For many of us, the ultimate dream isn’t just owning a home, it’s ensuring our little ones have a roof over their heads when they fly the nest. It’s a common topic at dinner tables across the island: how do we give the next generation a head start?
One strategy that often comes up is the idea of buying property in trust for a child. It sounds like a brilliant plan on paper, doesn’t it? You purchase a home now, hold it for them, and when they come of age, they have a valuable asset ready and waiting.
However, it is rarely as simple as signing a cheque and handing over the keys. There are significant financial hurdles and legal nuances you must navigate to avoid being caught off guard.
What Does It Mean to Buy Property in Trust?
When we talk about buying a property in trust for a child, we are describing a legal arrangement in which you (the parent) purchase a property but don’t legally own it for your own benefit. Instead, you hold the legal title as a “trustee” for the benefit of your child, who is the “beneficiary”.
In the eyes of the law, the property belongs to the child effectively from day one. You are simply the custodian managing it until they are old enough, usually 21, to take full ownership. This separation of legal title (your name on the deed) and beneficial ownership (the child’s rights) is the cornerstone of trust law here.
Why Parents Choose This Route
Why go through the hassle? The motivations usually boil down to two main factors:
1. Future-Proofing Against ABSD
The most compelling reason parents look into buying property in trust for their child is to help their children avoid the Additional Buyer’s Stamp Duty (ABSD) in the future. If a child owns property through a trust and doesn’t own any other residential property, they are technically purchasing their “first” property.
Wait, wouldn’t they own this trust property? Yes, but the strategy is often about the parents not paying ABSD on a second or third home. By buying it in the child’s name (who presumably owns no properties), the purchase might be subject to 0% ABSD (subject to the upfront payment rules we will discuss below).
Furthermore, when the child eventually buys a home for their own stay later in life, the trust property might be sold or transferred beforehand, or they might simply accept that their “next” purchase is a second property.
2. Asset Protection
Life is unpredictable. If you hold assets in your own name, they could be vulnerable to creditors if your business faces headwinds, or become part of the matrimonial pool in the event of a Divorce. Assets held in a properly constituted trust for a child generally fall outside of your personal estate, offering a layer of protection.
The 65% ABSD Upfront: The Elephant in the Room
Here is where things get tricky. In the past, this was a straightforward tax planning method. However, recent regulatory changes have tightened the screws.
Currently, when you buy residential property to be held on trust, you must pay an ABSD (Trust) rate of 65% upfront.
Yes, you read that correctly. Even if your child is a citizen and owns no other property, you must pay this hefty 65% to the taxman immediately upon purchase. You can then apply to the Inland Revenue Authority of Singapore (IRAS) for a remission (refund) of this amount, provided that:
- The beneficiary is an identifiable individual (your child).
- The beneficial ownership has vested in them (meaning the property is genuinely theirs, not a revocable arrangement).
If these conditions are met, you can get the refund, but you must have the cash flow to stomach that initial 65% payment first.
The Strict “Cash Only” Rule
Another major hurdle is financing. You generally cannot use a bank loan or your CPF funds to buy property in trust for a child.
Banks are hesitant to lend against trust property because the beneficial owner (the minor) cannot sign a mortgage or be held liable for the debt. The Central Provident Fund (CPF) Board also does not allow the use of CPF savings for trust purchases, as CPF is intended for the member’s own retirement and housing needs, not for third parties.
This means you need to have the full purchase price, plus the Buyer’s Stamp Duty (BSD) and the 65% upfront ABSD, available in hard cash.
How to Create a Trust for Property Purchase
If you have the funds and are ready to proceed, the process involves more than just finding a property agent.
- Drafting the Trust Deed: You need a lawyer to draft a Trust Deed (or Deed of Settlement). This document sets out the rules: who the trustee is (usually you), who the beneficiary is (your child), and the terms of the trust.
- The Purchase: You enter into the Option to Purchase (OTP) in your name, “in trust for” your child.
- Stamping and Remission: You pay the stamp duties, and then your lawyers will assist in applying for the ABSD remission.
Risks and Considerations: It’s Not Just a Paper Exercise
Before you leap, remember that a trust is a serious legal commitment.
- Loss of Control: Once the asset is in the trust, it belongs to the child. You cannot simply sell it and take the money back for your own retirement if you change your mind. It is their money.
- The Age of Majority: When your child turns 21, they can usually demand that the legal title be transferred to them. You have to be prepared for them to own a valuable asset at a young age.
- Court Intervention: If you mishandle the property, the Court can intervene to protect the child’s interests.
Conclusion About Buying a Property in Trust for a Child
Buying a property in trust for a child is a powerful tool for legacy planning, but it is not a decision to be taken lightly. It requires substantial liquidity and a clear understanding of the legal landscape. If you are navigating the complexities of family assets, trusts, or even a difficult Divorce, you need guidance you can rely on.
At Tembusu Law, we pride ourselves on having some of the best family and Divorce lawyers in Singapore. We understand the delicate balance between financial sense and family welfare. Don’t leave your child’s future to guesswork.
Contact us today for a free discovery call and let us help you secure your family’s legacy.
Frequently Asked Questions About Buying a Property in Trust for a Child
Can I Use My CPF to Buy Property in Trust for My Child?
No, you cannot. The CPF Board does not permit the use of CPF Ordinary Account savings for purchasing a property that is being held in trust. The entire purchase, including the property price and all stamp duties, must be funded using cash.
Is the 65% ABSD Always Refundable?
It is refundable only if you meet specific conditions set by IRAS. The most important condition is that the trust must be for identifiable individual beneficiaries, and the beneficial ownership must be vested in them at the time of purchase. If the trust is discretionary or the beneficiary is not clearly identified, you may not get the refund.
What Happens When My Child Turns 21?
When the beneficiary reaches 21, they attain the legal age of majority. At this point, they can typically request that the legal title of the property be transferred from your name (as trustee) to their own name. They then become the complete legal and beneficial owner.
Can I Sell the Property Before My Child Turns 21?
Yes, as a trustee, you generally have the power to sell the property. However, the proceeds from the sale do not belong to you. The cash generated must be held in trust for the child’s benefit or reinvested on their behalf. You cannot use these funds for your personal expenses.
