Presently, I noticed a growth in popularity of cash trust as an alternative vehicle to put in a sizable amount of cash among the affluent in Malaysia. Although it is promoted as an estate planning tool, many seem to find its promise to deliver a yearly return that is competitive rather attractive. Thus, it leads the public to be questioning if they should be investing in a cash trust.
So apparently, cash trust is now viewed more as an investment than a tool used for estate planning.
Is it supposed to be that way?
Well, in this article, I’ll share the basics of cash trust, its uses in planning estates and offer a discussion on its viability as an ‘investment vehicle’. Thus, here are 3 quick points that you should know about cash trust before setting yours up.
Point #1: What is a Cash Trust?
‘Ian, when you say cash trust, do you mean UBB cash trust?’
Well, the answer is nope. First, we would make a clear distinction between UBB and cash trust. UBB refers to UBB Amanah Bhd, which is a trust company that is operating in Malaysia. Meanwhile, cash trust is essentially a living trust which is set up to manage one’s excess cash.
Basically, here is how cash trust works:
There are five ingredients to setting up a cash trust:
First, the person who forms the trust is known as the settlor.
Second, the asset to be put into this trust is his cash and thus, the trust is known as a cash trust.
Third, the settlor could entrust an individual or a trust company to safeguard the cash in the trust. As such, this individual or the trust company would be the trustee.
Fourth, the settlor is able to instruct the trustee as to how his cash is to be managed and distributed with a trust deed.
Finally, the settlor can nominate his beneficiaries to the cash trust, which enables his beneficiaries (including himself) to inherit the cash if any one of the events such as death, disability, or illness happens in the future.
Point #2: What are the Differences between FDs and Cash Trust?
Let’s say, we have Mr. Tan.
Mr. Tan placed RM 500,000 in FDs and another RM 500,000 into his cash trust.
In the event of his death, Mr. Tan’s RM 500,000 in FDs will be frozen. Hence, Mr. Tan’s beneficiaries would need his will document to unlock his FDs. Generally, it could take up to 9-12 months to expedite the will document and have his FDs in the bank distributed to his beneficiaries, assuming that his will is not contested.
But, as for Mr. Tan’s RM 500,000 in cash trust, this sum is not frozen. His trustee will continue to manage this sum based on Mr. Tan’s trust deed. For instance, in his trust deed, Mr. Tan can instruct the trustee to distribute the money to all his beneficiaries immediately upon his death. Hence, this will eliminate the lengthy process of expediting the will document in order to retrieve this RM 500,000.
In addition to this, there are many other estate planning features of a cash trust which is beyond the scope of this article.
As such, let’s move onto:
Point #3: How Does a Cash Trust Promise an Attractive Yearly Return?
Well, the answer lies in the trust deed of your cash trust.
As mentioned, the trust deed is like an instruction guide to administer the cash. You, as the settlor, would provide such instructions in your trust deed. Whereas your trustee is tasked to carry out such instructions, based on what is written in the trust deed. So, the trust deed is an important document in your cash trust.
Let me give you some examples:
Example 1:
Let’s say I want to set up a cash trust and place RM 500,000 into it. I intend it to be solely for estate planning purposes and do not have intentions of investing it for returns. Thus, as the settlor, I could instruct my trustee to place RM 500,000 into FDs for as long as I’m alive and healthy with a trust deed.
In this case, the trustee would have to carry out this instruction and park all RM 500,000 into FDs. Of which, the cash trust would earn interest income from FDs and the trustee could use it to offset any trust-related expenses.
Example 2:
Let’s say I intend to set up a cash trust and place RM 500,000 into it. But, unlike Example 1, I wish to have this money invested in Stock A, Stock B, Unit Trust AB, ETF C and Index Fund D respectively. Hence, as the settlor, I could include these wishes into my trust deed.
Likewise, the trustee would have to carry out these instructions as instructed in the trust deed. In this case, the profits of my cash trust shall be derived from all the investments listed above. However, if these investments failed and incurred losses, I cannot blame the trustee for these losses because the trustee is tasked and responsible in following the instructions in my trust deed.
