Singapore is quickly becoming a top jurisdiction for creating and managing different kinds of trusts.

This tendency is being aided by the following factors:

1. Many of the top financial institutions in the world as well as accounting, legal, and tax advising organizations have their headquarters in Singapore;

1. Singapore’s polity offers extensive legal protections that provide a favourable tax system and robust framework for regulating trust agreements;

1. International investors are encouraged to view Singapore as a favourite location for a variety of investment vehicles by its market-friendly and stable economic policies; and

1. Booming regional wealth has led to a significant increase in demand for trust arrangements that can handle it effectively.

The overview of trusts in Singapore that follows places a particular focus on concerns linked to creating a private family trust.

Please be aware that this information is not intended to be a replacement for professional advice or a complete collection of all available data on the subject.

What is a Trust?

A trust is a formal agreement that divides property ownership between two parties, giving one party (the trustee) the legal title to the property while giving another (the beneficiary) the rightful (or equitable) ownership of the property.

The settlor, the original owner of the property, enters into this agreement to give the trustee power over managing and administering the property while guaranteeing the beneficiary would receive financial advantages from the property.

The same person may serve as both the beneficiary and the settlor. Trusts can be established for real estate, cash, investment portfolios, business shares, jewellery, art collections, and other valuable objects like patents and copyright.

At the conclusion of this article, the common motivating factors for creating trust arrangements are described.

Trust Law in Singapore

English common law and trust concepts provide as a solid foundation for Singaporean trust law. The idea of trusts has changed significantly since it was initially developed to address a societal issue with regard to property ownership during the Crusades.

Singapore has substantially improved the trust framework to satisfy global regulatory and compliance standards and adapt to contemporary circumstances. The Trust Companies Act, Business Trusts Act, Civil Law Act, and Trustees Act make up Singapore’s regulating trust legislation.

In order to facilitate and promote wealth management in Singapore, the Trustees Act was updated in 2004.

Here are a few of the main advantages that Singapore’s trust framework offers:

• There is no requirement for Singapore trusts to be formally registered.

• Strict laws governing confidentiality and banking secrecy

• Settlors are shielded from illegitimate heir claims.

• A Settlor is free to retain any or all of the powers of asset management or investment functions for himself, keeping himself actively involved in overseeing the trust’s investments.

• Settlors have the option of designating a protector to oversee the trustees’ conduct.

• No inheritance tax or estate duty

• No capital gains tax

• Income tax mitigation for foreign trusts

The most popular trust categories in Singapore can be broadly categorized as follows:

• Private family trusts: Mainly used by wealthy people to organize their finances, safeguard their assets, and plan the transfer of their riches to subsequent generations.

• Statutory trusts: Trusts created to ensure that laws are followed, such as a trust set up for beneficiaries of insurance policies.

• Charitable trusts

• Collective investment trusts: Unit trusts, business trusts, and real estate investment trusts are a few examples of this type of trust. Unit trusts are governed by the Securities and Futures Act (regulated by the revised Property Fund Guidelines).

Singapore trust legislation allows the creation of foreign trusts, which are eligible for tax benefits such as exemptions from tax on a variety of trust income and exemptions from tax on distributions to such trusts’ beneficiaries (under Section 13G of the Singapore Income Tax Act).

A general overview of creating a private family trust in Singapore is provided in the section that follows.

Private Family Trust

A private family trust is typically created to assist a high net worth individual in the preservation of assets and the smooth transfer of assets to subsequent generations.

Trusts ensure consistency in the management of assets, particularly if a business (rather than a personal person) is selected as the trustee. A trust that has been set up properly offers asset protection and can offer family members benefits that last for several generations.

Singapore Private Trust Formation

A trust may be established through a will, a deed, or a declaration, but it must generally be certain of its intention to do so, its subject matter (clearly definable trust property), and its purposes (clearly identifiable beneficiaries).

Trusts established through a will (testamentary trusts) must adhere to the requirements of the Wills Act and go into effect after the settlor’s passing, whereas trusts established through a declaration (inter vivos trusts), depending on the type of property placed in trust, must adhere to the relevant Civil Law Act.

Typically, the settlor must sign a written agreement (the trust instrument) and legally transfer the property to the trustee in order to establish a trust.

In Singapore, the settlor is free to include any sort of property they choose in the trust as long as it is present, verifiable, and capable of being owned by an individual.

Examples include shares, real estate, money, valuables, private family businesses, etc. Once ownership of the property has been passed from the settlor to the trustee, the trustee is responsible for managing it in the beneficiaries’ best interests and in accordance with the conditions of the trust agreement.

A trust may be fixed (where the settlor firmly defines the beneficiaries’ rights and the trustee has no discretion) or discretionary (where the trustee is granted the power to exercise discretion in making distributions to the beneficiaries).

When establishing a discretionary trust, the settlor typically also drafts a Letter of Wishes, which offers instructions to the trustee on how to use the discretionary authority. Generally speaking, a discretionary trust is preferable for long-term wealth and asset management.

This is because the settlor’s and beneficiaries’ circumstances may change over time, along with other unrelated variables, and a discretionary trust would give the trustee the flexibility to satisfy the settlor’s desires in the future.

