in England at Eton College, where he was President of the Eton Society. He qualified as a solicitor in 1970 in London, before joining the Merchant Bank N.M. Rothschild & Sons Limited, where he worked closely with the Chairman Lord Victor Rothschild KCMG GC at a time when he was Head of the UK Government Think Tank. Mark Lea became a Director of Rothschild’s Trust Companies and of its Guernsey Bank.

Since 1971, Mark Lea has been concerned with international estate planning and structure and international comparative taxation. Having been a partner and then Chairman in one of the UK's most successful provincial law firms, he moved permanently to Asia and was admitted to practice as a solicitor in Hong Kong in 1995.

Mark Lea is also a Member of the Inland Revenue Board of Review of Hong Kong. For some five years he served on the executive committees of the Hong Kong Trustees Association and of the Society of Trust and Estate Practitioners (Hong Kong Branch). He has since been a member of their Joint Law Reform Committee.

Mark Lea advised the Government of Singapore with regard to the Trustees Act of Singapore. He originated the proposals for changes to the Trust Law of Hong Kong and advised on such changes. He advised the Malaysian Government on changes to the laws of Labuan, including Trust Law, Foundations Law and Limited Partnership Law. He remains an international adviser to that government. Mark Lea is advising the Government of Samoa on new Trust Law and new Foundations Law and on changes to other relevant laws in consequence.

Mark Lea has taught a course on international estate planning including the use of trusts and foundations and is Adjunct Professor of Law at the National University of Singapore for the last 10 years.

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