So, what about UBB cash trust?
Also, what about its other competitors such as AmanahRaya’s Cash Trust?
Well, the answer lies in your trust deed. Understandably, these trust companies offer templated trust deeds where they would list down the instructions, which include how and where your cash is to be invested if you are healthy and alive. I would say that it is important to read and study these trust deeds carefully.
What are the underlying assets that the trustee is allowed to invest in?
How would these assets generate recurring income?
What are the key risks involved?
Here is the thing. Let’s assume that you’ve entrusted a trust company, be it UBB or AmanahRaya or any other trust companies in Malaysia to set up a cash trust. Subsequently, they incurred losses from investing in the underlying assets listed in the templated trust deed.
I believe it is not possible for you to blame any of the above trust companies for it is ultimately you, who gave any of them your consent to invest in these assets or vehicles. Remember: You are the settlor. The trust companies are just merely trustees. You are still ultimately responsible for the outcome of your cash trust.
Conclusion:
Cash trust is essentially a living trust set up to manage and distribute cash more efficiently. It doesn’t necessarily mean a cash trust product marketed by UBB or AmanahRaya or any other trust companies in Malaysia. I believe it is prudent to approach cash trust from the angle of estate planning instead of an investment.
Hence, it is best to speak to your own estate planner first to determine if a cash trust is needed and suitable to your own situation or otherwise.
10 replies to "Should We Invest in a Cash Trust?"
Should we invest in a cash trust? If the “promised” return can be validated by licensed rating agency such as RAM or MARC then the answer may be YES or else it is a big NO. This kind of promised return is kind of similar to the Guaranteed Rental Returns (GRR) advertised by some unknown property developers with 8% – 12% annual return or more and eventually we all learned from sour experience that these kind of guaranteed rental scheme were merely based on empty promise.
https://kclau.com/investment/guaranteed-rental-return/
Trust is a vehicle not an investment itself. This article though spelled out the correct mechanism of trust, it was wrong to compare cash trust and FD. How can one say cash trust get higher return than FD. What happens if the cost of administering the trust is higher than the return. Anyone promoting higher return of cash trust is bullshit.
The essence of a trust is to protect the assets and manage them in a professional manner, it has nothing to do with return
Hi Soon, thanks for your comment. Great wisdom!
Thank you Evanna Low.
Clients are mostly driven by greed and wish to be assured that all is well with their capital. They would just like to believe in the “assured” returns (though it is not). Most, if not all will like to believe in the institution of a trust that is safe. prudent and infallible.
They do not want to know how the investment actually works. These clients would like to believe anything as long as the trust/product says it can somehow deliver/generate these kind of high, consistent returns year in year out.
If common sense and logic prevails then there is no legitimate investment product that can assure you a return of 6%-8% EACH and EVERY YEAR and pay it half yearly too boot.
Foolishness and greed is what supports a Ponzi like scheme. Sadly, as the saying goes, a fool and his/her money are easily parted.
Hi Evanna, Sure. There is limited information presented online on this topic. As such, if you have well-researched materials, we would welcome your inputs so that our community could make better decisions on this. Thanks.
Nope, information is NOT limited … it’s just that 99.999% of clients and sales agents don’t know where and how to search when it comes to due diligent … so they only rely on websites, social media, sales talk testimonials etc … which is all misleading and giving u false impression that your trust product is safe. In fact, it is NOT safe and depleting
As a start, u can try to do this Quiz. See whether u get 100% marks or not. Answers will be given immediately after u click submit
https://docs.google.com/forms/d/e/1FAIpQLSfi9wtNJts1MEY5lVzYB2xvJvL9yOUutfUh5sJCGLzPPD766A/viewform
Next, u can follow below proper step by step to master How to do due diligence and check where exactly did A Trustee invest client’s trust capital. After u do the below steps, u will then realise that A Trustee is actually endangered the Trust Capital together with their investee company
https://www.ssm-einfo.my/
Click Company & Business Information
In By Name, Key in Company name of Trustee
Download Corporate Profile
Share Capital, Shareholder & Director Data
Key in & Tabulate Data in Google Sheet or Excel
Sample to use https://www.learnabee.com/courses/lesson15-preference-share/lectures/38055594
Copy IC# of Director (Ms A)
https://www.ssm4u.com.my/Pages/default.aspx
Download Directorship & Shareholding of Director (Ms A)
Ms A Director of P S/B & P E&A S/B
Repeat https://www.ssm-einfo.my/
Download Corporate Profile of P S/B
Ms A Upstream (Indirect Shareholder of Trustee Company)
Download Corporate Profile P E&A S/B
Ms A Downstream (Director of Investee Company)
100% Preference Shareholder A Trustee
Amount invested by A Trustee into this loss making connected & related party
Map Out Corporate Profile
Dear Evanna, from your research, is there any reliable Cash Trust that I can park some of my money into so that my dependent can have immediate access to some financial support after I passed away? I do not want all my assets to be frozen while my dependents are waiting for their insurance claim (which could take a month) and other inheritance to be distributed to them (which could take months with a Will written).