These can involve adjustments to the trust’s organizational structure, the size of distributions, or the investment approach. The Letter of Wishes, which offers basic recommendations for the management of the trust but is not a legally enforceable document, is required to be followed by the trustees in order to ensure that they are performing their fiduciary duties.

The Letter of Wishes can typically be changed while the settlor is still alive, but if the settlor passes away, it will be recognized as his last wishes.

Termination and Duration

Trusts established in Singapore on or after December 15, 2004, may last up to 100 years.

The duration of a trust is otherwise defined, subject to the new statutory prohibition on perpetuities:

• In accordance with the terms of the trust deed

• When the beneficiaries have received all of the trust’s assets

• When the termination has the unanimous approval of all beneficiaries

Members of a Trust

The settlor may be any person or corporate body (who is at least 18 years old, of sound mind, and owns the proposed trust property).

The recipient may be any individual or organization (i.e. a company, a charitable body or another trust). These are often the settlor’s family members in the case of a family trust.

The settlor may designate one or more trustees to oversee and manage the trust property, and the trustee may be either a business (such as an investment bank) or a person (such as a reliable individual). Utilizing a Private Trust Company (PTC) as the trustee is a third choice that is growing in popularity, especially among high-net-worth families (further elaborated below).

To retain some influence over the trustees, the settlor may additionally appoint a “protector” for the trust. Usually, this is a dependable acquaintance or a qualified advisor. A wide range of authority may be granted to the protector, including the ability to select and replace trustees, determine their remuneration, and add discretionary beneficiaries.

Private Trust Companies

As was already indicated, using PTCs as trustees for family trusts is becoming more and more attractive to high net worth families. As a result, the settlor has more discretion, control, and privacy over the trust.

The PTC is essentially a business that was established with the sole objective of holding and overseeing the settlor’s one or more trusts. Family members or close advisors of the settlor may make up the PTC’s board of directors (who can appoint a professional trust company to administer the PTC).

A purpose trust, a business limited by guarantee, directors who are not family members, or in some cases, family members, may own the PTC.

When determining whether a PTC is appropriate for a trust structure, the following factors should be taken into account:

• Settlors who want a say in how their assets are managed might choose to reserve certain authority, including the ability to choose how the trust’s assets are invested. This is especially true when a family firm is being put into a trust since it may be necessary to have intimate, in-depth knowledge of the history and business tactics. In these situations, it may be advantageous to set up a PTC, which may provide the family control without jeopardizing the trust’s legality.

• The PTC’s cost and compliance requirements are not trivial, so the trust property’s worth or significance must be sufficient to justify the PTC’s establishment, management, and administrative costs.

• Families with a diverse array of businesses and assets may struggle to manage their assets effectively. In such circumstances, a PTC will enable efficient management of the assets and offer access to competent managers and subject-matter experts in the pertinent asset classes for effective management and administrative assistance.

PTCs are exempt from the Trust Companies Act’s licensing requirements according to Section 15(d). This exemption is justified by the PTC’s exclusive provision of trust services to the family trust and absence of public business solicitation.

A private limited company is created by incorporation to create a PTC. By appointing himself or his family members to the PTC’s Board of Directors, a PTC’s settlor can maintain control over the assets and his investments. Professionals from the family, such as the family’s attorneys and accountants, may also be included on the Board.

A PTC is required to appoint a licensed trust company to carry out due diligence as required by law in addition to the statutory requirements imposed on Singapore companies.

These controls are put in place to make sure that the Monetary Authority of Singapore’s guidelines on the prevention of money laundering or the financing of terrorism are being followed. These instructions call for the PTC to confirm the origin of cash and conduct ongoing reviews of the money coming into and going out of the PTC.

Why Establish a Trust?

A Singapore trust may be created by high net worth individuals for one or more of the following reasons:

Wealth Protection – Private trusts have the key benefit of wealth protection. The settlor renounces his rights because the trustee is the actual owner of the assets. Most of the time, this guarantees protection from risks like a marriage asset dispute in the event of a divorce as well as protection against creditors, insolvency, exchange controls, hostile governmental authorities, and other dangers like creditor harassment.

Confidentiality – Trusts may be privately and secretly established outside of Singapore, protecting the identity of the settlor. The assets of the trust would also not be subject to any probate proceedings after the death of the settlor.

Succession Planning – Establishing trusts allows for the management of succession planning while allaying worries about compulsory inheritance laws, such as those imposed by Shariah Law.

The settlor of a trust is given the authority to choose the beneficiaries of their assets with authority. Additionally, by establishing trusts during the settlor’s lifetime, long probate procedures can be avoided in the event of death. The assets of the trust are safeguarded in the event of beneficiary bankruptcy, and the beneficiaries are still guaranteed their income under the terms of the trust.

Savings on Tax – Many wealthy people opt to set up trusts in low-tax nations because of the potential tax advantages. Singapore does not apply any withholding tax, capital gains tax, or estate duty on the pay-outs to beneficiaries.

Qualifying domestic or foreign trusts may also be eligible for a number of income tax exemptions, such as an exemption from paying income taxes on a foreign trust’s distributions to beneficiaries and on certain categories of trust income.

Singapore continues to be the destination of choice for affluent people looking to set up trusts for their families. The wealth management and trust sector in the nation will experience tremendous expansion in the next years due to the nation’s position as a forward-thinking worldwide financial center and its business-friendly climate.