An Overview to Trusts in Singapore

What is a Trust?

A trust in Singapore is a fiduciary arrangement that authorises a trustee to hold assets on behalf of a beneficiary (or beneficiaries). Typically, the beneficiary has an equitable interest in the trust assets, and the trustee holds the responsibility to manage the trust assets for the beneficiary’s benefits. This setup is often crucial when considering financial management decisions, where a trustee in a trust scenario is allowed to invest in real estate with the trust fund and is further required to pay the relevant taxes and duties.

The Singapore trust law is derived from the English trust law and principles. All trust matters in Singapore are governed by the Trustees Act (Cap 337), while the Monetary Authority of Singapore issues licenses to and regulates the trust companies according to the Trust Companies Act (Cap 336).

What are the main purposes of a Trust in Singapore?

An integral part of understanding what is a trust involves delving into the main reasons for creating a trust. Commonly, there are 9 purposes for creating a trust:

1. Financial management

If the beneficiaries who inherited the trust assets are young children, a reliable trustee may be appointed to properly preserve and manage the trust assets for the young children’s benefit.

2. Estate preservation and management

Most of the time, a trustee(s) in a trust in Singapore is appointed by a deceased under the will. Under the will, a trustee is authorized to transfer and divide the deceased’s estate to the beneficiary (or beneficiaries).

3. Retirement planning

Pension plans can be considered as trusts where an employer is the settlor, and the employees and the employee’s dependents are the beneficiaries of the pension plans.

4. Benefits of the Employee

Some companies hold trust assets for the benefit of its employees and the employees’ dependents.

5. Protection of asset

Trust assets within a trust in Singapore are not claimable by the creditors in the event where the settlor (i.e., the person who creates the trust) is bankrupt. This highlights the capability of creating a trust as a means of protecting assets.

6. Investment

A trust can be used for investment purposes, such as a unit trust and mutual fund.

7. Corporate usage

Trusts can be used to secure a party’s interest in the tangible or intangible assets, for example, real estate as tangible assets or stocks as intangible assets.

8. Charities

A trust is a common tool used by many charitable organizations to make sure the trust assets are being utilized in the proper manner.

9. Tax savings

A trust in Singapore may help a trustee to reduce his or her tax liability.

What are the main benefits of a Trust in Singapore?

The main benefits of a trust in Singapore center around two primary advantages: wealth control and preservation of assets.

For wealth control, a settlor can specify the terms and conditions of the trust. It allows deciding when and to whom the trust assets will be distributed. This aspect is especially crucial for a settlor who appoints a trustee under his/her will to manage and/or distribute their estate for the benefit of the beneficiary (or beneficiaries).

In terms of asset preservation, a trust provides better protection of one’s assets from creditors or lawsuits. As mentioned earlier, trust assets within a trust in Singapore are not claimable by the creditors if the settlor (i.e., person who creates the trust) is bankrupt.

What are the various types of Trust in Singapore?

When it comes to trust formation, there exist various types:

1. Testamentary Trust

A testamentary trust is created using a will, which becomes effective after the settlor has passed away. This catergory of trust in Singapore is advantageous when a settlor has young children, dependants with special needs, or beneficiaries who are unable to manage significant assets. Testamentary trusts are irrevocable.

2. Private Family Trust

This type of trust is beneficial when the settlor aims to safeguard his/her wealth for the family members’ benefit. It can be structured by a will, deed, or declaration and safeguards the trust assets from creditors during bankruptcy, exchange controls, hostile governmental authorities, and probate  proceedings.

3. Revocable trust

A type of trust that can be cancelled, terminated, or altered by the settlor. A settlor preferring to control his/her assets in a trust often chooses this format. However, it’s noteworthy that assets under this type of trust are subject to estate duty and are not protected from creditors if the settlor becomes bankrupt.

4. Irrevocable trust

Once the settlor placed their assets in the irrevocable trust, they cannot reclaim the assets back. The assets no longer belong to the settlor’s estate upon the settlor’s death. The assets under this type of trust are protected from the creditors provided that the irrevocable trust has been made for more than 5 years prior to bankruptcy.

5. Collective investment trust

This is solely for investment purposes. It includes unit trusts, business trusts and real estate investment trusts. However, this type of trust can be risky and costly as high fees and charges are often involved.

6. Charitable Trust

A charitable trust is not required to comply with the rules of creating a trust i.e. certainty of object and perpetuity. It has tax relief and exemptions. There are no beneficiaries to be specified under this type of trust.

7. Discretionary trust

A discretionary trust empowers the trustee with complete discretion to decide on the distribution of the assets i.e. to whom the assets are distributed to, the portion of the assets to be distributed, and when to distribute the assets. This type of trust protects the assets from creditors if the settlor becomes bankrupt.

8. Asset protection trust

This type of trust protects the settlor’s assets from their investment or business losses. The assets placed into the asset protection trust are not considered as part of the settlor’s estate. Thus, it protects the assets from creditors if the settlor becomes bankrupt. The assets placed in this type of trust will be distributed upon the settlor’s death.

Creating a Trust

Trusts can be created by a trust instrument, for instance, a contract, a will or a deed. There are several conditions in creating a trust:

Certainty of intention

The settlor has the intention to create a trust.

Certainty of subject matter

Trusts to be created shall concern the specific assets.

Certainty of object

A trust is normally created for the benefit of legal persons unless it is a purpose trust where there is no beneficiary.

Constitution

A trust is created once the trust assets are transferred to the trustee(s). Transfer of the trust assets is not required if there is a declaration of trust where the settlor declares himself as a trustee who manages the trust assets for the beneficiary.

Formalities

Compliance with the laws governing the creation of a trust.

Capacity

The settlor has the capacity, legally and mentally, to create a trust.

For more information or advice on creating a trust please feel free to contact us for a no-obligation discussion.