Setting Up A Trust Fund In Singapore: 4 Things You Must Know

by 5 October 2022Knowledge & Insights

setting up a trust in singapore

A trust is a legal arrangement wherein a settlor entrusts their assets to an appointed trustee who will administer and manage these assets for the beneficiaries. Assets can fall under real estate, funds, stocks, bonds, etc.

The trustee may have legal ownership of the assets, but the beneficiary is equally entitled to them. In setting up a trust fund in Singapore, the beneficiary may not possess legal ownership, but they still have a stake in the assets, alongside other rights. All of these are governed under the Trustees Act.

A trust is flexible and serves many purposes. For example, a trustee may secure property on behalf of a minor until they turn 21. This is because Singapore law prohibits minors from owning property.

Other individuals may opt for a trust to protect property on behalf of an incapacitated individual (i.e. they are a special needs child or are physically incapacitated).

1. Understanding Legal And Equitable Interest

We previously mentioned that while the beneficiary does not have legal ownership of the assets, they hold an equitable interest in them.

This is different from having a legal interest in that a specific person owns the property in law. Legal interest also usually means that the certificate of ownership or property is registered in their name.

2. Trustees’ Duties And Powers

Trustees' Duties And Powers

The Singapore Trustees Act defines the trustees’ duties and responsibilities, alongside other frameworks for establishing a trust.

The trustee’s power to manage and disperse the trust fund as they wish emanates from the terms of the trust instrument.

For example, you may specify in the trust deed that the trustee is well within their legal boundaries to pour the trust fund into low-risk investments or other related policies.

The Trustees Act bestows certain powers on the trustee. However, these powers only apply if they do not contradict the terms of the trust instrument. These terms include the power to:

  • Invest
  • Maintain minors
  • Provide for special needs children/family members
  • Advance the beneficiaries’ benefit

The settlor, or creator of the trust, may also appoint a trust protector to ensure the trustee fulfils their duties accordingly.

The trustee must then exercise prudent care and skill in executing their powers and abide by the terms of the trust.

Aside from investing the trust property, below are other (non-exhaustive) duties of the trustee:

  • Diversify the assets only in authorised investments.
  • Must carefully consider each investment criteria
  • Seek legal advice when needed

3. How To Set Up A Trust

You may create a trust through a contract, will, or deed (all are considered trust instruments).

Setting up a trust is no walk in the park, so it is advisable to seek legal help when you find yourself stumped.

In general, the following elements must be present when creating a trust:

  • Certainty of intention – The settlor must express an unambiguous intention of creating the trust.
  • Certainty of the subject – The settlor must clearly understand and explicitly declare which trust assets to include.
  • Certainty of object – The settlor may set up the trust only in favour of legal persons. (Purpose trusts are an exception).
  • Constitution – The settlor creates a trust when trust property is transferred. Or, the settlor makes a declaration of trust, wherein the settlor is the trustee. (A transfer is unnecessary in this case).
  • Formalities – The settlor must set up the trust following the statutes and provisions that regulate the creation of a trust or will.
  • Capacity – Finally, the settlor must be of sound mind and mental capacity to set up the trust.

4. Reasons For Setting Up A Trust In Singapore

Reasons For Setting Up A Trust In Singapore

As discussed, a trust holds various functions and is helpful in situations with unique circumstances. Contrary to popular belief, creating a trust is not just a form of wealth management for those in the high-income bracket. Average income-earners may benefit from it as well.

Setting up a trust can be beneficial for a couple of reasons:

  • You want to provide for a special needs child or family member.
  • You want to provide for your loved ones.
  • You want to reduce your taxes
  • You want to continue donating to charitable organisations even after your passing.
  • You want to protect your assets from creditors.
  • You want to protect your assets in a divorce.
  • You want to invest your money.

You Want To Provide For A Special Needs Child Or Family Member

If you’re caring for a special needs child or loved one, you can choose to entrust your money with the Special Needs Trust Company (SNTC). They’re a non-profit organisation where you can entrust your assets to your beneficiaries.

Since it is also a registered charity, the SNTC is supervised by the Commissioner of Charities. They also operate through subsidies provided by the Ministry of Social and Family Development.

You Want To Provide For Your Loved Ones

If you don’t have a child, you may still want to set up a trust for your loved ones who aren’t too fiscally responsible. Large sums of money can be challenging to handle. But a trust allows you to provide money for your family members without overspending.

For instance, you may set up a trust to fund a relative’s education. You can set specific instructions to have the money spent solely for that purpose.

However, there may also be cases where the trust may end. For example, if the beneficiary (who is not a minor and has legal capacity) orders the trustee to hand over the trust, it ceases to be binding.

You Want To Reduce Your Taxes

There is no capital gains tax or wealth tax in Singapore. But if you’re an income-earner from the high-income tax bracket, you may set up a trust to reduce your tax liability.