Boss, your article is not well researched.
When u read carefully Trust deed is vague and gives empty promises to mislead clients thinking that their trust capital is safe. Actually it is not.
Proper due diligence is
Gotta do SSM Search on Statutory Records. Then u can see clearly that the trust capital are being endangered by placing in investments of loss making related and connected party companies for a few years continously
Can also see that money trail of cash trust is actually using a small fraction of clients own capital to pay back client or new client’s money to pay existing clients.
And people behind it has dubious background. One of them was director of RBTR Asset management s/bwhich was sued by Securities Commission for misleading investors.
Another one is involved in various court cases relating to settlement of debts and when can’t pay. He just allow winding up of companies.
May we do Webinar, then can understand more ya.
Hi Evanna, I can’t wait to learn about your research and finding on this financial products on your webinars.
Amended reply
Boss, your article is NOT well researched.
When u read carefully Trust deed, it is vague and gives empty promises to mislead clients thinking that their trust capital is safe. Actually it is not. So, how can you rely on the Trust Deed ?
The clients are unaware that they are entering into a PONZI scheme carefully organized by a Trustee Company and their group of connected & related parties while their sales agents are also unaware that they are selling PONZI schemes to the public.
Proper due diligence is not from trust deed but actually from reliable authentic sources like SSM e info, SSM4u and eKehakiman
U gotta do SSM Search on Statutory Records, Audited Financial Statements and eKehakiman court papers. Then u can see clearly that the trust capital are being endangered by placing in investments of loss making related and connected party companies for a few years continuously
Can also see that money trail of cash trust is actually using a small fraction of clients own capital to pay back client or new client’s money to pay existing clients. In effect, the cash trust a classical PONZI scheme which so people are not aware of and continue to be misled. They didn’t disclose to their clients and sales agents that the regular annual return are actually falsified return, falsified income and disguised dividends which u can easily detect this fact if u do due diligence on SSM Audited Financial Statement.
And people behind it has dubious background. One of them was director of RBTR Asset management s/b which was sued by Securities Commission for misleading investors. https://www.sc.com.my/resources/media/media-release/court-ordered-rbtr-and-five-others-to-pay-over-rm13-million-in-restitution … he oso mislead a British lady to invest USD 500k for 8% return but the poor lady never get to see her money. They didn’t disclose this info to their sales agents and their clients.
Another one is involved in various court cases relating to settlement of debts and when can’t pay. He just allow winding up of companies. They also didn’t disclose this info to their sales agents and clients.
99.999% of clients and sales agents are not aware what is really happening behind their back.
In any PONZI scheme, the money inflow must be more than money outflow. if not, PONZI scheme will collapse …
Since their loss is getting bigger and bigger thus, u can see their sales & marketing must get more and more aggressive …
From the SSM Audited Financial Statement, we can see clearly that their loss is getting bigger and bigger … So when the scheme collapse, many clients hard earned money will be gone. Many sales agents hard earned reputation will be gone. Very pitiful ?
In May, we do Webinar, then can create more awareness ya.
Song as sneak preview 1st.
https://fb.watch/bySJD1HAqV/