You can reduce your taxes by declaring yourself a trustee for an income-producing asset. Then you should name a Singapore resident belonging to the lower tax bracket as the beneficiary. The income will be assessed and taxed based on the beneficiary’s income rate instead of yours.

However, you should know that any income from your business or trade will still be taxed according to the applicable rate. If you need more information regarding this matter, you may contact one of our family lawyers to help.

You Want To Continue Donating To Charitable Organisations Even After Your Passing

A charitable trust is designed to make donations to a designated charity rather than a person or a group. In principle, a charitable trust can last indefinitely. The trust can still make donations even after your death.

You need two things before setting up a charitable trust: a trust deed and a board of trustees (at least three people who will manage your trust).

You can also set up a society or a Guarantee Company. It’s a form of company which shareholders do not profit from. Instead, the profit is used for other purposes, such as charities, non-profit organisations, or social enterprises.

You Want To Protect Your Assets From Creditors

When you declare bankruptcy, your creditors will divide most of your assets amongst them to settle claims against you. If you want to protect assets from their reach, consider setting up an irrevocable trust in another person’s favour.

An irrevocable trust cannot be changed or altered. Its assets cannot also be claimed. This trust will not be part of the pool of assets you own. By this definition, your creditors cannot repossess the assets from the irrevocable trust if you file for bankruptcy.

There are some restrictions to this type of trust. There are cases wherein it may be rendered invalid by the Court:

  • The Court may determine the trust as an undervalued transaction. When this happens, the Court will deem the trust invalid, especially if it was set up less than five years before the bankruptcy filing.
  • The Court may void your trust if they determine you have set it up to defraud creditors.
  • The Court, for whatever reason, may declare the trust as fraudulent and thus cannot be legally enforceable.

Remember that if you set up irrevocable trusts, there are varying requirements for immovable trust property. Some examples are a parcel of land or a private residence.

Setting up an immovable trust in Singapore can be complicated without professional assistance. It’s best to seek legal advice from our law firm.

You Want To Protect Assets In A Divorce

Part of the divorce proceedings in Singapore involves the equitable distribution of matrimonial assets between the couple. Matrimonial assets can be anywhere from the family car, shares, savings, appliances, Central Provident Fund savings, etc.

Unless the couple has come up with a prenuptial agreement or discussed who gets what after a divorce, the Court will usually be the one to divide the matrimonial assets for them.

However, before dividing the assets, the couple must provide a complete list of all their assets, known as the Schedule of Assets.

But what if there are some assets you don’t want to be part of the matrimonial pool? Setting up a trust in Singapore is one workaround to this.

With an irrevocable trust, the Court will not likely count the trust assets as part of the matrimonial assets. However, note that the Court can find grounds to undo the trust.

For example, if the Court has reason to believe you have intentionally set up the trust to deprive your former spouse of the assets, they can invalidate the trust within three years of its creation.

Also, if you set up a trust naming yourself as one of the beneficiaries, the Court may include the trust assets in the matrimonial pool.

You Want To Invest Your Money

A trust may also be useful for investors. But in this structure, they will participate in an existing trust instead of setting up their own.

Let’s say you’re buying a share in a Real Estate Investment Trust (REIT). You automatically become one of the beneficiaries of that trust. The trust property comes from real estate, such as a shopping centre or retail store. The income from the property will be proportionately distributed among the beneficiaries with due regard, given the amount they invested.

Another alternative is a Business Trust, which covers other assets. BTs are business enterprises which are different from a company.

Conclusion About Setting Up A Trust Fund In Singapore

Creating a trust fund in Singapore can be complicated for the average individual. But, creating one has its fair share of practical reasons, not just for wealth protection.

Individuals may opt for a trust fund to assist financially-struggling family members. Or, they may create a trust to protect their assets from creditors. Whatever the reason, there are nuances in Singapore law that can complicate the process.

If you ever decide on setting up a trust, your best action to avoid disputes or legal issues is to consult with a lawyer. Tembusu Law is a modern-day law firm in Singapore that can assist you with legal concerns. Call us now for a free 30-minute consultation. We’ll be more than happy to help you with your case.

Frequently Asked Questions About Trusts In Singapore

Who Can Be A Beneficiary?

A beneficiary can be a third-party person or entity (company, charity, or another trust) who will benefit from the trust. They hold an equitable interest in the trust property, which a trustee manages.

What Is A Criminal Breach Of Trust?

A criminal breach of trust occurs when an appointed trustee deliberately misappropriates the trust fund for their benefit. A violation of trust may also happen when the trustee’s actions negatively impact the beneficiaries’ interests.

How Much Does It Cost To Create A Trust In Singapore?

If you’re setting up a trust, expect to spend anywhere between $4,000 to $10,000.

Do Trusts Have To Be Registered In Singapore?

No. Singapore law does not require formal registration of trusts.

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